SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Agri-Nutrition Group Limited
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
(2) Aggregate number of securities to which transaction applies:
$12,500,370
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$1.125 (average of the high and low prices on December 2, 1998)
(4) Proposed maximum aggregate value of transaction:
$14,062,916
(5) Total fee paid:
$2,812.58
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[Agri-Nutrition Group Letterhead]
January , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
to be held at a.m., local time, on January , 1999 at Missouri. At the meeting
you will be asked to consider and vote upon a proposed transaction whereby
Virbac, Inc. ("Virbac"), the U.S. subsidiary of Virbac S.A. ("VBSA"), a French
veterinary pharmaceutical manufacturer, will merge with and into the Company and
VBSA will become the Company's controlling stockholder.
The proposed transaction has several important features in addition to
the merger itself. First, immediately prior to the merger Virbac will receive a
cash infusion from VBSA of $6.7 million plus an amount sufficient to eliminate
its approximately $9.0 million of debt. Second, within 60 days following the
merger the Company will conduct a public tender offer utilizing $3.0 million of
the cash infusion to purchase 1,000,000 shares, or approximately 10%, of the
Company's currently outstanding Common Stock at $3.00 per share. And third, if
the closing price of the Common Stock has not reached $3.00 for 40 consecutive
trading days within two years after the merger, the Company will conduct a
second tender offer, funded by VBSA, for an additional 1,395,000 shares, or
approximately 15% of the shares currently outstanding, also at $3.00 per share.
These and other aspects of the proposal are discussed in the accompanying Notice
of Special Meeting of Stockholders and Proxy Statement, which you are urged to
review carefully.
The Board of Directors has unanimously approved the proposal, believes
the proposal is fair to and in the best interests of stockholders and recommends
that stockholders vote FOR the proposal.
Also enclosed is a form of proxy solicited by the Board of Directors in
connection with the Special Meeting. Whether or not you plan to attend the
Special Meeting, it is very important that you complete, sign, date and return
the proxy card as soon as possible. Please use the enclosed postage prepaid
envelope to return the completed and executed proxy card. If you attend the
Special Meeting, you may revoke the proxy at that time by requesting the right
to vote in person.
Sincerely,
Bruce G. Baker
President and Chief
Executive Officer
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AGRI-NUTRITION GROUP LIMITED
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
January , 1999
To The Stockholders of Agri-Nutrition Group Limited:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Agri-Nutrition Group Limited ("AGNU") will be held on
January , 1999 at a.m., local time, at the Missouri, for the following purposes:
1. to consider and vote upon a proposal (the "Proposal") to approve (a) the
Agreement and Plan of Merger, dated as of October 16, 1998, as amended (the
"Merger Agreement"), among AGNU, Virbac S.A., a French corporation
("VBSA"), Interlab S.A.S., a French corporation and wholly owned subsidiary
of VBSA ("VBSA Sub"), and Virbac, Inc., a Delaware corporation and
subsidiary of VBSA Sub ("Virbac"), pursuant to which (i) Virbac will
receive a cash infusion from VBSA through VBSA Sub, (ii) AGNU will issue
approximately 12,500,000 shares of its Common Stock (the "Merger Shares")
to VBSA Sub and Virbac will be merged (the "Merger") with and into AGNU,
with AGNU being the surviving entity and VBSA Sub its controlling
stockholder, (iii) the Board of Directors of AGNU will be reconstituted to
include a majority of Directors designated by VBSA, (iv) AGNU's fiscal
year-end will change from October 31 to December 31, (v) AGNU will, within
60 days of the effective date of the Merger, commence a tender offer to
purchase 1,000,000 shares of AGNU's outstanding Common Stock (excluding the
Merger Shares) at a price of $3.00 per share, and (vi) AGNU will, on the
second anniversary of the effective date of the Merger and under certain
circumstances, commence a second tender offer to purchase 1,395,000 shares
of AGNU's outstanding Common Stock (excluding the Merger Shares and certain
other shares) at a price of $3.00 per share; and (b) an amendment of AGNU's
Certificate of Incorporation to, among other things, change AGNU's name to
Virbac Corporation and increase its authorized Common Stock from 20,000,000
to 38,000,000 shares.
2. to transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The proposed Merger, the Merger Agreement and the proposed amendments
to the Certificate of Incorporation are more fully described in the accompanying
Proxy Statement. Copies of the Merger Agreement and the proposed Amended and
Restated Certificate of Incorporation are attached as Appendix A and Appendix B,
respectively, to the Proxy Statement. We urge you to read this material
carefully.
The Board of Directors has unanimously approved the Proposal, believes
the Proposal is fair to and in the best interests of the AGNU stockholders and
recommends that the AGNU stockholders vote FOR the Proposal.
Only stockholders of record at the close of business on December 31,
1998 will be entitled to notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. A complete list of stockholders entitled to
vote at the Special Meeting will be available for inspection at the offices of
Agri-Nutrition Group Limited, Riverport Executive Center II, 13801 Riverport
Drive, Suite 111,
<PAGE>
Maryland Heights, Missouri 63043, during the 10 days prior to the Special
Meeting and will also be available for inspection at the Special Meeting.
By Order of the Board of Directors,
Robert J. Elfanbaum
Secretary
Maryland Heights, Missouri
January , 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE YOUR PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU LATER DECIDE TO ATTEND THE
SPECIAL MEETING AND WISH TO VOTE IN PERSON, OR IF YOU WISH TO REVOKE YOUR PROXY
FOR ANY REASON PRIOR TO THE VOTE AT THE SPECIAL MEETING, YOU MAY DO SO AND YOUR
PROXY WILL HAVE NO FURTHER EFFECT.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
13801 Riverport Drive, Suite 111
Maryland Heights, Missouri 63043
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of
Agri-Nutrition Group Limited ("AGNU" or the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Special Meeting of Stockholders to be held January , 1999 and at any adjournment
or postponement thereof (the "Special Meeting"). This Proxy Statement is first
being mailed to stockholders on or about January , 1999.
The Company has entered into an Agreement and Plan of Merger dated as
of October 16, 1998, as amended (the "Merger Agreement"), with Virbac S.A., a
French corporation ("VBSA"), Interlab S.A.S., a French corporation and wholly
owned subsidiary of VBSA ("VBSA Sub"), and Virbac, Inc., a Delaware corporation
and subsidiary of VBSA Sub ("Virbac"), pursuant to which (i) Virbac will receive
a cash infusion from VBSA through VBSA Sub, (ii) AGNU will issue approximately
12,500,000 shares of its Common Stock (the "Merger Shares") to VBSA Sub and
Virbac will be merged (the "Merger") with and into AGNU, with AGNU being the
surviving entity and VBSA its controlling stockholder, (iii) the Board of
Directors of AGNU will be reconstituted to include a majority of Directors
designated by VBSA, (iv) AGNU's fiscal year-end will change from October 31 to
December 31, (v) AGNU will, within 60 days of the effective date of the Merger,
commence a tender offer to purchase 1,000,000 shares of AGNU's outstanding
Common Stock (excluding the Merger Shares) at a price of $3.00 per share (the
"Mandatory Tender Offer"), and (vi) AGNU will, on the second anniversary of the
effective date of the Merger and under certain circumstances, commence a second
tender offer to purchase 1,395,000 shares of AGNU's outstanding Common Stock
(excluding the Merger Shares and certain other shares) at a price of $3.00 per
share (the "Contingent Tender Offer" and, together with the Mandatory Tender
Offer, the "Tender Offers").
At the Special Meeting, the Company's stockholders will be asked to
consider and vote upon a proposal (the "Proposal") to approve (a) the Merger
Agreement and (b) proposed amendments to the Company's Certificate of
Incorporation to, among other things, change the Company's name to Virbac
Corporation and increase its authorized shares of Common Stock from 20,000,000
to 38,000,000 shares (the "Certificate Amendment"). The number of currently
authorized and unissued shares of the Company's Common Stock is insufficient to
satisfy the requirements of the Merger Agreement, and the Certificate Amendment
would not have been proposed in the absence of the Merger Agreement.
Accordingly, the Merger Agreement and the Certificate Amendment are presented to
stockholders as a single proposal. Copies of the Merger Agreement and the
proposed Amended and Restated Certificate of Incorporation are attached hereto
as Appendix A and Appendix B, respectively.
Under the Delaware General Corporation Law (the "Delaware Law"), the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the Proposal. The holders of
approximately 2,955,000, or approximately 32%, of the outstanding shares,
including the Company's Directors and executive officers, who hold approximately
1,715,000 of such shares, have agreed with VBSA to vote their shares in favor of
the Proposal.
<PAGE>
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE BASED UPON THE BELIEFS AND ASSUMPTIONS OF, AND ON INFORMATION
AVAILABLE TO, THE MANAGEMENT OF THE COMPANY MAKING SUCH STATEMENT. THE FOLLOWING
ARE OR MAY CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: (I) STATEMENTS REGARDING
SYNERGIES AND COST SAVINGS TO BE REALIZED AS A RESULT OF THE MERGER, ACCRETION
TO AGNU'S EARNINGS TO BE REALIZED AS A RESULT OF THE MERGER, FUTURE DEVELOPMENT
OF THE BUSINESSES OF AGNU AND VIRBAC OR OTHER EFFECTS OF THE MERGER; (II)
STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS "MAY," "WILL,"
"COULD," "SHOULD," "BELIEVE," "EXPECT," "FUTURE," "POTENTIAL," "ANTICIPATE,"
"INTEND," "PLAN," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF; (III) INFORMATION REGARDING YEAR 2000 COMPLIANCE; AND (IV) OTHER
STATEMENTS REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING (I) RISKS
AND UNCERTAINTIES RELATING TO THE POSSIBLE INVALIDITY OF THE UNDERLYING BELIEFS
AND ASSUMPTIONS, (II) POSSIBLE CHANGES OR DEVELOPMENTS IN SOCIAL, ECONOMIC,
BUSINESS, INDUSTRY, MARKET, LEGAL AND REGULATORY CIRCUMSTANCES AND CONDITIONS,
AND (III) ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD PARTIES, INCLUDING
CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS, COMPETITORS AND LEGISLATIVE,
REGULATORY, JUDICIAL AND OTHER GOVERNMENTAL AUTHORITIES AND OFFICIALS.
<PAGE>
TABLE OF CONTENTS
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Page
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SUMMARY .........................................................................................................1
The Parties..............................................................................................1
The Special Meeting......................................................................................1
The Merger...............................................................................................2
The Certificate Amendment................................................................................4
Summary Historical and Unaudited Pro Forma Combined Financial Data.......................................6
THE SPECIAL MEETING..............................................................................................10
Date, Time and Place....................................................................................10
Matter to be Considered.................................................................................10
Stockholders Entitled to Vote, Quorum...................................................................10
Votes Required..........................................................................................10
Voting of Proxies.......................................................................................10
Revocability of Proxies.................................................................................11
Expenses of Solicitation of Proxies.....................................................................11
Appraisal Rights........................................................................................11
THE PROPOSAL.....................................................................................................12
The Merger..............................................................................................12
Effect of the Merger...........................................................................12
Background of the Merger.......................................................................12
Reasons for the Merger.........................................................................15
Opinion of Duff & Phelps.......................................................................16
Resale of Common Stock Issued in the Merger; Affiliates;
Registration Rights............................................................................19
Federal Income Tax Considerations..............................................................19
Anticipated Accounting Treatment...............................................................19
Certain Regulatory Matters.....................................................................19
Management After the Merger....................................................................20
Interests of Certain Persons in the Merger.....................................................20
The Merger Agreement....................................................................................21
Structure of the Merger........................................................................21
Merger Consideration...........................................................................21
Adjustment of the Merger Shares................................................................21
Effective Time.................................................................................21
The Cash Infusion..............................................................................22
The Tender Offers..............................................................................22
Conditions to the Consummation of the Merger; Waivers..........................................22
Termination....................................................................................23
No Solicitation; Certain Negotiations..........................................................24
Amendment or Waiver ...........................................................................24
Expenses and Fees..............................................................................24
Conduct of Business Pending the Merger.........................................................24
Representations and Warranties.................................................................26
</TABLE>
i
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The Certificate Amendment...............................................................................26
Recommendation of the Board of Directors................................................................27
UNAUDITED PRO FORMA FINANCIAL INFORMATION........................................................................28
SELECTED FINANCIAL DATA OF AGNU..................................................................................35
AGNU MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................37
Overview ...............................................................................................37
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1998.............................38
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31, 1997.......................39
Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended October 31, 1996.......................40
Liquidity and Capital Resources.........................................................................42
Quarterly Effects and Seasonality.......................................................................44
New Accounting Standards................................................................................44
Year 2000 Compliance....................................................................................45
SELECTED FINANCIAL DATA OF VIRBAC................................................................................47
VIRBAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................................48
Overview ...............................................................................................48
Nine Months Ended September 30, 1997 Compared with Nine Months Ended
September 30, 1998....................................................................................49
Year Ended December 31, 1996 Compared with Year Ended December 31, 1997.................................50
Year Ended December 31, 1995 Compared with Year Ended December 31, 1996.................................50
Liquidity and Capital Resources.........................................................................51
Seasonality.............................................................................................52
New Accounting Standards................................................................................52
Year 2000 Compliance....................................................................................52
INFORMATION REGARDING AGNU.......................................................................................54
Business Overview.......................................................................................54
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...................................................................................58
INFORMATION REGARDING VIRBAC.....................................................................................59
Business Overview.......................................................................................59
Products and Product Development........................................................................59
History of Virbac.......................................................................................60
Research and Development................................................................................60
Patents and Trademarks..................................................................................61
Manufacturing...........................................................................................61
Sales and Marketing.....................................................................................62
Customers...............................................................................................62
Competition.............................................................................................62
</TABLE>
ii
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Regulatory and Environmental Matters....................................................................63
Employees...............................................................................................64
Legal Proceedings.......................................................................................64
MANAGEMENT AFTER THE MERGER......................................................................................65
Directors and Executive Officers........................................................................65
Employment Agreements...................................................................................66
MARKET PRICES OF AGNU COMMON STOCK...............................................................................67
LEGAL MATTERS....................................................................................................67
INDEPENDENT ACCOUNTANTS..........................................................................................67
INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................67
STOCKHOLDER PROPOSALS............................................................................................68
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDIX A -- Agreement and Plan of Merger, dated as of
October 16, 1998, among Agri-Nutrition Group Limited,
Virbac S.A., Virbac, Inc.
and Interlab S.A.S., as amended..................................................................A-1
APPENDIX B -- Amended and Restated Certificate of Incorporation of
Virbac Corporation...............................................................................B-1
APPENDIX C -- Opinion of Duff & Phelps, LLC ..................................................................C-1
</TABLE>
iii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere in
this Proxy Statement. Certain capitalized terms used in this Summary are defined
elsewhere herein. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this Proxy Statement and
the Appendices hereto, which stockholders are urged to read in their entirety.
The Parties
AGNU................................. AGNU manufactures and distributes a wide
variety of health, grooming and
nutritional products for the pet and
animal health industries and selective
products for the chemical specialities
industry. AGNU is a Delaware corporation
with principal executive offices located
at Riverport Executive Center II, 13801
Riverport Drive, Suite 111, Maryland
Heights, Missouri 63043, Telephone:
(314) 298-7330.
Virbac............................... Virbac manufactures and distributes a wide
variety of animal health products
focusing on dermatological, parasiticide
and dental products. Virbac is a
Delaware corporation and is the indirect
U.S. subsidiary of VBSA, a French
veterinary pharmaceutical manufacturer
with operations throughout the world.
Virbac's principal executive offices are
located at 3200 Meacham Boulevard, Fort
Worth, Texas 76137, Telephone: (817)
831-8327.
The Special Meeting
Time, Date and
Place.............................. The Special Meeting of AGNU's stockholders
will be held on January , 1999 at a.m.
local time at the , Missouri.
Record Date; Shares
Entitled to Vote................... Only holders of record of shares of AGNU
Common Stock at the close of business on
December 31, 1998 (the "Record Date")
are entitled to notice of and to vote at
the Special Meeting. On the Record Date,
there were shares of AGNU Common Stock
outstanding, each of which will be
entitled to one vote on each matter
acted upon at the Special Meeting.
Purpose of the Special Meeting....... The purpose of the Special Meeting is to
consider and vote upon the Proposal to
approve the Merger Agreement and the
Certificate Amendment.
<PAGE>
Votes Required....................... The affirmative vote of the holders of a
majority of the outstanding shares of
AGNU's Common Stock is required to
approve the Proposal. Persons, including
Directors and executive officers of the
Company, owning approximately 2,955,000
shares, or approximately 32%, of the
outstanding shares have agreed to vote
such shares in favor of the Proposal.
Appraisal Rights..................... AGNU Stockholders are not entitled to
appraisal rights in connection with the
Merger.
The Merger
Effect of the Merger................. As a result of the Merger, i) Virbac will
receive a cash infusion from VBSA
through VBSA Sub, (ii) AGNU will issue
approximately 12,500,000 shares of its
Common Stock to VBSA Sub and Virbac will
be merged with and into AGNU, with AGNU
being the surviving entity and VBSA its
controlling stockholder, (iii) the Board
of Directors of AGNU will be
reconstituted to include a majority of
Directors designated by VBSA, (iv)
AGNU's fiscal year-end will change from
October 31 to December 31, (v) AGNU
will, within 60 days of the effective
date of the Merger, commence the
Mandatory Tender Offer, and (vi) AGNU
will, on the second anniversary of the
effective date of the Merger and under
certain circumstances, commence the
Contingent Tender Offer.
Effective Time of the Merger......... The Merger will become effective upon the
acceptance for filing of a Certificate
of Merger between AGNU and Virbac with
the Delaware Secretary of State (the
"Effective Time"), which is expected to
occur as soon as practicable after the
Special Meeting and satisfaction of
certain other conditions set forth in
the Merger Agreement.
Reasons for the Merger............... The Merger is expected to result in a
combined company with enhanced operating
and administrative efficiencies,
increased financial strength, a broader
product line, and increased marketing
and production capabilities, all of
which should enable the combined company
to reduce costs and compete more
effectively in the pet and animal health
markets than either company
individually.
The Cash Infusion.................... Prior to consummation of the Merger, VBSA,
through VBSA Sub, will contribute to
Virbac cash (the "Cash Infusion") in an
amount equal to the sum of (i) $6.7
million, (ii) such amount as may be
required to assure that Virbac's
outstanding debt does not exceed its
cash, each as
2
<PAGE>
at December 31, 1998, and (iii) certain
expenses incurred by Virbac in
connection with the Merger.
The Tender Offers.................... Within 60 days after consummation of the
Merger, AGNU, utilizing $3.0 million of
the Cash Infusion, will conduct the
Mandatory Tender Offer by publicly
offering to repurchase up to 1,000,000
shares of AGNU's outstanding Common
Stock (excluding the Merger Shares) at a
price of $3.00 per share. In addition,
if, during the period ending on the
second anniversary of the Merger, the
closing sale price of AGNU's Common
Stock has not reached $3.00 per share
for 40 consecutive trading days, AGNU
will conduct the Contingent Tender Offer
by publicly offering to repurchase up to
1,395,000 of AGNU's outstanding Common
Stock (excluding the Merger Shares and
certain other shares) at $3.00 per
share. The Contingent Tender Offer will
be funded through VBSA's purchase of
1,395,000 newly issued shares at $3.00
per share.
Change of Control.................... Upon consummation of the Merger, AGNU's
Board of Directors will be reconstituted
to include a majority of Directors
designated by VBSA. Following completion
of the Mandatory Tender Offer, VBSA will
control approximately 60% of AGNU's
outstanding Common Stock.
Recommendation
of the Board of Directors.......... The Company's Board of Directors has
unanimously approved the Proposal,
believes that the Proposal is fair to
and in the best interests of
stockholders, and recommends that the
stockholders vote FOR approval of the
Proposal. The Board's recommendation is
based upon a number of factors discussed
herein. See "The Proposal--The
Merger--Reasons for the Merger,"
"--Opinion of Duff & Phelps,"
"--Interests of Certain Persons in the
Merger" and "The
Proposal--Recommendation of the Board of
Directors."
Opinion of Financial Adviser......... Duff & Phelps, LLC ("Duff & Phelps") has
delivered its written opinion dated
December 7, 1998 to the Board of
Directors to the effect that, as of such
date, the Merger is fair to the Company
and its stockholders from a financial
point of view. See "The Proposal--The
Merger--Opinion of Duff & Phelps." A
copy of Duff & Phelps's opinion, which
sets forth the assumptions made,
procedures followed, matters considered
and limitations on the scope of review
in rendering the opinion, is attached as
Appendix C to this Proxy Statement.
3
<PAGE>
Certain Federal Income Tax
Considerations..................... The Merger is expected to constitute a
"reorganization" within the meaning of
Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
No gain or loss will be recognized by
AGNU or Virbac or by the AGNU
stockholders as a result of the Merger.
Conditions to the Merger............. The respective obligations of AGNU and
Virbac to consummate the Merger are
subject to certain conditions, including
approval of the Merger by AGNU's
stockholders, expiration of the waiting
period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the
"HSR Act"), and certain other conditions
customary in transactions of this
nature. See "The Proposal--The
Merger--Certain Regulatory Matters,"
"The Proposal--The Merger
Agreement--Conditions; Waivers."
Accounting Treatment................. The Merger will be accounted for as the
reverse purchase of AGNU by Virbac under
the purchase method of accounting in
accordance with generally accepted
accounting principles ("GAAP").
Termination.......................... The Merger Agreement may be terminated at
any time prior to the Effective Time by
mutual consent of the parties, or by
either AGNU or Virbac if the Merger
Agreement is not approved by the AGNU
stockholders or the Merger is not
consummated by February 28, 1999. In
addition, Virbac may terminate the
Merger Agreement if the Board of
Directors of AGNU, in the exercise of
its fiduciary duties under Delaware law,
recommends or announces an intention to
approve or recommend an acquisition
proposal from a third party. Under
certain circumstances, AGNU may be
required to pay to Virbac a fee in the
amount of $800,000 (the "Termination
Fee") upon the termination of the Merger
Agreement. See "The Proposal--The Merger
Agreement--Termination."
The Certificate Amendment
Effect of the Certificate Amendment.. If the Merger is consummated, AGNU's
Certificate of Incorporation will be
amended and restated to, among other
things, change AGNU's name to Virbac
Corporation and increase its authorized
Common Stock from 20,000,000 to
38,000,000 shares.
4
<PAGE>
Market Prices of AGNU
Common Stock....................... AGNU Common Stock is listed on The Nasdaq
National Market under the trading symbol
"AGNU." The following table sets forth
the quarterly high and low last reported
sale prices of the stock for the
quarters indicated.
High Low
Fiscal year ended
October 31, 1997
First Quarter.................. $ 1.63 $ 1.13
Second Quarter................. 1.75 1.13
Third Quarter.................. 1.38 1.06
Fourth Quarter................. 1.69 1.13
Fiscal year ended
October 31, 1998
First Quarter.................. $ 1.50 $ 1.06
Second Quarter................. 1.44 1.13
Third Quarter.................. 1.31 1.00
Fourth Quarter................. 1.50 0.81
Fiscal year ending
October 31, 1999
First Quarter (through
December , 1998)........... $ $
On October 16, 1998, the last trading day
preceding the public announcement of the
execution of the Merger Agreement, the
last reported sale price of AGNU Common
Stock was $1.1875. On December , 1998,
the last trading day for which
quotations were available at the time of
printing this Proxy Statement, the last
reported sale price was $ . AGNU
stockholders are urged to obtain current
quotations for the market price of AGNU
Common Stock. No assurance can be given
as to the market price of AGNU Common
Stock at the Effective Time.
5
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Summary Historical and Unaudited Pro Forma Combined Financial Data
Set forth below are summary historical and unaudited pro forma combined
financial data and unaudited comparative per share data of AGNU and Virbac. The
summary historical financial data and unaudited historical comparative per share
data are based upon the respective historical financial statements of AGNU and
Virbac, including the notes thereto, included elsewhere in this Proxy Statement,
and should be read in conjunction therewith. The summary unaudited pro forma
combined financial data and the unaudited pro forma comparative per share data
are presented for illustrative purposes only and are not necessarily indicative
of the financial position or results of operations that would have been reported
had the Merger been in effect during the periods presented or that may be
reported in the future. The summary unaudited pro forma combined financial data
should be read in conjunction with the unaudited pro forma combined financial
data, including the notes thereto, appearing elsewhere in this Proxy Statement.
Agri-Nutrition Group Limited
Summary Financial Data
<TABLE>
<CAPTION>
Nine Months
Year Ended October 31, Ended July 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ----------- ----------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................... $20,062,942 $28,661,307 $ 31,051,537 $23,423,827 $24,291,416
Operating income (loss) from
continuing operations................ (484,315) 47,399 978,481 684,114 (67,071)
Income (loss) from continuing
operations........................... (108,333) (241,320) 118,671 34,158 (393,707)
Income from discontinued
operations........................... 139,766 113,900 14,659 14,659 --
Net income (loss)....................... 31,433 (127,420) 133,330 48,817 (393,707)
Basic earnings (loss) per share:
Continuing operations................ (0.01) (0.03) 0.01 0.01 (0.04)
Discontinued operations.............. 0.02 0.01 -- -- --
Net income .......................... 0.01 (0.02) 0.01 0.01 (0.04)
Diluted earnings (loss) per share:
Continuing operations................ (0.01) (0.03) 0.01 0.01 (0.04)
Discontinued operations.............. 0.02 0.01 -- -- --
Net income .......................... 0.01 (0.02) 0.01 0.01 (0.04)
Weighted average number of shares outstanding:
Basic................................ 8,112,851 8,397,686 8,483,897 8,395,023 9,284,926
Diluted.............................. 8,112,851 8,397,686 8,699,914 8,602,015 9,284,926
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
October 31, July 31,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash....................................................................... $ 145,505 $ 64,844
Working capital............................................................ 7,772,318 10,158,523
Total assets............................................................... 26,596,150 28,213,871
Current portion of long-term debt.......................................... 201,636 528,950
Long-term debt............................................................. 7,236,204 9,516,607
Stockholders' equity....................................................... 15,553,360 15,149,581
</TABLE>
7
<PAGE>
Virbac, Inc.
Summary Financial Data
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ----------- ----------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................ $ 18,659,499 $17,493,683 $16,235,284 $ 14,317,417 $12,868,678
Income (loss) from operations........... (986,857) (889,354) (730,820) 219,580 (463,301)
Net loss................................ (1,095,590) (1,387,248) (1,225,207) (186,572) (879,411)
Net loss per common
and common equivalent share.......... (.20) (.17) (.15) (.02) (.10)
Weighted average number of
common and common equivalent
shares outstanding................... 5,596,347 8,386,445 8,399,810 8,399,810 8,399,810
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- ---------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash..................................................................... $ 84,047 $ 230,716
Working capital.......................................................... 2,426,916 1,239,589
Total assets............................................................. 13,391,178 14,911,209
Current portion of long-term debt........................................ 400,000 1,400,000
Long-term debt (less current maturities)................................. 6,650,000 6,250,000
Stockholders' equity..................................................... 3,712,086 2,832,675
</TABLE>
8
<PAGE>
Agri-Nutrition Group Limited and Virbac, Inc.
Summary Unaudited Pro Forma Combined Financial Data
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December 31, September 30,
1997 1998
-------------- -------------
<S> <C> <C>
Statement of Operations Data:
Net sales.............................................................. $ 52,201,821 $ 37,160,094
Operating income (loss)................................................ 473,927 (488,922)
Loss from continuing operations........................................ (104,942) (820,569)
Loss from continuing operations per share:
Basic................................................................ (.01) (.04)
Diluted.............................................................. (.01) (.04)
Weighted average shares outstanding
Basic................................................................ 19,984,267 20,785,296
Diluted.............................................................. 19,984,267 20,785,296
</TABLE>
<TABLE>
<CAPTION>
September 30,
1998
<S> <C>
Balance Sheet Data:
Cash................................................................................... $ 295,560
Working capital........................................................................ 13,553,538
Total assets........................................................................... 40,606,446
Current portion of long-term debt...................................................... 726,950
Long-term debt and notes payable....................................................... 5,816,607
Stockholders' equity................................................................... 27,813,622
</TABLE>
Unaudited Comparative Per Share Data
<TABLE>
<CAPTION>
Virbac
AGNU Equivalent
Pro Forma Pro Forma
AGNU Virbac Combined Combined
<S> <C> <C> <C> <C>
Diluted earnings (loss) per share:
Year ended December 31, 1997........... $ .01(1) $ (0.15) $ (0.01) $(0.02)(3)
Nine months ended
September 30, 1998.................... (.04)(2) (0.10) (0.04) (0.06)(3)
Dividends per share....................... -- -- -- --
Book value per share as of:
December 31, 1997...................... 1.67(1) .44 1.32 1.98(3)
September 30, 1998..................... 1.62(2) .34 1.27 1.90(3)
</TABLE>
(1)Amounts are as of and for the fiscal year ended October 31, 1997.
(2)Amounts are as of and for the nine months ended July 31, 1998.
(3)Amounts reflect AGNU Pro Forma Combined amounts multiplied by the 1.5
exchange ratio.
See Unaudited Pro Forma Financial Information appearing elsewhere
in the Proxy Statement.
9
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held on January , 1999 at a.m.
local time at the , Missouri.
Matter to be Considered
At the Special Meeting, AGNU stockholders of record on the Record Date
will be asked to approve the Proposal, which consists of (a) the Merger
Agreement and (b) the Certificate Amendment.
Stockholders Entitled to Vote, Quorum
Only holders of record of shares of the Company's Common Stock on the
Record Date will be entitled to notice of and to vote at the Special Meeting. As
of the Record Date, there were shares of Common Stock outstanding, held by
approximately holders of record. Each holder of record on the Record Date is
entitled to one vote per share held at the Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of the Company's Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting.
Votes Required
Under the Delaware Law, the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock is required for
approval of the Proposal. The holders of approximately 2,955,000, or 32%, of the
outstanding shares (the "Principal Stockholders"), including the Company's
Directors and executive officers, who hold 1,715,000 of such shares, have agreed
with VBSA (subject to the fiduciary duties of such Directors and officers) to
vote their shares in favor of the Proposal.
Voting of Proxies
All shares of Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on such proxies. If the
instruction is to abstain with respect to the Proposal, the shares represented
by the proxy will be deemed to be present at the Special Meeting but will not be
voted with respect to the Proposal. If no instructions are indicated, the proxy
will be voted FOR approval of the Proposal.
The failure to submit a proxy (or to vote in person) or the abstention
from voting will have the same effect as a vote against the Proposal. In
addition, under the applicable rules of the Nasdaq, brokers who hold shares in
street name for customers who are the beneficial owners of such shares are
prohibited from giving a proxy to vote such customers' shares in the absence of
specific instructions from such customers. Proxies submitted by brokers without
voting instructions ("broker nonvotes") will also have the same effect as a vote
against the Proposal.
10
<PAGE>
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the Special Meeting, including adjournments to
permit further solicitations of proxies in favor of any proposal; provided,
however, that no proxy that is voted against the Proposal will be voted in favor
of any such adjournment or postponement.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted at the Special Meeting. Proxies
may be revoked by (i) filing with the Secretary of the Company, before the
taking of the vote at the Special Meeting, a written notice of revocation
bearing a date later than that of the proxy, (ii) duly executing a later-dated
proxy relating to the same shares and delivering it to the Secretary of the
Company before the taking of the vote at the Special Meeting, or (iii) attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not itself constitute a revocation of the proxy). Any written
notice of revocation or subsequent proxy should be delivered to the Company's
Secretary at the address set forth above before the taking of the vote at the
Special Meeting.
Expenses of Solicitation of Proxies
The cost of printing and mailing this Proxy Statement and the
applicable fees associated with the filing of this Proxy Statement with the
Securities and Exchange Commission ("SEC") will be borne by the Company. In
addition to solicitation by use of the mails, proxies may be solicited by
Directors, officers and employees of the Company in person or by telephone,
telegram or other means of communication. Such Directors, officers and employees
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses, in connection with such solicitation. Arrangements will
also be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and the Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Company has retained Corporate
Communications, Incorporated ("CCI") to assist in soliciting proxies and to
provide proxy materials to banks, brokerage firms, nominees, fiduciaries, and
other custodians. Such services are provided under CCI's retainer; the Company
will reimburse CCI for its out-of-pocket expenses.
Appraisal Rights
Under the Delaware Law, holders of the Company's Common Stock are not
entitled to appraisal rights in connection with the Merger.
11
<PAGE>
THE PROPOSAL
The Merger
Effect of the Merger
If the Merger is approved by stockholders and consummated, (i) Virbac
will receive a cash infusion from VBSA through VBSA Sub, (ii) AGNU will issue
approximately 12,500,000 shares of its Common Stock to VBSA Sub and Virbac will
be merged with and into AGNU, with AGNU being the surviving entity and VBSA its
controlling stockholder, (iii) the Board of Directors of AGNU will be
reconstituted to include a majority of Directors designated by VBSA, (iv) AGNU's
fiscal year-end will change from October 31 to December 31, (v) AGNU will,
within 60 days of the effective date of the Merger, commence a tender offer to
purchase 1,000,000 shares of AGNU's outstanding Common Stock (excluding the
Merger Shares) at a price of $3.00 per share, and (vi) AGNU will, on the second
anniversary of the effective date of the Merger and under certain circumstances,
commence a second tender offer to purchase 1,395,000 shares of AGNU's
outstanding Common Stock (excluding the Merger Shares and certain other shares)
at a price of $3.00 per share.
Background of the Merger
AGNU has experienced significant growth since its July 1994 initial
public offering ("IPO"), primarily as a result of acquisitions, funded with
proceeds of the IPO, of companies in the animal health and pet care industry.
Substantially all of such proceeds were utilized by September 1997, following
which AGNU began focusing on integrating the acquired companies so as to obtain
operating synergies and create a platform for future growth, while continuing to
pursue selective complementary acquisitions and alignments.
On March 4, 1998, Brian A. Crook, Chief Executive Officer of Virbac,
wrote to Bruce G. Baker, Chief Executive Officer of AGNU, suggesting a meeting
to discuss a range of possible strategic relationships between AGNU and Virbac.
Dr. Crook indicated that Virbac's parent, VBSA, had authorized him to approach
Mr. Baker concerning possible strategic alternatives and that a combination of
the two companies might create significant new value. Dr. Crook and Mr. Baker
had not had any discussion regarding a combination of the two companies prior to
that time. In a subsequent phone conversation, the two executives agreed to meet
at AGNU's offices on March 27, and on March 10 AGNU and Virbac entered into a
confidentiality agreement.
During the March 27 meeting, Dr. Crook stated that Virbac was
interested in exploring an acquisition that would result in Virbac controlling
55% to 60% of AGNU's outstanding Common Stock. The parties explored the possible
advantages of a combination and discussed each party's views on appropriate
pricing formulas. At the conclusion of the meeting, the two executives decided
to continue discussions and to informally exchange information concerning their
respective companies.
On April 3, 1998 the parties entered into a revised confidentiality
agreement. During April and May 1998, several meetings and telephone conferences
took place among Dr. Crook, Mr. Baker, Robert J. Elfanbaum, AGNU's Chief
Financial Officer, and others, including a visit to AGNU by VBSA Vice Presidents
Pierre Pages and Christian Karst. During these meetings, the parties analyzed
the operations of the respective companies and the growth and synergies that
could result from a combination and discussed possible approaches to valuing the
two companies.
12
<PAGE>
At a regularly scheduled meeting of AGNU's Board of Directors on May
27, Mr. Baker summarized the preliminary discussions for the Board, and the
Board reviewed background material concerning Virbac and VBSA and discussed the
potential growth opportunities and enhancement of AGNU stockholder value that
might result from a combination with Virbac. The Board authorized management to
continue discussions.
During June and July 1998, each party met separately with its
respective legal and financial advisors and examined in greater detail the
potential benefits of a combination of the two companies and the relative
valuations of AGNU, Virbac and the resulting entity and explored possible
combination structures.
During a July 23 meeting held at Virbac's offices, Dr. Crook presented
a possible structure that included the following principal elements: (i) Virbac
would merge into AGNU, which would change its name to "Virbac," and VBSA would
receive newly issued shares of AGNU's Common Stock; (ii) VBSA would contribute
approximately $12.0 million to the combined company, of which $2.0 million would
be used to fund a tender offer to repurchase shares of AGNU's outstanding Common
Stock and the balance to repay Virbac's debt and for additional working capital;
and (iii) following the tender offer, VBSA would own approximately 60% of AGNU's
outstanding Common Stock. The meeting included discussion of possible employment
agreements with certain of AGNU's executives and representation by current AGNU
Directors on the Board of the combined company.
During a July 30 meeting with Dr. Crook at the Dallas-Ft. Worth airport,
Mr. Baker reacted favorably to the cash infusion to repay debt and the merger
and name change, but expressed a preference that Virbac receive fewer newly
issued shares in connection with the merger, that it purchase $20.0 million of
newly issued shares of AGNU's Common Stock, $12.0 million of which proceeds
would be used to fund the tender offer and $8.0 million would be used for
working capital, and that VBSA would ultimately own 57% of AGNU's outstanding
Common Stock. Dr. Crook responded that, while the foregoing might form the basis
for an acceptable transaction, he could not fully support AGNU's valuation
assumptions and suggested that VBSA would not agree to invest the amount
proposed by Mr. Baker in the combined company. He stated, however, that he
continued to believe a combination was in both companies' best interests and
agreed to discuss Mr. Baker's preferences with VBSA.
At an August 26 meeting of AGNU's Board of Directors, management
apprised the Board of the current status of the discussions, including the range
of terms that had been discussed. The Board instructed management to continue
its discussions with Virbac's management and to seek to negotiate acceptable
terms of a transaction, which would then be presented to the Board.
On September 9, 1998, Messrs. Baker and Elfanbaum and Alec L.
Poitevint, II, AGNU's Chairman, met at Virbac's offices with Dr. Crook, Pascal
Boissy, President of VBSA, Michel Garaudet, Administration and Finance Director
of VBSA, Jean-Pierre Dick, a director of VBSA, and Virbac's financial and legal
advisors. The parties discussed at length the assumptions underlying their
respective valuations of each company and each company's growth prospects,
strategies, strengths and needs, and the synergies that a combination would
contribute to each company. Virbac's representatives proposed that VBSA
contribute $15.9 to the combined company, of which $9.2 million would be used to
repay Virbac's debt, $2.0 million to fund the tender offer, and $4.7 million for
working capital. AGNU's representatives responded that more cash would be needed
to fund the proposed tender offer so that, to the maximum extent possible,
stockholders who did not want to continue with the surviving corporation could
sell their shares. The parties then discussed at length the aggregate amount and
possible terms of
13
<PAGE>
the proposed tender offer, including whether certain Principal Stockholders and
other insiders would agree not to tender their shares, the minimum number of
shares subject to the tender offer and the per share price AGNU would establish
for the tender offer.
After further consideration and discussion, Virbac revised its proposal
as follows: (i) of the $15.9 million contribution by VBSA, $3.0 million would be
used to fund a tender offer at $3.00 per share (a price proposed by AGNU) and
$3.7 million would be used for working capital; and (ii) VBSA would agree to
provide an additional $2.6 million to fund a second tender offer for an
additional 860,250 shares (at $3.00 per share) if AGNU's share price had not
reached $3.00 for 40 consecutive trading days during the two years following the
merger. After further discussion, VBSA indicated that, subject to agreement on
the other outstanding terms of the proposed merger, it would increase the
funding for the second tender offer to $4.2 million to purchase 1,395,000
shares, or 15% of the outstanding shares.
At the conclusion of the meeting, the foregoing terms were set forth in
a term sheet, which also provided that the definitive agreement should include
such standard provisions as mutual "no shop" restrictions, a reasonable "bust
up" fee, receipt of a fairness opinion by AGNU, completion of satisfactory due
diligence investigations and a customary "fiduciary out" provision. Counsel for
the parties then began exchanging comments on the term sheet.
On September 12, 1998, AGNU's Board of Directors met and Messrs.
Poitevint, Baker and Elfanbaum summarized the status of the negotiations and
presented their views on the advantages and disadvantages of the proposed
transaction. Following a discussion, the Board directed management to continue
its negotiations of the terms of a proposed transaction, including the various
terms of a definitive agreement. On September 16 Virbac's counsel distributed a
draft of a proposed merger agreement to AGNU and its counsel.
On September 17 the parties entered into a Non-Solicitation Agreement
providing that each party would (i) cease any discussions or negotiations with
any third parties that might be ongoing until the later of the date a definitive
merger agreement was agreed upon or October 10, 1998 (the "No-Shop Period") and
(ii) not solicit, initiate, knowingly encourage or knowingly take any other
action to facilitate any inquiries or the making of any Acquisition Proposal (as
defined in the Merger Agreement) or participate in any discussions or
negotiations regarding any Acquisition Proposal.
During the following weeks, after numerous memoranda on various
substantive issues addressed by the proposed merger agreement were exchanged and
discussed in telephone conferences and various drafts of the merger agreement
were exchanged, all issues were resolved in the manner set forth in the Merger
Agreement (see "The Proposal--The Merger Agreement").
On October 7 the parties entered into an amendment of the
Non-Solicitation Agreement, extending the No-Shop Period to October 15, 1998.
Between September 14 and October 16, representatives of AGNU continued
their due diligence investigations of Virbac. In addition, on October 1, AGNU
retained Duff & Phelps to advise the Board of Directors concerning the fairness
of the proposed transaction from a financial point of view.
AGNU's Board of Directors met to consider the proposed merger on
October 16. Prior to the meeting, each Director of AGNU was provided with
materials outlining and analyzing the proposed transaction, including the form
of Merger Agreement. At the meeting, AGNU senior management
14
<PAGE>
presented to the Board the background of the proposed transaction, an outline of
the terms and conditions of the proposed transaction, a financial analysis of
the proposed transaction and information on the potential benefits and risks of
the proposed transaction. The Board unanimously approved the Merger and the
Merger Agreement and agreed to recommend that the stockholders vote in favor
thereof.
The parties executed counterpart copies of the Merger Agreement on
October 16, copies of which were delivered to each of the parties and their
counsel. On October 19, AGNU issued a press release announcing the Merger.
Reasons for the Merger
The Company's Board of Directors and senior management believe that the
Merger is fair to and in the best interests of the Company and its stockholders.
In reaching its determination to approve the Merger, the Board identified and
analyzed the following material factors:
o the financial terms of the Merger, including the requirements that VBSA
make a cash infusion into Virbac prior to consummation of the Merger;
o the monetary benefit to stockholders from the Tender Offers;
o the opinion of Duff & Phelps as to the fairness, from a financial point
of view, of the Merger to stockholders;
o the Company's strategic plan and the Board's belief that the Company's
ability to pursue its plan would be enhanced by the Merger;
o information regarding the business and financial prospects of AGNU and
Virbac, including potential synergies, indicating that the operations
of each would complement the other and that the Merger would facilitate
reductions in overall financing costs for the combined operations;
o the Board's belief that Virbac's products and marketing and production
capabilities are complementary to those of AGNU and that the combined
company will be able to compete more effectively in the markets
currently served by each;
o the potential economies of scale resulting from combining the two
companies into a single company with estimated annual sales of
approximately $50 million; and
o the Board's belief that eliminating certain duplications of overhead of
Virbac and AGNU would result in significant savings.
The Board also considered a variety of potentially negative factors
relating to the Merger, including (i) the possible dilutive effect of the
issuance of the Merger Shares, (ii) the transaction costs and costs of
integrating the businesses of the two companies, and (iii) the risk that the
anticipated benefits of the Merger might not be obtained.
Following its consideration of these factors, the AGNU Board concluded
that the Merger was fair to and in the best interests of AGNU and its
stockholders from both a financial and strategic perspective.
15
<PAGE>
Opinion of Duff & Phelps
Background. The Company retained Duff & Phelps to serve as independent
financial advisor to the Board of Directors (the "Engagement") with respect to
the proposed Merger. Specifically, Duff & Phelps was retained to advise the
Board and to provide an opinion (the "Opinion") as to the fairness of the Merger
to the Company's stockholders from a financial point of view. On October 1,
1998, Duff & Phelps was orally advised that it had been selected to perform the
Engagement. On October 1, 1998, Duff & Phelps commenced performing its services
under the Engagement, which was confirmed by a letter dated October 1, 1998.
Before Duff & Phelps was retained, there had been no prior relationship between
AGNU and Duff & Phelps.
Duff & Phelps is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, leveraged buyouts,
restructurings, private placements, employee benefit plans, and valuations for
estate, corporate, and other purposes. The Company selected Duff & Phelps as the
Board's financial advisor for the Engagement based upon Duff & Phelps'
experience, ability, and reputation for providing fairness opinions for a wide
variety of corporate transactions.
Under the terms of the Engagement, the Company agreed to pay a fee of
$80,000 to Duff & Phelps for its services in connection with the Engagement, of
which $40,000 was paid upon execution of the written confirmation of the
Engagement and the balance upon delivery of the Opinion. No portion of Duff &
Phelps' fee was contingent upon consummation of the Merger or upon the
conclusions reached by Duff & Phelps in its Opinion. If the terms of the Merger
are materially modified so that substantial additional analysis is required by
Duff & Phelps, the Company has agreed to negotiate in good faith the terms of
additional compensation to Duff & Phelps. The Company is also obligated to
reimburse Duff & Phelps for its out-of-pocket expenses and to indemnify Duff &
Phelps against certain liabilities relating to services performed by Duff &
Phelps.
The Opinion. Duff & Phelps presented its preliminary findings to the
Company on October 30, 1998. At that time, Duff & Phelps expressed its opinion
that, based on the information provided as of that date and subject to any
subsequent changes in the terms of the Merger, and assuming no material changes
in the financial condition and outlook for AGNU and Virbac prior to the issuance
of the Opinion, the Merger is fair to the Company's stockholders from a
financial point of view. Duff & Phelps delivered to the AGNU Board its Opinion,
dated December 7, 1998, to the effect that as of the date of the Opinion, and
based on and subject to certain matters as stated therein, the Merger is fair to
the Company's stockholders from a financial point of view.
The full text of the Opinion, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is attached hereto as
Appendix C. Stockholders are urged to read the Opinion in its entirety. The
Opinion concerns only the fairness from a financial point of view of the terms
of the Merger with respect to the Company's stockholders. It does not constitute
a recommendation to any stockholder as to how such stockholder should vote with
respect to the Proposal. Duff & Phelps reviewed the terms of the Merger and the
consideration to be received by AGNU's stockholders (described herein), which
were determined by negotiation between AGNU and Virbac. The summary of the
Opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such Opinion.
16
<PAGE>
Duff & Phelps was authorized to undertake studies to enable it to
render the Opinion, whether favorable or not. No limitations were imposed by the
Company with respect to the scope of the investigation made or procedures
followed by Duff & Phelps in rendering the Opinion. In performing its evaluation
and rendering the Opinion, Duff & Phelps relied upon the accuracy and
completeness of all information provided to it, whether by public or private
sources; and it did not attempt to verify any such information independently.
Duff & Phelps also took into account its assessment of general economic, market
and financial conditions as they existed and could be evaluated as of the date
of the Opinion, as well as its experience in similar transactions and securities
valuation generally. Duff & Phelps did not make any independent appraisals of
the assets or liabilities of AGNU or Virbac. The analysis was prepared with
information available as of the date of the Opinion.
Analysis Conducted by Duff & Phelps. In conducting its analysis and
preparing the Opinion that the Merger is fair from a financial point of view to
the Company's stockholders, Duff & Phelps, among other things, (i) reviewed and
analyzed the terms of the Merger and the consideration to be received by AGNU's
stockholders as described in this Proxy Statement and the Agreement and Plan of
Merger dated as of October 16, 1998; (ii) analyzed certain historical, business
and financial information relating to AGNU, including AGNU's Annual Reports to
Stockholders and Form 10-Ks filed with the SEC for the three years ended October
31, 1997, its Form 10-Q filed with the SEC for the nine months ended July 31,
1998, audited financial statements for Virbac for the four years ended December
31, 1997, and unaudited financial statements for the nine months ended September
30, 1997 and 1998; (iii) reviewed the 1996 and 1997 annual reports of VBSA; (iv)
reviewed certain internal financial analyses and forecasts for AGNU on a
stand-alone basis; (v) reviewed certain internal financial analyses and
forecasts for AGNU and Virbac on a combined basis (the "Combined Entity"); (vi)
reviewed internal financial and operating information pertaining to Virbac;
(vii) considered the pro forma effect of the Merger on AGNU's capitalization,
earnings, cash flow, book value and financial prospects; (viii) reviewed current
conditions and trends with respect to the pet healthcare industry in general,
and general business and economic conditions in the United States; (ix) reviewed
the reported market prices and trading volumes of the Common Stock of AGNU for
recent periods; (x) reviewed publicly available information concerning other
companies deemed comparable, in whole or in part, to AGNU, Virbac and the
Combined Entity; and (xi) conducted other financial studies, analyses and
investigations as deemed appropriate.
As background for its analysis, Duff & Phelps held discussions with
senior management of each AGNU and Virbac regarding the history, current
business operations, financial condition, future prospects and strategic
objectives of AGNU and Virbac in both their present form and as the Combined
Entity. Duff & Phelps visited the principal manufacturing facility of AGNU in
St. Louis, Missouri and that of Virbac in Fort Worth, Texas.
The following is a summary of certain financial and comparative
analyses performed by Duff & Phelps in support of the Opinion. The analyses
employed standard valuation and other analytical methodologies generally
accepted by the professional financial community.
Description of Analysis. Duff & Phelps analyzed the value of AGNU from
the perspective of a hypothetical buyer of a controlling interest in AGNU (the
"Control Analysis," assuming that the Merger were not to occur) and on a pro
forma basis after giving effect to the Merger (the "Pro Forma Merger Analysis").
Additionally, Duff & Phelps factored the Mandatory Tender Offer in its analysis
of the fairness of the merger consideration. These analyses employed standard
valuation and other analytical methodologies described below which are generally
accepted by the professional community. It should
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be noted that the summary set forth below does not purport to be a complete
description of the analyses conducted by Duff & Phelps in connection with the
preparation of its Opinion. The preparation of a fairness opinion is a complex
process and does not necessarily lend itself to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
without considering the analyses as a whole could create an incomplete view of
the process underlying Duff & Phelps' fairness opinion. In arriving at its
fairness opinion, Duff & Phelps considered the results of all such analyses
taken as a whole. Furthermore, in arriving at its fairness opinion, Duff &
Phelps did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. The analyses were prepared solely for
purposes of Duff & Phelps providing its Opinion to the Company's Board of
Directors as to the fairness of the consideration to be received by the
Company's stockholders in the Merger from a financial point of view, and do not
purport to be appraisals or necessarily reflect the prices at which the
businesses or securities actually may be sold. Duff & Phelps incorporated into
its analyses numerous assumptions regarding the future performance of the pet
healthcare industry as well as assumptions regarding interest rates and general
business and economic conditions and other matters, many of which are beyond
AGNU's control. Such estimates are inherently subject to uncertainty, and
neither Duff & Phelps, AGNU, nor any other entity or individual assumes
responsibility for their accuracy. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Control Analysis. Based on the qualitative and quantitative information
referenced above, Duff & Phelps evaluated AGNU from the perspective of a
hypothetical buyer of a controlling interest in AGNU using the following primary
methodologies: (1) developing cash flow projections for AGNU after reviewing
information prepared by management; and (2) analyzing the operating performance
and pricing multiples of AGNU with those of a set of publicly traded companies
deemed comparable to AGNU (the "Comparables"). The Comparables were: Alcide
Corp., Heska Corp., IGI, Inc., Petco Animal Supplies, and PETsMART. Duff &
Phelps also reviewed information regarding the existence of any recent control
transactions involving pet healthcare manufacturing companies as targets.
However, no such transaction pricing or implied valuation multiple information
was found.
Pro Forma Merger Analysis. Based on the qualitative and quantitative
information referenced above, Duff & Phelps evaluated AGNU on a pro forma basis
using the following principal methodologies: (1) developing cash flow
projections for the Combined Entity; and (2) analyzing the operating performance
and pricing multiples of the Combined Entity with those of the Comparables. As
part of the Pro Forma Merger Analysis, Duff & Phelps considered various factors
that would influence the Combined Entity's operating characteristics and its
prospects following the Merger, including but not limited to: (a) the stronger
financial condition of the Combined Entity due to the reduction of debt on a pro
forma basis and the addition of cash for working capital; (b) synergies
resulting from the consolidation of operations and from economies of scale; (c)
the broad pet healthcare product portfolio of the Combined Entity; and (d) a
significantly higher and more diversified revenue base of the Combined Entity.
Duff & Phelps factored the value of the Contingent Tender Offer as a
put option of the AGNU stockholders, adjusted for the probability of the shares
of the Combined Entity trading more than the Contingent Price over the
Contingent Period (as those terms are defined in the Merger Agreement).
Based upon these analyses, Duff & Phelps concluded, among other things,
that the Merger consideration to be received by the Company's stockholders is
fair from a financial point of view.
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Resale of Common Stock Issued in the Merger; Affiliates; Registration Rights
The Merger Shares issued to VBSA Sub in the Merger may be sold only
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering such shares or in compliance with Rule 145 under the
Act or another applicable exemption from the registration require ments of the
Act. In addition, VBSA and VBSA Sub have agreed to certain restrictions on sales
of the Merger Shares and purchases of shares of AGNU's Common Stock in open
market transactions. VBSA Sub has agreed that, prior to the second anniversary
of the Merger, it will sell no more than 9% of the Merger Shares. VBSA has also
agreed that, in the event it or any of its affiliates purchase any shares of
AGNU's Common Stock on the open market prior to the second anniversary of the
Merger, such purchases will be effected in accordance with Rule 10b-18 under the
Securities Exchange Act of 1934, as amended. AGNU has granted VBSA Sub certain
rights to require AGNU to register the Merger Shares beginning on the second
anniversary of the Merger.
Federal Income Tax Considerations
The Merger is expected to constitute a "reorganization" within the
meaning of Section 368(a) of the Code. No gain or loss will be recognized by
AGNU or Virbac, or by the AGNU stockholders, as a result of the Merger. This
discussion does not describe any tax consequences arising out of the tax laws of
any state, local or foreign jurisdiction.
Anticipated Accounting Treatment
Since the former stockholder of Virbac will own approximately 60% of
AGNU's outstanding Common Stock following the Merger and the Mandatory Tender
Offer, for accounting purposes Virbac will be deemed the acquiring company and
AGNU the acquired company. Accordingly, the Merger will be accounted for as a
reverse purchase of AGNU by Virbac using the purchase method of accounting. The
purchase method of accounting prescribes that the acquiring company allocate the
cost of an acquired company to the assets acquired and liabilities assumed as of
the date of acquisition based on their estimated fair values. Any excess of cost
over the estimated fair values of net assets acquired is recorded as goodwill
and is amortized over its expected benefit period. See "Unaudited Pro Forma
Financial Information." The financial statements of the merged company filed for
post-merger periods will depict the acquisition of AGNU by Virbac, and will
include financial statements of Virbac for pre-merger comparable periods.
As a result of the Merger, AGNU's fiscal year-end will change from
October 31 to December 31.
Certain Regulatory Matters
Certain acquisition transactions such as the Merger are reviewed by the
United States Department of Justice ("DOJ") and the United State Federal Trade
Commission ("FTC") to determine whether they comply with applicable antitrust
laws. Under the provisions of the HSR Act, the Merger may not be consummated
until certain information has been furnished to those agencies and the waiting
period specified by the HSR Act has expired or been terminated. VBSA and AGNU
have filed a Premerger Notification and Report Form containing such information
with DOJ and FTC. The waiting period expired on December , 1998.
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Management After the Merger
Following the Merger, AGNU's Board of Directors will be reconstituted
to include a majority of Directors designated by VBSA. In addition, certain
persons chosen by Virbac, including certain current officers of both Virbac and
AGNU, will become executive officers of AGNU. See "Management After The Merger."
Interests of Certain Persons in the Merger
Messrs. Baker and Elfanbaum, who are expected to serve as Executive Vice
President and Chief Financial Officer, respectively, following the Merger, are
currently party to employment agreements with AGNU, expiring October 31, 2001
and 1999, respectively. Virbac has agreed that, in the event mutually
satisfactory amended employment agreements have not been reached with them
within 60 days following the Merger and either elects to terminate his
employment with AGNU, such termination will be considered a termination as a
result of a change of control within the meaning of their existing employment
agreements, entitling them to certain monetary benefits for the remaining terms
of the respective agreements. Under such circumstances, Mr. Baker would continue
to receive his annual salary of $195,000 through October 31, 1999 and $10,000
per month for the succeeding two years. Mr. Elfanbaum would continue to receive
his annual salary, which is currently $105,000, for two years, and both would
continue to receive healthcare and other employee benefits during such periods.
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The Merger Agreement
The following description of the Merger Agreement is a summary of the
material provisions of the Merger Agreement, a copy of which is attached as
Appendix A to this Proxy Statement and is incorporated by reference herein. The
description does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which stockholders are urged to read in its
entirety.
Structure of the Merger
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Delaware Law, at the Effective Time, Virbac will merge with
and into AGNU and AGNU will issue the Merger Shares to Virbac's stockholder,
VBSA Sub, in exchange for all of the outstanding shares of Virbac's common
stock. AGNU will be the surviving corporation in the Merger and will continue
its corporate existence under Delaware Law. AGNU's Certificate of Incorporation
in effect immediately prior to the Effective Time will be amended and restated
to read in its entirety substantially the same as the Amended and Restated
Certificate of Incorporation attached hereto as Appendix B.
Merger Consideration
The number of Merger Shares to be issued to VBSA Sub, estimated to be
approximately 12,500,000, will equal the product of (a) the difference between
(i) the number of shares of Common Stock of AGNU issued and outstanding
immediately prior to the Effective Time and (ii) 1,000,000, and (b) 1.5.
Application of this formula will result in VBSA Sub holding 60% of AGNU's
outstanding Common Stock upon completion of the Mandatory Tender Offer.
Adjustment of the Merger Shares
In order to maintain VBSA Sub's 60% ownership interest in AGNU, after
the Effective Time and until the expiration, termination or exercise of all
options to purchase AGNU's Common Stock outstanding as of the Effective Time
(the "AGNU Options") and until AGNU's last issuance of Common Stock pursuant to
the Agreement and Plan of Merger dated as of July 16, 1997, among AGNU, Mardel
Acquisition Corporation and Mardel Laboratories, Inc. (the "Mardel Merger
Agreement"), AGNU will, contemporaneously with the issuance of Common Stock upon
the exercise of an AGNU Option or pursuant to the Mardel Merger Agreement, issue
to VBSA Sub a number of additional shares of Common Stock equal to the product
of (a) the aggregate number of shares of Common Stock issued upon the exercise
of an AGNU Option or pursuant to the Mardel Merger Agreement and (b) 1.5.
Effective Time
The Effective Time of the Merger will be the time the Certificate of
Merger has been accepted for filing by the Delaware Secretary of State (or such
later time as is agreed upon by AGNU and Virbac and specified in such
Certificate of Merger). The filing of the Certificate of Merger will occur as
soon as practicable after the satisfaction or waiver of the conditions to the
consummation of the Merger set forth in the Merger Agreement unless another date
is agreed to in writing by AGNU and Virbac. See "--Conditions to the
Consummation of the Merger; Waivers."
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The Cash Infusion
VBSA has agreed that immediately prior to the Effective Time it will
cause VBSA Sub to contribute cash to Virbac in an amount equal to the sum of (a)
$6,700,000, (b) the difference between (i) current outstanding notes payable to
Virbac's lender plus inter-company notes payable to VBSA, together with accrued
interest thereon, and (ii) Virbac's cash, each as accrued on the books of Virbac
as of December 31, 1998, and (c) approximately $206,000 of Virbac's expenses
related to the Merger. Following the Merger, AGNU will use $3,000,000 of the
Cash Infusion in order to effect the Mandatory Tender Offer, approximately
$3,700,000 as working capital, and the balance, after payment of the
Merger-related expenses, to reduce long-term debt.
The Tender Offers
The Merger Agreement requires AGNU, within 60 days after the Effective
Time, to make and complete the Mandatory Tender Offer to repurchase 1,000,000
shares of its outstanding Common Stock (excluding the Merger Shares) at a price
of $3.00 per share. In addition, if during the period ending on the second
anniversary of the Effective Time, the closing sale price of the Common Stock
has not equaled or exceeded $3.00 per share for any period of 40 consecutive
trading days, AGNU will be required to make and complete the Contingent Tender
Offer to repurchase 1,395,000 shares of its outstanding Common Stock (excluding
the Merger Shares and certain other shares) at a price of $3.00 per share. VBSA
Sub has agreed, if the Contingent Tender Offer is required, to provide the funds
therefor by purchasing 1,395,000 newly issued shares of Common Stock from AGNU
at $3.00 per share.
The Principal Stockholders have agreed with VBSA that, if fewer than
1,000,000 shares of Common Stock are tendered in the Mandatory Tender Offer,
they will tender a number of shares equal to the difference between 1,000,000
shares and the number of shares tendered.
Conditions to the Consummation of the Merger; Waivers
The respective obligations of AGNU, VBSA Sub and Virbac to consummate
the Merger are subject to the satisfaction of certain conditions at or prior to
the Effective Time, including the following: (i) approval of the Merger by
AGNU's stockholders, (ii) receipt of all required governmental approvals and the
expiration of all waiting periods in respect thereof, including the applicable
period under the HSR Act, (iii) receipt of all required consents or approvals of
third parties, (iv) receipt by Virbac of an opinion of Jones, Day, Reavis, &
Pogue, counsel to Virbac, that, among other things, the Merger will be treated
as a tax-free reorganization pursuant to Section 368(a) of the Code, (v) receipt
of certain additional legal opinions by AGNU and Virbac, and (vi) the execution
by VBSA of a non-competition agreement with AGNU.
The obligation of AGNU to effect the Merger is subject to the
satisfaction of certain additional conditions at or prior to the Effective Time,
including the conditions that: (i) each of the representations and warranties of
Virbac contained in the Merger Agreement are true and correct in all material
respects as of the Effective Time with the same effect as though made at the
Effective Time (except for representations and warranties that speak as of a
specific date or time other than the Effective Time) and AGNU will have received
a certificate to that effect; (ii) VBSA Sub and Virbac will have performed, in
all material respects, all obligations and covenants required by the Merger
Agreement and delivered to AGNU a certificate to that effect; (iii) there will
have been no Material Adverse Effect (as defined by the Merger Agreement) on
Virbac or any of its subsidiaries, in the aggregate; (iv) VBSA Sub will have
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made the Cash Infusion; (v) AGNU's Board of Directors will have received a
fairness opinion from Duff & Phelps; and (vi) VBSA will have entered into a
supply agreement with Virbac in the form attached to the Merger Agreement.
The obligation of Virbac to effect the Merger is subject to the
satisfaction of certain additional conditions at or prior to the Effective Time,
including the conditions that: (i) each of the representations and warranties of
AGNU contained in the Merger Agreement are true and correct in all material
respects as of the Effective Time with the same effect as though made at the
Effective Time (except for representations and warranties that speak as of a
specific date or time other than the Effective Time) and Virbac will have
received a certificate to that effect; (ii) AGNU will have performed, in all
material respects, all obligations and covenants required by the Merger
Agreement and delivered to Virbac a certificate to that effect; (iii) there will
have been no Material Adverse Effect on AGNU or any of its subsidiaries, in the
aggregate; and (iv) the Principal Stockholders will have entered into a
stockholders' agreement in the form attached to the Merger Agreement.
The Merger Agreement provides that, subject to certain limitations, any
term or provision of the Merger Agreement may be waived by the party that is
entitled to the benefits thereof.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the AGNU stockholders, upon the
occurrence of certain events, including the following: (a) by mutual consent of
the parties; (b) by either AGNU or Virbac if (i) the other party breaches or
fails to comply with any material obligation or any representation or warranty
made by it in the Merger Agreement is incorrect in any material respect when
made or has ceased to be true and correct, unless such event is curable within
45 days through exercise of commercially reasonable best efforts, (ii) the
Merger is not consummated by February 28, 1999 (provided that the terminating
party is not otherwise in material breach of its obligations under the Merger
Agreement), (iii) the Merger Agreement is not approved by AGNU's stockholders,
or (iv) any order, decree, judgment or other action of a court of competent
jurisdiction prohibits consummation of the Merger; (c) by Virbac if (i) AGNU's
Board of Directors withdraws or modifies in any manner adverse to Virbac its
approval or recommendation of the Merger or approves or recommends an
Acquisition Proposal from a third party or (ii) there is a work stoppage
involving AGNU or AGNU enters into a collective bargaining agreement on terms
materially less favorable than those of its existing agreement; or (d) by AGNU
if it receives a Superior Proposal (as defined in the Merger Agreement) from a
third party and pays the Termination Fee to Virbac. See "--Conditions of the
Consummation of the Merger; Waivers" and "--No Solicitation; Certain
Negotiations."
In the event of the termination of the Merger Agreement, the Merger
Agreement will have no further effect, without any liability on the part of any
party, except for AGNU's obligation to pay the Termination Fee to Virbac in
certain circumstances and for the payment by the parties of their respective
expenses, except under certain circumstances (see "--Expenses and Fees"). If,
however, termination occurs as a result of a party's willful breach of any of
the representations, warranties or covenants contained in the Merger Agreement
such party will not be relieved of any liability created by such breach.
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No Solicitation; Certain Negotiations
Each of AGNU and Virbac has agreed that it will not, directly or
indirectly, solicit, initiate or encourage any inquiries or the making of any
proposals or offers from any person relating to any acquisition, purchase or
sale of all or a material amount of its assets or securities, or any merger,
consolidation or business combination, liquidation, reorganization or similar
transaction, or participate in any discussions or negotiations regarding, or
furnish to any other person any information with respect to, any effort or
attempt by any other person to do or seek any of the foregoing. AGNU is required
to notify Virbac promptly of any unsolicited proposal, offer, inquiry or contact
with any person with respect to the foregoing, including a description of the
terms of any proposal or offer, or the nature of any inquiry or contact which is
made. To the extent that AGNU's Board of Directors, in the exercise of its
fiduciary duties to stockholders after consultation with and on the advice of
legal counsel concerning such fiduciary duties, determines that it is required
to do so, AGNU may furnish to any such other person information pursuant to a
confidentiality agreement and may hold discussions with such person. In the
event that such discussions lead to a Superior Proposal that the Board
determines, in good faith and after consultation with and on the advice of legal
counsel, is required to be approved and recommended to stockholders in order to
comply with its fiduciary duties, either Virbac or AGNU will have the right to
terminate the Merger Agreement and Virbac will be entitled to receive payment of
the Termination Fee from AGNU. See "--Termination."
Amendment or Waiver
Prior to the consummation of the Merger, the Merger Agreement may be
amended and any of its terms, covenants, representations, warranties or
conditions may be waived by the party intended to be benefited thereby, provided
that, once the Proposal has been approved AGNU's stockholders, no modification
of, or amendment to (i) the obligation of VBSA Sub to contribute the Cash
Infusion to Virbac, (ii) the obligation of AGNU to effect the Tender Offers, or
(iii) the consideration to be paid to stockholders in connection with the Tender
Offers, may be made without the further approval of such stockholders. No such
modification or amendment may be effected following consummation of the Merger.
Expenses and Fees
Whether or not the Merger is consummated, all expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs and expenses, except that AGNU
will pay all expenses relating to printing, filing and mailing the Proxy
Statement, any other filings with the SEC and all SEC and other regulatory
filing fees. However, if the Merger Agreement is terminated under certain
circumstances, the parties will share equally the cost of the filing under the
HSR Act and the fees of Duff & Phelps.
Conduct of Business Pending the Merger
AGNU and Virbac have agreed to conduct their operations, except as
otherwise provided in the Merger Agreement, according to their normal course of
business pending consummation of the Merger. In addition, AGNU and Virbac have
agreed that, among other things, prior to the consummation of the Merger, unless
the other agrees in writing or as otherwise required or permitted by the Merger
Agreement, neither party will:
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(i) increase the compensation payable to or to become payable to
any directors, officers or employees, except for executive
bonuses payable by AGNU consistent with past practice;
(ii) grant any severance or termination pay to, or enter into or
modify any employment or severance agreement with, any
director, officer or employee;
(iii) adopt or amend any employee benefit plan, except as required
by law;
(iv) declare, set aside or pay any dividend or make any
distribution in respect of, any capital stock, except
dividends paid to AGNU or Virbac by their subsidiaries;
(v) redeem, repurchase or otherwise reacquire any share of its
capital stock or any securities or obligations convertible
into or exercisable or exchangeable for any share of its
capital stock, or any options, warrants or conversion or other
rights to acquire any shares of its capital stock or any such
securities or obligations;
(vi) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale of, any shares of
any class of capital stock or other securities or obligations
convertible into, exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire any such
shares or securities, except for the issuance of shares by
AGNU pursuant to outstanding options or the issuance of
options in connection with certain executive bonuses;
(vii) effect any reorganization or recapitalization;
(viii) acquire or agree to acquire, by merging, consolidating
with, or by any other manner, any business organization
or division thereof, or otherwise acquire or agree to
acquire all or substantially all of the assets of any other
person (other than the purchase of receivables in the
ordinary course of business);
(ix) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to dispose of any assets (except for
dispositions of assets, or sales of receivables, in the
ordinary course of business);
(x) propose or adopt any amendments to the Certificate of
Incorporation or By-Laws;
(xi) change any of its methods of accounting in effect as of the
date of the Merger Agreement, except as required by law or
GAAP;
(xii) make or rescind any material election relating to taxes,
settle or compromise any material claim, proceeding,
investigation, audit or controversy relating to taxes,
or change any of its methods of reporting income or deductions
for Federal income tax purposes from those employed in the
preparation of the Federal income tax returns for the taxable
year ended December 31, 1997, except as required by law or
GAAP;
(xiii) prepay, before the scheduled maturity thereof, any long-term
debt, or incur any obligation for borrowed money, other than
indebtedness incurred in the ordinary course
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of business under existing loan agreements or under any
refinancing, renewal or refunding thereof, and trade
payables incurred in the ordinary course of business;
(xiv) take any action that would prevent the Merger from being
treated as a tax-free reorganization pursuant to Section368(a)
of the Code; or
(xv) take any action that would or could reasonably be expected to
result in any of its representations and warranties set forth
in the Merger Agreement being untrue in any material respect
or in any of the conditions to the Merger not being satisfied
in any material respect.
Representations and Warranties
The Merger Agreement contains customary mutual representations and
warranties of the parties, relating to, among other things, (i) corporate
organization and good standing and similar corporate matters, (ii)
capitalization, (iii) the absence of the need for governmental or third party
consents to the Merger, (iv) compliance with applicable laws, (v) accuracy of
financial statements and filings with the SEC, (vi) absence of material
undisclosed liabilities and the absence of material adverse changes in the
condition (financial or otherwise), operations or business of AGNU or Virbac and
their subsidiaries, taken as a whole, (vii) absence of pending or threatened
material litigation, (viii) retirement and other employee plans and matters
relating to the Employees Retirement Income Security Act of 1974, as amended,
(ix) filing of tax returns and payment of taxes, (x) absence of claims under or
pursuant to customer warranties on products or services sold prior to the date
of the Merger Agreement, (xi) engagement and payment of fees of brokers,
investment bankers, finders and financial advisors, (xii) absence of violations
of any environmental laws, possession of all required environmental permits,
absence of any cleanup liability and related matters, (xiii) the absence of any
collective bargaining agreement, union organizing effort, labor strikes or other
labor troubles, (xiv) ownership of intellectual property, (xv) Year 2000
compliance, (xvi) regulatory compliance, and (xvii) the inapplicability of
certain state takeover statutes.
The Certificate Amendment
The Merger Agreement requires that AGNU's Certificate of Incorporation
be amended and restated to effect various amendments. The material amendments
will change AGNU's name to Virbac Corporation, increase the number of shares of
Common Stock authorized for issuance from 20,000,000 to 38,000,000 shares, and
eliminate a provision prohibiting stockholders from taking action by written
consent without a meeting. No change will be made with respect to the number of
authorized shares of preferred stock. A copy of the proposed Amended and
Restated Certificate of Incorporation is attached to this Proxy Statement as
Appendix B.
After taking into account the shares of Common Stock issued and
reserved for issuance, the approximately 10,000,000 shares remaining for
issuance will be insufficient to complete the Merger unless the Certificate of
Incorporation is amended to increase the authorized shares. In addition, the
Board of Directors considers it advisable to increase the authorized Common
Stock so that additional shares will be available for issuance in connection
with possible future financings, acquisitions, mergers, stock dividends, use in
employee benefit plans, and other corporate purposes. Although the Board
currently does not have any plans to issue any additional shares of Common
Stock, having shares
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available for issuance generally will allow shares to be issued in the future
without the expense and delay of stockholder action.
The additional shares of Common Stock to be authorized will have the
same status as currently authorized Common Stock, and approval of the increase
will not have any immediate effect on the rights of existing stockholders. AGNU
stockholders do not have preemptive rights with respect to any newly issued
shares, however, and to the extent that additional authorized shares are issued
in the future, they will decrease the existing stockholders' relative percentage
ownership of the Company.
Although the amendment to increase the authorized number of shares is
not being proposed for the purpose of creating an anti-takeover device, such
increase could have an anti-takeover effect. It is possible that the additional
shares could be issued as a means of preventing or discouraging an unsolicited
change in control of AGNU. The issuance of additional shares could be used to
dilute the ownership of stockholders seeking to gain control of AGNU or could be
placed with an entity opposed to such a change in control. To the extent VBSA
retains a 51% ownership interest in AGNU, however, anti-takeover techniques such
as these will be unnecessary. AGNU management is not aware of any current
efforts to acquire control of AGNU other than the Merger.
AGNU's current Certificate of Incorporation prohibits stockholders from
acting by written consent without a meeting. The Delaware law generally permits
stockholder action by consent unless a company's certificate of incorporation
provides otherwise. As VBSA will own 60% of AGNU's outstanding Common Stock
following the Merger and completion of the Mandatory Tender Offer, elimination
of the provision will enable VBSA to take corporate action requiring stockholder
approval without holding a stockholders' meeting. Any such action taken by
written consent, however, will be required to be taken subject to certain notice
and information requirements under the Delaware law and the Exchange Act.
AGNU's Restated Certificate of Incorporation will also be amended to
effect certain technical changes, none of which is material.
Recommendation of the Board of Directors
The AGNU Board, by unanimous vote, has determined that the Proposal is
in the best interests of AGNU and its stockholders, approved the Proposal and
recommended that AGNU stockholders vote FOR the Proposal.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet has been
prepared based on the historical balance sheets of AGNU as of July 31, 1998 and
Virbac as of September 30, 1998, as adjusted to reflect the effects of the
Merger, the Cash Infusion and the Mandatory Tender Offer (the "Pro Forma
Transactions") as if they had occurred on September 30, 1998. The unaudited pro
forma combined statements of operations have been prepared based on the
historical statements of operations of AGNU and Virbac, adjusted to reflect the
Pro Forma Transactions as if they had occurred on January 1, 1997. The Pro Forma
Transactions are described in further detail in the preceding sections of this
Proxy Statement.
Inasmuch as the former stockholder of Virbac will own approximately 60%
of AGNU's stock subsequent to the Merger and Mandatory Tender Offer, for
accounting purposes Virbac will be deemed the acquiring corporation and AGNU the
acquired corporation. Accordingly, the Merger will be accounted for as a reverse
purchase of AGNU by Virbac using the purchase method.
The pro forma unaudited combined balance sheet and statements of
operations do not purport to represent (i) the actual financial position or
results of operations, had the Pro Forma Transactions occurred on the dates
assumed, or (ii) the financial position or results of operations to be expected
in the future. They do not reflect any estimate of cost savings or other
efficiencies that may be achieved from the integration of AGNU and Virbac.
Management believes that the assumptions used in preparing the pro forma
unaudited combined balance sheet and statements of operations provide a
reasonable basis for presenting all of the significant effects of the Pro Forma
Transactions, that the pro forma adjustments give appropriate effect to those
assumptions, and that the pro forma adjustments are properly applied in the pro
forma unaudited combined balance sheet and statements of operations.
The pro forma unaudited combined balance sheet and statement of
operations and the accompanying notes should be read in conjunction with the
historical financial statements of AGNU and Virbac, including the notes thereto,
and the other financial information pertaining to AGNU and Virbac, including the
information set forth under "Selected Financial Data of AGNU," "Selected
Financial Data of Virbac," "AGNU Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Virbac Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere herein.
28
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet Data
<TABLE>
<CAPTION>
Virbac
AGNU September 30, Pro Forma Pro Forma
July 31, 1998 1998 Adjustments Combined
------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash........................................... $ 64,844 $ 230,716 $ 16,350,000 (a) $ 295,560
(13,350,000) (a)
(3,000,000) (e)
Accounts receivable, net....................... 4,082,490 2,539,399 6,621,889
Inventories.................................... 8,137,365 4,052,036 12,189,401
Prepaid expenses............................... 1,421,507 245,972 (244,574) (b) 1,422,905
------------- -------------- ------------- -------------
13,706,206 7,068,123 (244,574) 20,529,755
Property, plant and equipment, net............. 5,603,383 5,001,353 4,300,000 (b) 14,904,736
Goodwill/intangible............................ 7,908,744 2,322,465 (7,908,744) (b) 3,657,149
1,334,684 (b)
Other assets................................... 995,538 519,268 1,514,806
------------- -------------- ------------- -------------
$ 28,213,871 $ 14,911,209 $ (2,518,634) $ 40,606,446
============= ============== ============= =============
Liabilities
Current portion of long-term debt.............. $ 726,950 $ 1,400,000 $ (1,400,000) (a) $ 726,950
Note payable to Virbac S.A..................... 2,000,000 (2,000,000) (a) --
Accounts payable............................... 2,173,507 1,060,664 1,000,000 (d) 4,234,171
Accrued expenses............................... 647,226 1,367,870 -- 2,015,096
------------- -------------- ------------- -------------
3,547,683 5,828,534 (2,400,000) 6,976,217
Long-term debt and notes payable............... 9,516,607 5,800,000 (3,700,000) (a) 5,816,607
(5,800,000) (a)
Note payable to Virbac S.A..................... 450,000 (450,000) (a)
Stockholders' equity
Common stock................................... 93,336 8,399,810 (8,399,810) (c) 217,458
125,004 (d)
(882) (f)
Additional paid-in capital..................... 15,975,157 10,452 16,350,000 (a) 36,173,751
(15,975,157) (b)
11,541,971 (d)
8,399,810 (c)
(128,482) (f)
Accumulated earnings (deficit)................. (789,548) (5,577,587) 789,548 (b) (5,577,587)
Cost of common stock in treasury............... (129,364) -- (3,000,000) (e) (3,000,000)
129,364 (f)
------------- -------------- ------------- -------------
$ 28,213,871 $ 14,911,209 $ (2,518,634) $ 40,606,446
============= ============== ============= =============
</TABLE>
29
<PAGE>
(a) Adjustments to reflect the Cash Infusion and the related reduction in
debt prior to the Merger. On a pro forma basis, the Cash Infusion at
September 30, 1998 would have totaled $16,350,000 and the reduction in
debt would have totaled $13,350,000. The remaining $3,000,000 will be
used to fund the Mandatory Tender Offer. See Note (e) below. Debt
instruments to be repaid with the Cash Infusion include the following:
<TABLE>
<CAPTION>
<S> <C>
Virbac:
Note payable/Revolving credit with financial institution................. $ 7,200,000
Notes payable to Virbac S.A.............................................. 2,450,000
AGNU:
Revolving credit facility................................................ 3,700,000
--------------
$ 13,350,000
</TABLE>
(b) Adjustments to eliminate AGNU's stockholders equity and reflect the
estimated fair value of AGNU's assets and liabilities. AGNU's property,
plant and equipment is expected to be adjusted to fair value, which
exceeds book value by $4,300,000. Estimated goodwill of $1,334,684 from
the Merger will be amortized over its expected useful life of 20 years.
The allocation of fair value is preliminary and may change upon the
completion of the final valuation of the net assets acquired.
(c) The Merger Agreement contemplates that, AGNU would issue 12,500,370 shares
of Common Stock to VBSA (assuming the Merger was effective September 30,
1998) and cancel its existing treasury stock. At July 31, 1998 there were
9,333,580 shares of Common Stock outstanding, of which 88,161 were held in
treasury. Therefore, for purposes of the unaudited pro forma combined
balance sheet, 21,833,950 shares of AGNU would be outstanding following
consummation of the Merger and the Mandatory Tender Offer. Since the par
value of the shares is one cent per share, the pro forma common stock par
value is $217,458. The $8,399,810 of historical par value of Virbac stock
is reclassified as additional paid-in capital.
(d) Because the Merger will be accounted for as a reverse acquisition and
the stockholder of Virbac, which is treated as the acquiror for
accounting purposes, is receiving AGNU Common Stock, the fair market
value of the AGNU Common Stock outstanding for a reasonable period of
time before and after the announcement of the Merger determines the
purchase price for accounting purposes. For purposes of the pro forma
financial statements, the purchase price for AGNU consists of the
following:
Fair market value of AGNU Common Stock........$ 11,666,975
Direct costs of the acquisition............... 1,000,000
---------------
Total purchase price.................$ 12,666,975
===============
The average market value of AGNU Common Stock for a reasonable period
of time before and after the announcement of the Merger was $1.25 per
share. The direct costs of the acquisition consist primarily of legal,
accounting and other fees incurred by Virbac.
(e) Adjustments to reflect the Mandatory Tender Offer for shares of Common
Stock at $3.00 per share.
(f) Adjustments to reflect the cancellation of stock held in treasury by AGNU
prior to the Merger.
30
<PAGE>
Unaudited Pro Forma Combined Statement of Operations - 1997
<TABLE>
<CAPTION>
AGNU Virbac
For the For the
year ended AGNU year ended
October 31, Pro Forma December 31, Pro forma Pro forma
1997 Mardel(f) for Mardel 1997 Adjustments Combined
-------------- -------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 31,051,537 $ 4,915,000 $ 35,966,537 $ 16,235,284 $ -- $ 52,201,821
Cost of sales................. 22,850,923 2,343,000 25,193,923 5,909,671 -- 31,103,594
-------------- -------------- --------------- ------------- -------------- ------------
Gross profit.................. 8,200,614 2,572,000 10,772,614 10,325,613 21,098,227
(142,266) (b)
Operating expenses............ 7,222,133 2,401,000 9,623,133 11,056,433 87,000 (a) 20,624,300
-------------- -------------- --------------- ------------- -------------- ------------
Operating income (loss)....... 978,481 171,000 1,149,481 (730,820) 55,266 473,927
Interest expense.............. 638,599 108,000 746,599 525,342 (839,000) (c) 432,941
Other income (expenses)....... (146,883) -- (146,883) 955 -- (145,928)
-------------- -------------- --------------- ------------- -------------- ------------
Income (loss) before taxes.... 192,999 63,000 255,999 (1,255,207) 894,266 (104,942)
Income tax expense (benefit).. 74,328 24,000 98,328 -- (98,328) (d) --
-------------- -------------- --------------- ------------- -------------- ------------
Income (loss) from continuing
operations................. $ 118,671 $ 39,000 $ 157,671 $ (1,255,207) $ 992,594 $ (104,942)
============== ============== =============== ============= ============== =============
Loss from continuing
operations per share
- Basic $ 0.01 $ (0.01)
- Diluted 0.01 (0.01)
Basic shares outstanding 8,483,897 19,984,267(e)
Diluted shares outstanding 8,699,914 19,984,267(e)
</TABLE>
31
<PAGE>
Unaudited Pro Forma Combined Statement of Operations -
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
AGNU Virbac
For the nine For the nine
months ended months ended
July 31, September 30, Pro forma Pro forma
1998 1998 Adjustments Combined
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales........................ $ 24,291,416 $ 12,868,678 $ -- $ 37,160,094
Cost of sales.................... 17,672,462 4,743,755 -- 22,416,217
--------------- -------------- ------------- --------------
Gross profit..................... 6,618,954 8,124,923 14,743,877
(106,700) (b)
Operating expenses............... 6,686,025 8,588,224 65,250 (a) 15,232,799
--------------- -------------- ------------- --------------
Operating income (loss).......... (67,071) (463,301) 41,450 (488,922)
Interest expense................. 571,580 420,658 (657,000) (c) 335,238
Other income (expenses).......... (957) 4,548 -- 3,591
--------------- -------------- ------------- --------------
Income (loss) before taxes....... (639,608) (879,411) 698,450 (820,569)
Income tax expense (benefit)..... (245,901) -- 245,901 (d) --
--------------- -------------- ------------- --------------
Income (loss) from continuing
operations.................... $ (393,707) $ (879,411) $ 452,549 $ (820,569)
=============== ============== ============= ==============
Loss from continuing
operations per share
- Basic $ (0.04) $ (0.04)
- Diluted (0.04) (0.04)
Basic shares outstanding 9,284,926 20,785,296 (e)
Diluted shares outstanding 9,284,926 20,785,296 (e)
</TABLE>
32
<PAGE>
(a) Operating expense has been adjusted to reflect the increase in
depreciation related to the write-up of property, plant and equipment.
The write-up is primarily attributable to land and buildings. Land is
not depreciated while buildings are depreciated over a 30-year life.
(b) The decrease in the amortization of goodwill is attributable to the
reduction in goodwill as a result of the Merger. Goodwill is being
amortized over 20 years.
(c) Reductions in interest expense reflect the application of net proceeds
of the Cash Infusion to repay outstanding debt. The Cash Infusion would
have been $14,550,000 had the Merger occurred on January 1, 1997.
Accordingly, the reduction in debt for pro forma statement of
operations purposes totaled $11,550,000. Debt instruments to be repaid
with the proceeds of the Cash Infusion include the following:
<TABLE>
<CAPTION>
Interest Expense Reduction
Nine months
Debt Year Ended Ended
to be December 31, September 30,
Repaid 1997 1998
------------- ----------------- -----------------
<S> <C> <C> <C>
Virbac:
Eliminate interest expense recorded
by Virbac................................... $ 7,850,000 $ 525,000 $ 421,000
AGNU:
Revolving credit facility
(8.5% interest rate)........................ 3,700,000 314,000 236,000
------------- ----------------- -----------------
$ 11,550,000 $ 839,000 $ 657,000
============= ================= =================
</TABLE>
(d) Income tax expense (benefit) recorded by AGNU has been eliminated as on
a pro forma basis as the surviving corporation would have recorded a
net loss in both periods presented. For purposes of the unaudited pro
forma combined statement of operations presented, a full valuation
allowance is recorded relative to the pro forma combined income tax
benefits, given the companies' historical results of operations.
(e) Common shares outstanding on a pro forma basis represent AGNU's
weighted average shares outstanding plus the 12,500,370 shares issued
to Virbac minus the 1,000,000 shares repurchased in the Mandatory
Tender Offer. As required by Statement of Financial Accounting
Standards 128, the impact of outstanding stock options and the
additional shares to be issued to Virbac in the event these options are
exercised has not been included in the determination of per share
amounts as such an impact would be anti-dilutive and reduce the net
loss per share.
(f) On September 25, 1997, AGNU acquired all of the outstanding common
stock of Mardel Laboratories, Inc. (Mardel). See Note 4 to the 1997
Consolidated Financial Statements of the Company included elsewhere in
this Proxy Statement for additional details of the acquisition, which
was accounted for under the purchase method of accounting. The amounts
presented for Mardel reflect Mardel's unaudited results for the
approximate eleven months ended September 25, 1997, adjusted to give
effect to the following pro forma adjustments necessary to reflect the
acquisition as if it had occurred on November 1, 1996:
1. decreased annual depreciation (approximately $40,000) resulting
from increased basis of property and equipment acquired and
adjusted useful lives;
33
<PAGE>
2. amortization(approximately $60,000) of goodwill on a straight-
line basis over 30 years;
3. increase in net interest expense (approximately $80,000)
relative to the effects of financing the Company's acquisition
of Mardel;
4. elimination of non recurring gain (approximately $103,000)
related to the sale of certain assets related to reptile
breeding operations of Mardel; and
5. estimated income tax effect of pro forma adjustments during
the period. For Mardel, the adjustment includes the effect of
Mardel becoming a taxable corporate entity. Prior to its
acquisition by the Company, Mardel had elected to be taxed as
an S-Corporation for federal and state income tax purposes;
accordingly, Mardel neither paid nor incurred federal and
state income taxes as an S-Corporation.
34
<PAGE>
SELECTED FINANCIAL DATA OF AGNU
The following table presents selected financial data for the period
from January 1, 1993 through September 8, 1993 for the Health Industries
Business of Purina Mills, Inc. ("HIB"), the Company's predecessor, and from July
20, 1993 through October 31, 1993, each of the four years in the period ended
October 31, 1997 and the nine month periods ended July 31, 1997 and 1998 for the
Company. The selected financial data for 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 four years in the period ended October 31, 1997 are derived
from the Consolidated Financial Statements of the Company, each of which has
been audited by PricewaterhouseCoopers LLP, independent accountants. HIB's
financial data have been obtained from the 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. The data should be
read in conjunction with the Consolidated Financial Statements of the Company,
and the related notes thereto, "AGNU Management's Discussion and Analysis of
Financial Condition and Results of Operations," and other financial information
included herein.
<TABLE>
<CAPTION>
Company
July 20, 1993 Nine Months
(inception Ended
Jan. 1, 1993 through Year Ended October 31, July 31,
-------------------------------------------------- --------------------------
through Oct. 31,
Sept. 8, 1993 1993)(1) 1994 1995 1996 1997 1997 1998
------------- ----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales (3).......... $ 10,301,685 $2,381,777 $13,671,588 $20,062,942 $28,661,307 $31,051,537 $ 23,423,827 $24,291,416
Operating income (loss)
from continuing
operations........... 190,709 (136,099) (484,272) (484,315) 47,399 978,481 684,114 (67,071)
Income (loss) from
continuing operations 131,415 (116,189) (482,817) (108,333) (241,320) 118,671 34,158 (393,707)
Income from discontinued
operations........... 105,489 18,616 147,206 139,766 113,900 14,659 14,659 --
Net income (loss)...... 236,904 (97,573) (335,611) 31,433 (127,420) 133,330 48,817 (393,707)
Basic earnings (loss)
per share:
Continuing
operations......... (4) (0.02) (0.07) (0.01) (0.03) 0.01 -- (0.04)
Discontinued
operations......... (4) -- 0.02 0.02 0.01 -- -- --
Net income........... (4) (0.02) (0.05) 0.01 (0.02) 0.01 -- (0.04)
Diluted earnings (loss) per share:
Continuing operations (4) (0.02) (0.07) (0.01) (0.03) 0.01 -- (0.04)
Discontinued
operations......... (4) -- 0.02 0.02 0.01 -- -- --
Net income........... (4) (0.02) (0.05) 0.01 (0.02) 0.01 -- (0.04)
Weighted average number of shares outstanding:
Basic................ (4) 6,572,872 6,636,811 8,112,851 8,397,686 8,483,897 8,395,023 9,284,926
Diluted.............. (4) 6,572,872 6,636,811 8,112,851 8,397,686 8,699,914 8,602,015 9,284,926
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Company
October 31, July 31,
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash............................... $ 2,274,335 $11,185,943 $ 2,330,685 $ 2,186,877 $ 145,505 $ 64,844
Working capital.................... (1,995,299) 13,195,940 7,808,433 9,928,248 7,772,318 10,158,523
Total assets....................... 8,935,071 21,141,513 23,473,103 25,850,052 26,596,150 28,213,871
Current portion of
long-term debt................... 4,130,474 607,165 252,692 291,817 201,636 528,950
Long-term debt..................... -- 3,066,667 4,914,614 7,824,012 7,236,204 9,516,607
Stockholders' equity............... 1,865,777 14,095,359 14,416,918 14,322,335 15,553,360 15,149,581
</TABLE>
(1) Includes the operating activities of the Company's subsidiary, PM Resources,
Inc. ("Resources") from September 9, 1993, the effective date of the
acquisition.
(2) The above results have been retroactively restated to reflect the
discontinuation of the ingredients segment.
(3) Net sales from continuing operations to Purina were as follows for the
respective periods:
<TABLE>
<CAPTION>
<S> <C>
January 1, 1993 through September 8, 1993 (HIB, the Predecessor)............ $5.5 million
July 20, 1993 through October 31, 1993 (the Company, which includes operating
results from September 9, 1993, the date of the HIB acquisition)............ $ 1.4 million
Fiscal year ended October 31, 1994.......................................... $7.7 million
Fiscal year ended October 31, 1995.......................................... $7.1 million
Fiscal year ended October 31, 1996.......................................... $5.4 million
Fiscal year ended October 31, 1997.......................................... $4.3 million
Nine months ended July 31, 1997............................................. $3.4 million
Nine months ended July 31, 1998............................................. $2.4 million
</TABLE>
(4) Given the historical organization and capital structure of HIB, a division
of Purina Mills, Inc., earnings per share information is not considered
meaningful or relevant.
36
<PAGE>
AGNU MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Organized in 1993, AGNU manufactures and distributes animal health and
pet care products. In September 1993, AGNU, through its subsidiary Resources,
acquired the Health Industries Business of Purina Mills, Inc. which formulates,
manufactures and distributes animal health products and to a lesser extent,
home, lawn and garden, and other products. In July 1994, AGNU completed its IPO,
the net proceeds of which were approximately $12.1 million. Effective March 31,
1995, AGNU purchased 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, AGNU 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 September
1997, AGNU purchased substantially all of the net assets and business of Mardel
Laboratories, Inc. ("Mardel"). Mardel is a developer, manufacturer and marketer
of high quality care products to the pet industry with expertise extending to
fresh water and marine fish, birds, dogs, cats, small animals and pond
accessories.
AGNU's results of operations presented and discussed herein only
include the results of Zema's, St. JON's and Mardel's operations subsequent to
their acquisition by AGNU in April 1995, August 1995 and September 1997,
respectively.
AGNU historically reported certain financial information for two
segments - ingredients and specialty products. Ingredients consist of feed
products that are purchased or blended by AGNU and distributed for Purina (see
Note 15 to AGNU's Consolidated Financial Statements included elsewhere in this
Proxy Statement). Specialty products consist of all other products formulated,
manufactured, and distributed by AGNU to various customers, including Purina.
Included in the specialty products segment are sales of private label and
branded products for which AGNU manufactures goods using registrations and/or
formulas owned by AGNU, and sales of products manufactured under contract for
which AGNU manufactures products using the customers' registrations and/or
formulas.
Given the acquisitions of businesses with branded, consumer-targeted
products and the continued emphasis on growth of the specialty product segment,
the significance of the ingredients segment had decreased in fiscal 1996 and
1997. Management expected this trend to continue in the future. In June 1997,
AGNU discontinued the distribution of ingredients to Purina. In July 1997, AGNU
distributed all of its remaining ingredients inventories and discontinued
operations in its ingredients segment. This segment is accounted for as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations." Accordingly, AGNU has reported
the ingredients segment as discontinued operations and the consolidated
financial statements have been reclassified to report separately the financial
position and operating results of the segment. AGNU's consolidated operating
results for year ended October 31, 1997 has been restated to reflect AGNU's
continuing operations related to its specialty products business. There were no
activities from discontinued operations in fiscal year 1998.
In the fourth quarter of 1997, AGNU formed the Pet Health Care
Division, which is comprised of St. JON, St. JON VRx Products ("St. JON VRx"),
Zema and Mardel. The integration of these companies is expected to produce
certain operating synergies, creating a platform for continued
37
<PAGE>
expansion. The benefits from such integration started to impact AGNU's operating
results in the third quarter of fiscal 1998. During the first six months of
fiscal 1998 production shifted from Zema's Raleigh facility to AGNU's other
manufacturing locations. The distribution functions within the Pet Health Care
Division are anticipated to be consolidated by the end of the fourth quarter.
During August 1998, the Raleigh facility was effectively shut down and is in the
process of being sublet. Consolidation of the sales and administration functions
of the Pet Health Care Division was completed during the third quarter of fiscal
1998. AGNU has incurred certain incremental costs associated with the
integration, but such costs, in the aggregate, have not been nor are expected to
be material to AGNU's consolidated results of operations. AGNU continues to
pursue selective complementary acquisitions, alignments and/or licenses in
support of its core businesses.
The following table represents certain summary operating data on a
comparative basis:
<TABLE>
<CAPTION>
Nine Months
Ended
Fiscal Year Ended October 31, July 31,
------------------------------------------------------------------ -----------------------------------
1995 1996 1997 1997 1998
------------------- -------------------- ------------------ ----------------- ----------------
Dollar % of Dollar % of Dollar % of Dollar % of Dollar % of
amount net sales amount net sales amount net sales amount net sales amount net sales
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $20,063 100.0 $28,661 100.0 $ 31,052 100.0 $ 23,424 100.0 $24,291 100.0
Cost of sales............. 15,979 79.6 20,784 72.5 22,851 73.6 17,416 74.4 17,672 72.8
Gross profit.............. 4,084 20.4 7,877 27.5 8,201 26.4 6,008 25.6 6,619 27.2
Selling, general and
administrative expense.. 4,382 21.8 7,447 26.0 7,130 23.0 5,324 22.7 6,686 27.5
Operating income (loss)... (484) (2.4) 47 .2 979 3.2 684 2.9 (67) (.3)
</TABLE>
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1998
Total net sales increased 4% from $23.4 million in fiscal 1997 to $24.3
million for 1998. This increase reflects a 29% increase in sales of the Pet
Health Care Division due primarily to the acquisition of Mardel Laboratories in
September 1997 and continued strong growth in the pet oral hygiene product
category. The increase was offset by anticipated weakness in the agricultural
portion of PM Resources' business, the timing of certain rodenticide orders
anticipated in the third quarter of fiscal 1998 that are delayed until later in
the year and the impact of unanticipated production shortfalls related to the
consolidation of manufacturing operations within the Pet Health Care Division.
Gross profit increased from $6.0 million in 1997 (25.6% of net sales)
to $6.6 million in 1998 (27.2% of net sales), primarily due to changes in AGNU's
sales mix, which consisted of an increased proportion of sales of the Pet Health
Care Division, which generally has higher margins as compared to sales of AGNU's
private label/contract manufacturing business. Gross profit during the period
was negatively impacted by certain redundant costs incurred during the
consolidation of manufacturing operations within the Pet Health Care Division;
however such consolidation was substantially completed during the third quarter
of fiscal 1998.
Selling, general and administrative expenses increased from $5.3
million in 1997 to $6.7 million in 1998 primarily due to the increased costs
related to Mardel's business, which was acquired in
38
<PAGE>
September 1997. The increase in expenses includes certain redundant expenses
that are being incurred during the consolidation of certain manufacturing,
marketing and overhead expenses among the operating companies that comprise the
Pet Health Care Division. Such consolidation is anticipated to be completed by
the end of AGNU's 1998 fiscal year.
The factors discussed above resulted in an operating loss of
approximately $0.1 million during the nine months ended July 31, 1998, compared
to operating income of approximately $0.7 million for the nine months ended July
31, 1997.
Interest expense was approximately $0.5 million in 1997 and $0.6
million in 1998, reflecting increased debt balances that resulted from AGNU's
investment in Mardel and seasonal working capital.
The effective income tax rate of AGNU was approximately 38.5% for both
1997 and 1998. The aggregate amount of the deferred tax asset valuation
allowance at July 31, 1998 was approximately $0.1 million.
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1997
Total net sales increased 8.3% from $28.7 million in fiscal 1996 to
$31.1 million for 1997, which included net sales of Mardel subsequent to its
acquisition in September 1997. The ingredients segment was discontinued in 1997
and accordingly sales related to this segment are included in results of
discontinued operations for all periods presented and are not reflected in the
table above. The discontinuance of the ingredients segment resulted in a minimal
impact on gross profit due to its sales being of lower margin commodity
products. Sales of pet care products grew 27% reflecting the impact of new
products introduced into the veterinary channel during fiscal 1996 and 1997, and
continued strong growth from AGNU's sales and distribution operation in the
United Kingdom which was acquired in July 1996.
AGNU's manufacturing and supply agreement with Purina pursuant to which
Purina had guaranteed AGNU sufficient sales to generate annual income, net of
ingredient, direct manufacturing, and other direct costs of approximately $2.9
million for the three-year period ended October 31, 1996 expired as of that
date. The Company is currently discussing the future relationship between the
Company and Purina. There can be no assurance what level of sales or income will
be obtained related to this customer in the future. Sales to Purina, excluding
sales of ingredients which were discontinued in July 1997, totaled $4.3 million
for the year ended October 31, 1997 compared to $5.4 million during the year
ended October 31, 1996. 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 AGNU in
December 1996.
Gross profit increased from $7.9 million in 1996 (27.5% of net sales)
to $8.2 million in 1997 (26.4% of net sales), primarily due to the increased
sales in 1997. As a percent of sales, gross profit decreased approximately one
percentage point due primarily to changes in product mix.
Selling, general and administrative expenses were approximately $7.4
million in 1996 and $7.1 million in 1997, decreasing as a percent of net sales
from 26.0% in 1996 to 23.0% in 1997. The decrease in selling, general and
administrative expenses as a percent of sales is related to the impact of
39
<PAGE>
the corporate management restructuring announced in August 1996, combined with
the impact of cost reduction measures implemented at the operating companies.
Severance costs of $240,000 related to the August 1996 management
restructuring were accrued in fiscal 1996 and paid in fiscal 1997. Such costs
were nonrecurring and did not impact fiscal 1997 results.
The factors discussed above resulted in operating income from
continuing operations of approximately $979,000 during the year ended October
31, 1997, a $932,000 improvement compared to the operating income of
approximately $47,000 in the prior year.
Interest expense was approximately $0.6 million in both 1996 and 1997,
with a small increase that reflects increased debt balances that resulted from
AGNU's investment in Mardel and increased sales volume in fiscal 1997.
In March 1997, AGNU terminated its letter of intent related to its
proposed acquisition of Anthony Products Company. In conjunction with this
action, AGNU recorded a $202,000 pre-tax charge in fiscal 1997. Such amount was
included in other income (expense) in AGNU's consolidated statement of
operations.
The effective income tax rate of AGNU was approximately 38% for 1996
and 1997. The aggregate amount of the deferred tax asset valuation allowance at
October 31, 1997 was approximately $0.1 million.
Ingredients sales were approximately $7.7 million and $5.5 million in
1996 and 1997, respectively. Income from discontinued operations in 1997
decreased approximately $99,000 from $114,000 in 1996 to $15,000 in 1997. This
is primarily attributable to decreasing margins from the sales of ingredients
compared to the prior year, combined with decreased volume of units shipped in
1997. In July 1997, AGNU shipped its remaining ingredients inventory and
discontinued operations related to this segment.
Net income in 1997 of $133,000 increased by approximately $260,000
compared to the net loss of $127,000 incurred in fiscal 1996 based on the
various factors described above.
Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended October 31,
1996
Total net sales increased 42.9% from $20.1 million in fiscal 1995 to
$28.7 million for 1996. The ingredients segment was discontinued in 1997 and
accordingly sales related to this segment are included in net results of
discontinued operations for all periods presented and are not reflected in the
table above. The discontinuance of the ingredient segment resulted in a minimal
impact on gross profit due to its sales being of lower margin commodity
products.
Net sales increased $8.6 million 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
40
<PAGE>
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.
AGNU was a party to a manufacturing and supply agreement with Purina
which provided, among other things, that for the three-year term of the
agreement, Purina would guarantee AGNU sufficient annual sales to generate
income, net of ingredient, direct manufacturing, and other direct costs of
approximately $2.9 million (which represents a historically 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 AGNU in December 1996. The
manufacturing and supply agreement expired on October 31, 1996. The Company is
currently discussing the future relationship between the Company and Purina.
There can be no assurance what level of sales or income will be obtained related
to this customer in the future.
Gross profit increased from $4.1 million in 1995 (20.4% of net sales)
to $7.9 million in 1996 (27.5% of net sales), primarily due to the full year of
gross profit generated by Zema and St. JON in 1996 compared to only recognizing
amounts in 1995 subsequent to their acquisition by AGNU effective March 31, 1995
and August 31, 1995, respectively. Gross profit as a percentage of sales
increased primarily due to higher margins realized by Zema and St. JON, compared
to margins realized from AGNU's operations prior to these acquisitions. While
not significantly impacting net sales, the acquisition of Bromethalin in May
1996 also contributed to an increase in gross profit.
Selling, general and administrative expenses increased from $4.4 million or
21.8% of net sales in 1995 to $7.5 million or 26.0% of net sales in 1996. The
increase in selling, general and administrative expenses primarily reflects the
impact of costs that Zema and St. JON incurred subsequent to their acquisition
by AGNU. 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.
Research and development expenses incurred in 1996 were generally
consistent with those incurred by AGNU in the prior year.
In August 1996, AGNU announced a management restructuring reflecting
the shift in AGNU's strategy from that of an acquisition vehicle to that of an
operating company focused on improving financial results and searching for
acquisition candidates on a strategic basis. 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 a reduction in executive salaries.
The factors discussed above resulted in operating income of
approximately $50,000 or approximately 0.2% of net sales in 1996 compared to an
operating loss of approximately $490,000 or 2.4% of net sales in 1995. Operating
income in 1996 exclusive of one-time payments related to the aforementioned
management restructuring would have been approximately $0.3 million or 1% of net
sales.
41
<PAGE>
Interest expense in 1996 increased to approximately $0.6 million from
approximately $0.35 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 $0.15 million in
1996 compared to approximately $0.5 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 AGNU was 142% and 38% for 1995 and
1996, respectively. The effective rate in 1995 is based on AGNU's net loss
before taxes during the period and also reflects the reversal of approximately
$0.1 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 AGNU'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 $0.1 million.
Ingredients sales were approximately $8.9 million and $7.7 million in
1995 and 1996, respectively. Income from discontinued operations in 1996
remained relatively consistent between the years with $140,000 in 1995 compared
to $114,000 in 1996. In July 1997, AGNU shipped its remaining ingredients
inventory and discontinued operations related to this segment.
Liquidity and Capital Resources
AGNU's existing capital requirements are primarily to fund equipment
purchases and working capital needs. During April 1995, AGNU completed the
acquisition of Zema, which required utilization of approximately $3.2 million of
net proceeds from its July 1994 IPO for the acquisition and related expenses in
1995 and which required an additional payment of $300,000 plus interest prior to
April 1998, and potentially additional payments conditioned upon the achievement
of certain operating criteria by Zema which would be due in April 2000. In April
1998 the $300,000 note plus interest was paid. In August 1995, AGNU acquired the
net assets of St. JON, which required approximately $3.5 million of cash, the
assumption of certain liabilities aggregating approximately $1.5 million which
were paid within four months of closing, and an additional $2.0 million plus
interest to be paid in annual installments over six years commencing March 31,
1997. During fiscal 1997, AGNU utilized approximately $1.0 million of cash for
payment of this obligation and related accrued interest, and restructured the
agreement, with annual payments of $325,000 being required over the five years
commencing March 31, 1998. In May 1998, AGNU paid approximately $1.1 million,
the remaining amounts outstanding under this note, to the former owner of St.
JON in conjunction with AGNU's refinancing of its debt as discussed below.
Effective May 1996, AGNU acquired the worldwide patents and other assets and
rights to Bromethalin, which required payments of $1.0 million including related
expenses at closing, and will require additional consideration based on
shipments of Bromethalin to Purina over a five-year period. In September 1997,
AGNU acquired Mardel for cash of approximately $1.0 million and stock valued at
approximately $1.1 million. As additional consideration for the acquisition of
Mardel, AGNU also issued a note payable of $300,000 to the former owners of the
acquired company to be paid in cash and stock over a period of three years. With
the acquisition of Mardel, AGNU utilized its remaining proceeds from the IPO.
During the fiscal year ended October 31, 1995, cash used by operations
approximated $0.1 million. AGNU's operating subsidiaries generated sufficient
cash flows to fund operating requirements
42
<PAGE>
and capital expenditures, as well as to fully service AGNU'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 AGNU's operating subsidiaries, and through utilization
of approximately $0.7 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 $1.7 million reflecting investments in adding new
products to AGNU'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 $0.5
million compared to the prior year reflect temporary increases in certain key
accounts that were subsequently collected during fiscal 1997.
During fiscal 1997, cash generated by operations approximated $1.8
million compared to a use of cash by operations of approximately $2.3 million in
1996. This improvement in cash flows in 1997 was primarily due to emphasis
placed on the operating companies to control and reduce inventory levels, as
well as certain changes to the product mix at Resources, including the
discontinuation of the ingredients segment. AGNU's inventories from continuing
operations decreased $0.7 million during 1997 compared to an increase of $1.7
million in 1996. The discontinuation of the ingredients segment generated cash
of $1.3 million during the year ended October 31, 1997, compared to a use of
cash related to this discontinued segment of $1.0 million during the comparable
period in the prior year. Cash generated from operations in fiscal 1997 was
generally utilized for capital expenditures and to pay down debt.
During the nine months ended July 31, 1997, AGNU provided cash from
operations of approximately $0.7 million. During the nine months ended July 31,
1998, cash used by operations approximated $1.7 million, which was primarily
related to an increased investment in inventory. The additional inventory
consists primarily of new product promotions and a build-up of core products for
the mass markets to reduce the risk of future stock-outs which had been
occurring through the first half of fiscal 1998. Management anticipates that
current inventory levels will be reduced over the balance of the year.
In May 1998, AGNU consolidated its existing credit agreements
increasing the facility to $9.2 million with a maturity date of March 31, 2001.
The new bank agreement also increased borrowing availability for working capital
demand and modified the bank covenants. The new facility consists of $4.5
million in revolving credit lines, the available amount being based upon
specified percentages of qualified accounts receivable and inventory, and a $4.7
million revolving credit line with available amounts being reduced $150,000 per
quarter with the first such reduction on November 30, 1998. On August 6, 1998
and October 2, 1998, AGNU again amended its existing credit facilities,
increasing the latter revolving credit line to $5.2 million from $4.7 million to
meet temporary working capital requirements. The interest rate will range from
prime minus 0.25% to prime plus 0.5%, depending on AGNU's ratio of debt to net
worth, as defined in the new agreement. At July 31, 1998, the interest rate
charged on borrowings outstanding under the new agreement, as amended, was 8.75%
which is the bank's prime rate plus 0.25%. At July 31, 1998, approximately $0.7
million would have been available under this new agreement after increasing
AGNU's credit line to $5.2 million.
At July 31, 1998, AGNU was not in compliance with certain covenants
related to its various financing arrangements. The bank has waived such covenant
violations. In October 1998, the
43
<PAGE>
Company's amended credit agreement revised its debt covenants. The Company is
currently in compliance with its debt covenants, as amended.
Management believes that AGNU will have sufficient cash to meet the
needs of its current operations, including debt service. It is possible that
AGNU could be in technical non-compliance with certain of the financial
covenants under its amended credit agreement in future periods primarily due to
legal, accounting and other transaction costs related to the proposed Merger
with Virbac. Such legal, accounting and other transaction costs will be
reflected as a charge to income in AGNU's statement of operations. Management
believes waivers will be obtained from its bank with respect to any such events
of technical non-compliance. In addition, management is currently in discussions
with its bank, and is also evaluating other strategic alternatives with third
parties, including the proposed Merger with Virbac as discussed herein, to
further address its current and long-term working capital requirements.
The AGNU Board has authorized the repurchase of up to 500,000 shares of
AGNU Common Stock. The amount of funds required will depend upon the actual
number of shares repurchased and the market price paid by AGNU for those shares.
AGNU will utilize available funds to implement this stock repurchase. During the
quarter ended July 31, 1998, 43,311 shares were repurchased under this program
at an aggregate cost of $49,822. As of July 31, 1998, 88,161 shares had been
repurchased under this program at an aggregate cost of $129,364. In August 1998,
AGNU purchased 20,900 shares at an aggregate cost of $23,313. The share
repurchase program has been suspended pending the consummation of the Merger
Agreement.
AGNU has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the nine
months ended July 31, 1998 were approximately $0.5 million. Future capital
expenditures for AGNU's operating subsidiaries are not expected to significantly
exceed historical amounts, which in prior periods approximated current
depreciation expense.
In October 1998, the Company entered a definitive merger agreement with
Virbac, a U.S. subsidiary of the French public animal health company VBSA, under
which VBSA will hold approximately 60% of the outstanding stock of the combined
companies. The transaction, which is subject to approval by the Company's
stockholders, government approval and other customary conditions, is expected to
close in January 1999 and will be accounted for as an acquisition of the Company
by Virbac, pursuant to the purchase method of accounting.
Quarterly Effects and Seasonality
Seasonal patterns of Resources' operations are highly dependent on
weather, feeding economics and the timing of customer orders. The results of
operations of the Pet Health Care Division historically have been seasonal with
a relatively lower volume of its sales and earnings being generated during
AGNU's first fiscal quarter. In addition, consolidation of certain functions
within the Pet Health Care Division are anticipated to be completed by the end
of the second quarter of fiscal 1998.
New Accounting Standards
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting and display of comprehensive income and
components in a financial statement that is displayed with the same
44
<PAGE>
prominence as other financial statements. AGNU continues to analyze FAS 130 and
does not currently expect it to have a significant impact on its financial
statement presentation.
In June 1997, the FASB issued FAS 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting of Segments
of a Business Enterprise." FAS 131 establishes standards for the way public
business enterprises report financial and descriptive information about the
reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. AGNU continues to evaluate the provisions of FAS 131
relative to additional disclosure requirements for its fiscal 1999 financial
statements.
In June 1998, the FASB issued FAS 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires recognition of all derivatives on the balance sheet measured at fair
value. FAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. AGNU continues to evaluate the provisions of FAS
133 to determine its impact on financial position and results of operations.
Year 2000 Compliance
The Company utilizes computer information systems to internally record
and track information, as well as interact with customers, suppliers, financial
institutions and other organizations. The Company has established a plan,
utilizing internal resources and certain external consultants, to assess the
potential impact of the year 2000 on the Company's systems and operations and to
implement solutions to address these issues. The Company has completed a
significant part of the assessment phase of its year 2000 plan with respect to
all key hardware and software systems. The Company's plan for remediation
includes a combination of repair and replacement of affected systems. For the
Company's key systems located in St. Louis, Missouri and Glendale Heights,
Illinois, the Company has completed a significant portion of the repair work
needed to make such systems year 2000 compliant. It has also completed a
significant portion of the testing required to verify the effectiveness of such
repairs. The key systems located in Harbor City, California will be addressed
primarily through an upgrade of the existing software to a year 2000-compliant
version. Such upgrade has been evaluated and initial planning has been
completed. The final implementation of the upgrade has been delayed, pending the
completion of the Merger Agreement and evaluation of information system needs of
the merged organization. The cost of upgrading the systems in Harbor City has
been included in the Company's capital expenditures plan. The costs of repairs
and upgrades to date have not been material to the Company's financial position
or results of operations. Non-key systems at all locations are in the process of
being assessed. Subject to the evaluation and resolution of the information
system needs subsequent to the merger of Virbac and the Company, it is
anticipated that all key systems will be year 2000 compliant by June of 1999.
The Company is diligently quantifying issues and developing contingency
sources to mitigate the risks associated with interruptions in its supply chain
due to year 2000 problems. The Company plans to develop a contingency plan by
July 1999 in the event its systems or its mission-critical vendors do not
achieve year 2000 compliance.
The Company believes that, with appropriate modifications to existing
computer systems/components, updates by vendors and trading partners, and
conversion to new software and
45
<PAGE>
hardware in the ordinary course of business, the year 2000 issues will not pose
significant operational problems for the Company. However, there can be no
assurance that the Company will not experience unanticipated costs and/or
business interruptions due to year 2000 problems in its internal systems, its
supply chain or from customer product migration issues, or that such costs
and/or interruptions will not have a material adverse effect on the Company's
consolidated results of operations. These statements are "Year 2000 Disclosures"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
46
<PAGE>
SELECTED FINANCIAL DATA OF VIRBAC
The following table presents selected financial data for each of the
five years in the period ended December 31, 1997 and the nine month periods
ended September 30, 1997 and 1998 for Virbac. The selected financial data for
each of the two years in the period ended December 31, 1997 are derived from the
Consolidated Financial Statements of Virbac, each of which has been audited by
Arthur Andersen LLP, independent public accountants. The data should be read in
conjunction with the Consolidated Financial Statements of Virbac, and the
related notes thereto, "Virbac Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other financial information included
herein.
<TABLE>
<CAPTION>
Nine Months
Ended
Fiscal Year Ended December 31, September 30,
------------------------------------------------------------------- --------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues....................... $15,260,700 $17,404,685 $18,659,499 $17,493,683 $16,235,284 $14,317,417 $12,868,678
Income (loss) from operations 1,185,291 (68,359) (986,857) (889,354) (730,820) 219,580 (463,301)
Net income (loss).................. 1,170,319 (53,109) (1,095,590) (1,387,248) (1,255,207) (186,572) (879,411)
Income (loss) per common share .22 (.01) (.20) (.17) (.15) (.02) (.10)
Weighted average number of
common shares outstanding....... 5,346,347 5,346,347 5,596,346 8,386,445 8,399,810 8,399,810 8,399,810
BALANCE SHEET DATA:
Cash............................ $ 180,977 $ 26,195 $ 16,965 $ 124,203 $ 84,047 $ 29,425 $ 230,716
Working capital................. 825,756 2,052,400 1,387,132 (166,950) 2,426,916 3,058,912 1,239,589
Total assets.................... 9,428,456 14,732,735 16,123,540 13,792,535 13,391,178 14,324,933 14,911,209
Current portion of notes
payable...................... -- 450,000 800,000 400,000 400,000 1,100,000 1,400,000
Long-term obligations, less current
maturities.................. 500,000 5,050,000 4,250,000 3,450,000 6,650,000 6,650,000 6,250,000
Stockholders' equity............ 4,439,325 4,386,216 6,290,626 4,967,293 3,712,086 4,780,721 2,832,675
</TABLE>
47
<PAGE>
VIRBAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Virbac was incorporated as a Delaware corporation on February 10, 1984. In
1987, Virbac purchased Allerderm, Inc. ("Allerderm"), which, at the time, was
the world's leading U.S. marketer of veterinary dermatological products. In
1989, Virbac purchased Carson Chemicals in New Castle, Indiana, a manufacturer
of pesticide products for use with companion animals. In 1989, Virbac formed
Francodex, Inc. ("Francodex"), a wholly owned subsidiary, to produce
over-the-counter ("OTC") grooming aids and stain and odor removers. Francodex
began marketing products in 1991. In January 1994, Virbac acquired A & I
Laboratories in Arlington, Texas, the manufacturing company from which Virbac
previously purchased most of its dermatologic products. In 1995, in order to
combine its manufacturing, marketing and warehousing operations, Virbac
completed construction of a manufacturing and laboratory facility, adding 58,000
square-feet to its 60,000 square-foot office and warehouse facility in Fort
Worth, Texas. Virbac then relocated its dermatologic products manufacturing from
Arlington to the Fort Worth facility. In January 1998, Virbac merged Allerderm
into Virbac and continued the Allerderm operations as a division of Virbac.
Virbac is one of the leading manufacturers of dermatological products
for companion animals. Virbac's Allerderm(R) line of products treats a wide
range of dermatological problems, including itching and skin and ear
infections--the primary reasons for consulting a veterinarian. The Allerderm(R)
line of products is specially adapted for the characteristics of dog and cat
skin and consists of approximately 30 products. Virbac believes its Allerderm(R)
products are innovative due to the use of a new technology called Spherulites,
which considerably improves a product's efficacy and duration.
Virbac's results of operations presented and discussed herein include
all of the subsidiaries and divisions of the company.
Virbac historically has operated in the ethical veterinary market and the
OTC pet market. The OTC pet channel can be divided into the pet store, the farm
and feed and the mass market segments. Virbac also sells private labeled
products which Virbac manufactures using registrations and/or formulas owned by
Virbac, as well as products which Virbac manufactures under contract using the
customer's own formula.
Virbac's decreasing revenues since 1995 reflect the decline in Virbac's
pesticide sales. With the exception of the Preventic Tick Collar, all pesticide
products have been negatively impacted by heavy direct-to-the-consumer
advertising campaigns by competitors. These campaigns have moved consumers to
the veterinarian office to purchase new proprietary flea products. As a result,
Virbac recently has focused its promotional resources on the veterinary sector
and has increased its sales of its dermatological products in this sector. In
addition, Virbac has begun to focus on increasing sales in the mass-market
sector.
In the first quarter of 1998, Virbac merged Allerderm into Virbac, as a
result of which, Allerderm has become an operating division of Virbac. The
purpose of this merger was to decrease redundancies in corporate administrative
reporting. There was no disruption in Virbac's business as a result of this
merger.
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<PAGE>
Due to the decline in sales of pesticide products industry wide, it was
determined that cost savings could be realized by contracting with third parties
for the production of Virbac's pesticide products and closing the New Castle,
Indiana facility during the fourth quarter of 1998. It has not been determined
what the final disposition of the New Castle facility will be. Management
believes that the costs associated with the shut down of this facility will not
be material to the results of Virbac's operations.
In October 1998, Virbac entered a definitive merger agreement with
AGNU. The transaction, which is subject to approval by AGNU's stockholders,
government approval and other customary conditions, is expected to close in
January 1999 and will be accounted for as an acquisition of AGNU by Virbac,
pursuant to the purchase method of accounting.
The following table represents certain summary operating data on a
comparative basis (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
Fiscal Year Ended December 31, September 30,
----------------------------------------------------------------- -----------------------------------
1995 1996 1997 1997 1998
------------------ -------------------- ------------------ --------------- ----------------
Dollar % of Dollar % of Dollar % of Dollar % of Dollar % of
amount net sales amount net sales amount net sales amount net sales amount net sales
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $18,659 100.0 $17,494 100.0 $ 16,235 100.0 14,317 100.0 12,869 100.0
Cost of goods sold......... 8,168 43.8 6,843 39.1 5,910 36.4 5,171 36.1 4,744 36.9
Gross profit............... 10,491 56.2 10,651 60.9 10,325 63.6 9,146 63.9 8,125 63.1
Operating expenses......... 11,478 61.5 11,540 66.0 11,056 68.1 8,926 62.3 8,588 66.7
Income (loss) from
operations.............. (987) (5.3) (889) (5.1) (731) (4.5) 220 1.6 (463) (3.6)
</TABLE>
Nine Months Ended September 30, 1997 Compared with Nine Months Ended September
30, 1998
Net revenues decreased 10.1% from $14.3 million in the 1997 period to
$12.9 million in the 1998 period, primarily due to heavy competition in the
pesticide market that negatively affected business in the pet and ethical trade
markets. In addition, ethical distributors for Virbac carried forward
significant inventories of the Preventic Tick Collar that resulted in lower than
expected sales in the first half of 1998.
Cost of goods sold decreased 8.3% from $5.2 million in the 1997 period to
$4.7 million in the 1998 period primarily due to the decrease in the sales
volume as discussed above. As a percentage of revenues, cost of goods sold
increased from 36.1% to 36.9% due to a shift in sales mix and the outsourcing of
manufacturing of some new products launched in 1997, including Nutraceuticals
and Spot Ons.
Operating expenses decreased 3.8% from $8.9 million in the 1997 period
to $8.6 million in the 1998 period. Sales and marketing expenses remained
constant at $4.7 million, but as a percentage of revenues increased from 33.0%
to 36.4% due to higher percentage of marketing dollars spent on the Preventic
Tick Collars and new product launches. General and administrative expenses
increased 6.9% from $2.0 million to $2.2 million and, as a percentage of
revenues, increased from 14.2% to 16.8% due to increased professional fees
incurred in pursuing acquisitions and increased staff expenses. Warehouse and
distribution expenses remained constant at $1.0 million, and as a percentage of
revenues increased
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<PAGE>
from 7.2% to 8.1% due to increased freight rates of common carriers and
decreased sales volumes. Research and development expense decreased 39.4% from
$1.1 million to $0.7 million due to the lack of a research and development
director from March to September.
Interest expense increased 4.5% in the 1998 period due to increased
debt of $2.0 million from Virbac S.A.
Net loss increased from $0.2 million for the 1997 period to $0.9
million for the 1998 period due to the decrease in revenues and the other
factors discussed above.
The Company did not record a benefit for income taxes for the nine months
ended September 30, 1997 or 1998.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1997
Net revenues decreased 7.2% from $17.5 million in 1996 to $16.2 million in
1997, primarily due to the decline in pesticide sales in the fourth quarter in
both the pet and ethical trade markets. Competitors invested heavily in
television and print advertising, which resulted in a shift of consumer
purchases from the pet stores to veterinary offices.
Cost of goods sold decreased 13.6% from $6.8 million in 1996 to $5.9
million in 1997 primarily due to the decrease in sales volume. Cost of goods
sold decreased, as a percentage of revenues, from 39.1% to 36.4% due to a shift
in sales mix to more sales of ethical products which historically had higher
margins in 1997.
Operating expenses decreased 4.2% from $11.5 million in 1996 to $11.1
million in 1997. Sales and marketing expenses increased 3.6% from $5.5 million
in 1996 to $5.7 million in 1997 and increased as a percentage of revenues from
31.3% to 35.3% primarily due to promotional and advertising expenses relating to
television and print advertising campaigns. General and administrative expenses
decreased 19.4% from $3.3 million to $2.7 million and as a percentage of revenue
from 18.9% to 16.4% due to a reduction of executive compensation expense. In
1996, Virbac hired a new chief executive officer and a new chief financial
officer while the existing officers were still employed. Once the existing
officers left Virbac, executive compensation expense returned to a normal level.
Warehouse and distribution expenses remained relatively constant at
approximately $1.3 million and increased as a percentage of sales from 7.5% to
7.8% due to fixed warehouse expenses and reduced sales volume. Research and
development expense remained constant at $1.4 million.
Interest expense remained relatively constant at approximately $0.5
million.
Net loss decreased from $1.4 million in 1996 to $1.3 million in 1997
primarily due to the factors discussed above.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1996
Net revenues decreased 6.2% from $18.7 million in 1995 to $17.5 million
in 1996 primarily due to the decline in contract manufacturing sales.
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Cost of goods sold decreased 16.2% from $8.2 million in 1995 to $6.8
million in 1996 and as a percentage of revenues decreased from 43.8% to 39.1%,
due to a change in product mix and a decline in low margin contract
manufacturing sales.
Operating expenses remained constant at $11.5 million. Sales and
marketing expenses decreased 4.7% from $5.7 million in 1995 to $5.5 million in
1996 due to the restructuring of the compensation plan for the sales force,
which lowered base pay and increased the commission percentage. General and
administrative expenses increased 13.0% from $3.0 million to $3.3 million
primarily due to the increased executive compensation expense, as discussed
above. Warehouse and distribution expenses decreased 7.1% from $1.4 million to
$1.3 million and as a percentage of revenues decreased from 7.5% to 7.4%
primarily due to decreased sales orders and improved discount rates by common
carriers. Research and development expenses increased 3.6% from $1.4 million to
$1.5 million due to increases in clinical studies for testing potential new
products.
Interest expense decreased from $0.6 million to $0.5 million due to
Virbac paying down its debt. In addition, a $1.0 million line of credit was
moved from one financial institution to another with more favorable interest
rates.
Net loss increased from $1.1 million for 1995 to $1.4 million for 1996
period primarily due to decreased revenues and the other factors discussed
above.
Liquidity and Capital Resources
Historically, Virbac's liquidity requirements have arisen primarily
from its debt service requirements and working capital needs.
Virbac used cash flows of approximately $5,000 for operating activities in
1997 compared to providing approximately $1.0 million for operating activities
in 1996. The increase in cash used for operations is primarily the result of an
increase in inventory, partially offset by an increase in accounts payable. Cash
flows used for investing activities were approximately $236,000 in 1997,
primarily resulting from the purchase of property and equipment and the
acquisition of intangible assets. Cash flows provided by financing activities
were $200,000 in 1997. Virbac received proceeds from borrowings that reduced the
existing notes payable, line of credit and advances from the parent outstanding.
Virbac's principal sources of cash have been proceeds from borrowings under
a term loan, a $4.0 million revolving line of credit with a financial
institution and advances from VBSA. Under the term loan, which is due in full on
July 1, 1999, interest is due quarterly at LIBOR plus 0.75% (6.4375% as of
September 30, 1998) and the principal is due in semiannual installments of
$400,000 on July 1 and January 1 each year. As of September 30, 1998, $2,200,000
was outstanding under the term loan. As of September 30, 1998, $4,000,000 was
outstanding under the revolving line of credit, which expires July 6, 2000, and
interest is due quarterly at LIBOR plus .95% (6.73125% as of September 30,
1998). Under a money market line of credit interest is due quarterly at LIBOR
plus 0.75% (6.21875% as of September 30, 1998). As of September 30, 1998,
$1,000,000 was outstanding under the line of credit.
As of September 30, 1998, Virbac had outstanding advances from VBSA of
$2.0 million. Interest on this advance is due monthly at LIBOR rate (5.6575% as
of September 30, 1998) and the principal is due on demand.
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<PAGE>
Virbac has outstanding a $450,000 note payable to VBSA with terms that
mirror the terms of a note receivable from a corporation formed by a former
executive of Virbac. This note receivable bears interest at 6% per year with
interest payable semiannually. Principal payments of $50,000 are due annually.
The borrower has not made scheduled payments to Virbac since 1994. Virbac is
required to make payments on its $450,000 note payable only as payments are
received on the note receivable. Virbac plans to transfer the note payable and
related note receivable to a wholly owned subsidiary of VBSA prior to year end
1998.
Under the Merger Agreement, prior to the Effective Time of the Merger,
Virbac Sub will contribute cash in an amount equal to $6.7 million plus an
amount equal to the difference between (i) Virbac's notes payable to the
financial institution and its parent plus a percentage of a broker's fee payable
in connection with the Merger and (ii) cash accrued on the books of Virbac as of
December 31, 1998.
As of September 30, 1998, Virbac had no material commitments for capital
expenditures.
Seasonality
The results of operations of certain products in the ethical product
line, including Virbac's flea and tick collars, have been seasonal with a lower
volume of its sales and earnings being generated during Virbac's first and
fourth fiscal quarters.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
components in a financial statement that is displayed with the same prominence
as other financial statements. Management does not expect it to have a
significant impact on its financial statement presentation.
Year 2000 Compliance
The Year 2000 issue arises as a result of computer programs being
written using two digits rather than four to define the applicable year.
Consequently, these computer programs may contain time-sensitive software which
recognizes a date using "00" as the year 1900 rather than the year 2000. The
impact of the Year 2000 issue extends beyond traditional computer hardware and
software systems and may potentially impact telephone systems, building
facilities systems, security systems and systems utilized by outside vendors.
Failure to effectively address the Year 2000 issue could result in a disruption
of operations and the inability to process transactions or to perform other
normal business activities.
Virbac's mainframe computer hardware and software systems have been
reviewed for Year 2000 compliance by a consultant. Based on this review, the
mainframe operating system has been updated to support Year 2000 processing.
Virbac is in the process of updating its software systems and such update is
approximately 50% completed.
Virbac has also initiated discussions with its suppliers to determine
whether such suppliers are Year 2000 compliant. Discussions with these suppliers
are in the preliminary stages and there is no
52
<PAGE>
guarantee that the systems of these companies will be converted on a timely
basis. However, in the event that any of its suppliers do not become Year 2000
compliant, Virbac does not believe that such non-compliance will have a material
impact on Virbac's operations because the raw materials used by Virbac in the
production of its products are readily available from alternative suppliers.
Virbac has also begun the initial assessment of its non-information
technology systems (telephones, elevators, alarm systems, vendors, etc.). The
costs of microcomputer software compliance and Year 2000 compliance for the
non-information technology systems have not been estimated at this time.
Management believes Virbac can resolve critical Year 2000 issues by
July, 1999. However, as of September 30, 1998, Virbac had not completed all
phases of its analysis process. The potential cost of the Year 2000 project and
dates on which Virbac believes applicable modifications will be completed are
based on estimates involving the utilization of internal resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from anticipated results.
Specific factors which might cause such material differences include, but are
not limited to, the continued availability of trained personnel, the ability to
locate and correct all relevant computer codes and similar uncertainties.
53
<PAGE>
INFORMATION REGARDING AGNU
Business Overview
AGNU manufactures and distributes a wide variety of health, grooming
and nutritional products for the pet and animal health industries and selective
products for the chemical specialties industry. AGNU's Pet Health Care Division
represents the consolidation of four businesses acquired between 1995 and
1997--Zema, St. JON, St. JON VRx, and Mardel. Resources formulates private-label
products for the animal health and specialty chemical industries.
AGNU'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. AGNU 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
AGNU include:
o medicated treatments to prevent and treat disease and/or
promote growth in livestock and pets, including fish;
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 aquarium water conditioners and test strips;
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;
o home, lawn, and garden products to prevent insect infestation
in turf and shrubs; and
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o specialty compounds used by manufacturers in the formulation
of plastics and related products.
AGNU sells its products to 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. Sales are effected through a combination of full-time sales persons and
independent sales representatives, utilizing telemarketing and other means.
AGNU's pet care products are sold primarily under its own brand names,
including C.E.T.(R), Petrodex(R), Maracyn(R) and Zema(R), and, to a lesser
extent, on a private-label basis. AGNU's animal health products other than pet
care products are sold primarily on a private-label basis under its customers'
brand names. During 1997, branded products accounted for approximately 48% of
AGNU's net sales.
AGNU offers its private-label 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 data to their customers
or regulators. Registration services consist primarily of maintaining AGNU's
Environmental Protection Agency ("EPA") and Food and Drug Administration ("FDA")
product registrations and assisting customers in maintaining their
registrations. 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. AGNU also
provides distribution and warehousing services to a number of its customers.
AGNU has numerous EPA and FDA product registrations and trademarks and
patents. Its EPA product registrations 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,
registrants are required periodically to reregister certain products with the
EPA. Certain of AGNU's 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.
AGNU's FDA new animal drug applications ("NADAs") permit it 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. AGNU also has
FDA manufacturing site approvals enabling the company to manufacture animal
drugs covered by NADAs held by other companies.
AGNU's trademarks relate primarily to its pet care products which are
marketed under the St. JON Pet Care(R), Mardel(R), VRx(R), Zema(R) and Pulvex(R)
labels. AGNU's trademarks also include Petromalt(R), a hairball remedy for cats
originally introduced in 1923; Petrodex(R) and C.E.T.(R), lines of dental
products for dogs and cats; Petrelief(R), a line of dermatological products for
cats and dogs; Doggydent(R), a line of oral hygiene products for dogs;
Maracyn(R), a leading fish antibiotic introduced in 1969; and Trounce(R) used to
market rodenticides, AGNU also has trademark registrations pending for various
additional pet care products.
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AGNU 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 December 1997,
AGNU obtained exclusive rights to patents supporting a bioadhesive patch
technology, including exclusive distribution rights to Stomadhex(TM), a
chlorhexidine based antibacterial patch that can be placed in a pet's mouth
following dental procedures to maintain oral health. In May 1998, AGNU obtained
exclusive world-wide rights to manufacture and market a line of palatable
medications for companion animals including Palaprin(R), PalaBIS(TM) and
Palapectate(TM). In August 1998, AGNU obtained the North American and U.K.
rights to market and distribute certain proprietary, patented, biology-based
products for the treatment of periodontal disease marketed to companion animals
as Emdovet(TM) and Profgel(TM). In addition, AGNU owns the worldwide patents for
Bromethalin(R), a highly effective and proprietary rodenticide serving
agricultural and Pest Control Operator markets. Certain Bromethalin(R) patents
expired in 1997 with remaining patents expiring in 1999.
The active ingredients in AGNU's products are not manufactured by AGNU,
but are generally purchased from major raw materials manufacturers. AGNU
generally purchases materials on an as-needed basis, as it is generally
unnecessary for AGNU to maintain large inventories of such materials in order to
meet rapid delivery requirements or assure itself of adequate supply. AGNU
purchases certain raw materials from multiple suppliers; some materials,
however, are proprietary, and AGNU's ability to procure such materials is
limited to suppliers with proprietary rights. AGNU considers its relationships
with its suppliers to be good. AGNU also purchases certain raw materials the
availability of which is subject to EPA, FDA, or other regulatory approvals.
Some of AGNU's customers provide AGNU with the raw materials used in the
production of their products.
AGNU's competitors fall into roughly four categories: animal health
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 AGNU's competitors in specific market niches are larger and
have greater financial resources than AGNU. In addition, regulatory surveillance
and enforcement are accelerating, which is likely to result in fewer competitors
that have even greater resources. Much of the competition in the industries
served by AGNU centers around price. AGNU 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.
AGNU'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 ("OSHA"), 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 AGNU 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 AGNU.
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<PAGE>
AGNU's operations also 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.
AGNU has approximately 210 full-time employees, of which approximately
120 are engaged in manufacturing activities and 22 in sales and marketing
activities. Forty-five 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 will expire on January
31, 1999. AGNU 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. AGNU considers its
employee and union relations to be good.
AGNU 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.
AGNU leases its corporate headquarters in Maryland Heights, Missouri,
and manufacturing, office, warehouse, and distribution facilities located near
Los Angeles, California, Glendale Heights, Illinois and Yeovil, the United
Kingdom, under non-cancelable leases expiring August 2000, October 1999 and
December 2002, respectively. AGNU also leases certain equipment under
non-cancelable operating leases. The Raleigh, North Carolina facility, which is
under a non-cancelable lease expiring in April 2000, has been substantially shut
down and is in the process of being subleased. Management believes that AGNU's
facilities are adequate and suitable for its current operations.
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COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Record Date and giving effect
to the Merger by (i) each person who is known by the Company to be the
beneficial owner of more than five percent of the Company's outstanding Common
Stock, (ii) each Director of the Company, (iii) certain executive officers of
the Company, (iv) VBSA Sub, and (v) all Directors and executive officers of the
Company as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed, based on information furnished by
such owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Unless otherwise indicated,
the address of each stockholder is: c/o Agri-Nutrition Group Limited, Riverport
Executive Center II, 13801 Riverport Drive, Suite 111, Maryland Heights,
Missouri 63043.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1) Percentage Ownership(1)
Before the After the Before the After the
Beneficial Owner Merger Merger Merger Merger (2)
---------------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Durvet/PMR, L.P. (3).................. 1,240,000 1,240,000 13.4% 5.7%
W. M. Jones, Jr. (4).................. 661,173 661,173 6.7% 3.0%
Bruce G. Baker (5).................... 618,291 618,291 6.6% 2.8%
Robert W. Schlutz (6)................. 476,947 476,947 5.2% 2.2%
Alec L. Poitevint, II (7)............. 389,400 389,400 4.2% 1.8%
Robert E. Hormann (8)................. 226,094 226,094 2.4% 1.0%
Robert J. Elfanbaum (9)............... 102,375 102,375 1.1% 0.5%
VBSA Sub.............................. -- 12,500,000 -- 57.2%
Directors and Executive
Officers as a Group
(6 persons) (10)...................... 2,474,280 2,474,280 24.7% 11.0%
</TABLE>
(1) Includes shares issuable upon the exercise of options that are
exercisable within 60 days of the date of this Proxy Statement. The
shares underlying such options are deemed to be outstanding for the
purpose of computing the percentage of outstanding stock owned by such
persons individually and by each group of which they are a member, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Does not give effect to the Mandatory Tender Offer, which will increase
percentage ownership to 60.0%. VBSA Sub's address is 13 emme rue-L.I.D.,
06517 Carros Cedex, France.
(3) The address of Durvet/PMR, L.P. is P.O. Box 279, 100 S.E. Magellan Drive,
Blue Springs, Missouri 64014. The general partner of Durvet/PMR, L.P. is
Durvet, Inc., and the limited partners of Durvet/PMR L.P. are the 25
stockholders of Durvet, Inc., each of which has a 3.2% interest in the
partnership.
(4) Includes options to purchase 558,000 shares of Common Stock.
(5) Includes options to purchase 100,000 shares of Common Stock and shares
held by Mr. Baker's spouse. Excludes 37,200 shares held by an independent
trustee for the benefit of three adult children and 12,000 shares held by
such children.
(6) Mr. Schlutz's address is Schlutz Enterprises, Box 269, 14812 "N" Avenue,
Columbus Junction, Iowa 52738. Includes options to purchase 3,668 shares
of Common Stock. Also includes shares held by Mr. Schlutz as trustee for
his spouse.
(7) Mr. Poitevint's address is Southeastern Minerals, Inc., P.O. Box 1866,
1100 Dothan Road, Bainbridge, Georgia 31718. Includes options to purchase
3,334 shares of Common Stock. Also includes 166,900 shares held by
Marshall Minerals, Inc. and 184,000 shares held by Mineral Associates,
Inc. Mr. Poitevint is president and chairman of both corporations, but is
not a controlling shareholder of either corporation, and disclaims
beneficial ownership of such shares. Includes 10,000 shares held as
custodian for a minor child and 10,000 shares held by an adult daughter.
Mr. Poitevint also disclaims beneficial ownership of such shares.
(8) Mr. Hormann's address is P.O. Box 279, 100 S.E. Magellan Drive, Blue
Springs, Missouri 64014. Includes options to purchase 3,668 shares of
Common Stock. Also includes shares held by and jointly with spouse. Does
not include 1,240,000 shares held by Durvet/PMR, L.P., the general
partner of which is Durvet, Inc., of which Mr. Hormann is a director and
president. Mr. Hormann is not a stockholder of Durvet and disclaims
beneficial ownership of such shares.
(9) Includes options to purchase 90,000 shares of Common Stock and shares
held in Mr. Elfanbaum's IRA Plan.
(10) Includes options to purchase 758,670 shares of Common Stock.
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INFORMATION REGARDING VIRBAC
Business Overview
Virbac, based in Fort Worth, Texas, develops, manufactures, markets,
distributes and sells a variety of animal health products, focusing on
dermatological, parasiticide and dental products. Virbac distributes and sells
its products throughout the United States and Canada and does not currently
intend to distribute products in any other foreign markets. Virbac is the
indirect U.S. subsidiary of VBSA, a French veterinary pharmaceutical
manufacturer with operations throughout western Europe, Poland, Mexico, Brazil,
Australia, New Zealand and several countries in the Far East.
Virbac is one of the leading manufacturers of dermatological products
for companion animals. Virbac's Allerderm(R) line of products treats a wide
range of dermatological problems, including itching and skin and ear
infections--the primary reasons for consulting a veterinarian. The Allerderm(R)
line of products is specially adapted for the characteristics of dog and cat
skin and consists of approximately 30 products. Virbac believes its Allerderm(R)
products are innovative due to the use of a new technology called Spherulites,
which considerably improves a product's efficacy and duration.
Products and Product Development
Virbac's products are used exclusively to promote the health and hygiene of
companion animals--principally dogs and cats. Its products are divided into two
basic lines--the Allerderm(R) line, serving the ethical market and distributed
exclusively to veterinary clinics, and the Francodex(R) OTC line, distributed to
pet stores, farm and feed distributors and mass-market outlets. Approximately
90% of 1995, 1996 and 1997 revenues were derived from the Allerderm(R) line.
Virbac's ethical products are marketed under various of its own brand
names, including Preventic(TM), Knockout(TM), Dermazole(TM), Allergroom(TM),
Cortisoothe(TM), Epi-Otic(TM) and EfaVite(TM). Virbac's ethical products include
a wide range of emollient, anti-inflammatory and antipruritic, cleansing and
antiparasitic products, as well as nutritional supplements. These products
include the following:
o flea and tick products, including collars, insect growth regulators
and sprays;
o dermatological products, including anti-itch, anti-microbial and
anti-inflammatory shampoos and lotions;
o ear cleansers, including anti-microbial and anti-inflammatory
treatments;
o oral hygiene products, including rinses, polish and toothpaste; and
o nutritional supplements to promote healthy coat and skin.
Virbac's OTC line is marketed under the Francodex(R), Healthy
Companion(TM), TickArrest(TM), Stain Sealer(TM) and Flea Science(TM) labels. The
variety of Virbac's OTC line of products helps assure the right product is
available for each breed, coat and condition and includes adjuncts for allergic
conditions, exzema and seborrhea. These products include the following:
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o Healthy Companion(TM) products, including Odor and Stain Eliminator,
Gas Eliminator, Joint Eze, Pet Serene, Healthy Coat, Mega Bubble
Oatmeal Shampoo, Flea & Tick Blaster with Oatmeal and Detach Tick
Collars;
o TickArrest(TM), which prevents ticks from attaching to dogs and
detaches ticks from dogs;
o Stain Stealer(TM), which removes stains and odors from clothes,
carpeting and upholstery;
o Flea Science(TM) products, including Spot On, shampoo for dogs,
carpet spray, fogger and earmite drops; and
o a full line of dog shampoos, each developed to meet a special
need or condition of dogs, including hydrocortisone shampoo
and spray, and a waterless shampoo for cats.
Virbac manufactures the majority of the products it distributes.
However, some products are manufactured by third parties, including VBSA, which
manufactures, among other products, Virbac's flea and tick collars.
History of Virbac
Virbac was incorporated as a Delaware corporation on February 10, 1984. In
1987, Virbac purchased Allerderm, which, at the time, was the world's leading
U.S. marketer of veterinary dermatological products. In 1989, Virbac purchased
Carson Chemicals in New Castle, Indiana, a manufacturer of pesticide products
for use with companion animals. In 1989, Virbac formed Francodex, a wholly owned
subsidiary, to produce OTC grooming aids and stain and odor removers. Francodex
began marketing products in 1991. In January 1994, Virbac acquired A & I
Laboratories in Arlington, Texas, the manufacturing company from which Virbac
previously purchased most of its dermatologic products. In 1995, in order to
combine its manufacturing, marketing and warehousing operations, Virbac
completed construction of a manufacturing and laboratory facility, adding 58,000
square-feet to its 60,000 square-foot office and warehouse facility in Fort
Worth, Texas. Virbac then relocated its dermatologic products manufacturing from
Arlington to the Fort Worth facility. In January 1998, Virbac merged Allerderm
into Virbac and continued Allerderm's operations as a division of Virbac.
Research and Development
Virbac maintains a research and development staff for the purpose of
developing improved products. Currently, Virbac's product development efforts
are focused on new formulations for dermatology. Virbac believes it is an
international leader in pet dermatology product development and a recognized
authority in insect growth regulator research. Virbac does not produce chemical
compounds, but develops formulas adapted to the needs of companion animals
either from generic compounds or from original compounds. Virbac currently has
licenses for all original compounds used in its manufacturing process. Virbac
believes that the loss of any such license would not have a material effect on
the business of Virbac as such licenses can be easily replaced.
60
<PAGE>
In developing new or improved products, Virbac considers a variety of
factors, including (i) existing or potential marketing opportunities for such
products, (ii) the capability of Virbac to manufacture such products, (iii)
whether such products complement existing products of Virbac, and (iv) the
opportunities to leverage such products with the development of additional
products. During 1997, Virbac spent approximately $750,000 on research and
development and approximately $200,000 on clinical studies of products. Virbac
also conducts research on VBSA products that have the potential to be
distributed on a world-wide basis.
Patents and Trademarks
Virbac holds three patents related to its insect growth regulators,
which are applied through shampoos and collars as well as systemically. Some of
Virbac's products incorporate VBSA's patented Spherulite(R) technology, which is
manufactured by VBSA and enables active ingredients to be progressively
discharged following application of the product.
Virbac currently has 71 active, registered trademarks. Virbac owns the
registered Allerderm(R) trademark in the U.S. and Canada. VBSA has registered
the Allerderm(R) trademark in France, Germany and various other countries.
Virbac has entered into a License Agreement with VBSA whereby Virbac may use the
HC Healthy Companion Protection(TM) and the Healthy Companion(TM) trademarks,
which are owned by VBSA.
Manufacturing
Virbac owns and operates a 118,000 square-foot drug and cosmetic
manufacturing facility in Fort Worth, at which it manufactures various products
in both its Allerderm(R) and Francodex(R) lines, as well as products for third
parties. The facility is an FDA registered manufacturing site and an EPA
registered repackaging site. The facility includes manufacturing, packaging,
laboratory, office and warehouse space.
Virbac also has fully integrated manufacturing support systems at its
Fort Worth facility, including quality assurance, quality control, regulatory
compliance, inventory control and packaging. These support systems enable Virbac
to maintain high standards of quality for its products and simultaneously
deliver reliable products to its customers on a timely basis.
The Fort Worth facility also contains three laboratories and houses
Virbac's marketing, accounting, logistics and administrative staffs. Until
recently, Virbac also operated a 55,000 square-foot facility in New Castle,
Indiana, which produced a variety of its parasiticide and grooming products.
This facility has been closed and the products formerly manufactured at the
facility are being manufactured for Virbac by third parties. Virbac has not
determined what the facility will be used for in the future.
Virbac requires a supply of quality raw materials and components to
manufacture and package its products for itself and for third parties with which
it has contracted. Most of these raw materials and components are readily
available from a number of sources. While Virbac has encountered no difficulty
obtaining raw materials and components from suppliers in the past, there can be
no assurance that such raw materials and components will continue to be
available on commercially acceptable terms in the future. Although Virbac has no
reason to believe it will be unable to procure adequate supplies of raw
materials and components on a timely basis, if for any reason Virbac is unable
to obtain sufficient quantities of any of the raw materials or components
required to produce and package its products, it may
61
<PAGE>
not be able to distribute its products as planned, which could have a materially
adverse effect on Virbac's business, financial condition and results of
operations.
Currently, Virbac uses only approximately 35% of its manufacturing
facility. It plans to continue to develop and market products that are
manufactured in its own plant as well as to manufacture additional products for
third parties.
Sales and Marketing
Virbac's products are sold through a combination of full-time sales persons
and independent sales representatives, with separate sales forces employed for
each of its ethical and OTC lines. Virbac distributes is ethical line of
products to veterinarians through wholesale distributors. Its marketing and
sales promotions target veterinarians through education and sampling to
encourage veterinarians to prescribe and sell more of Virbac's products. Virbac
offers incentive programs to its customers to encourage purchases in larger
amounts.
Virbac's OTC line is sold to retailers such as pet store chains, grocery
stores and mass merchandisers. The promotion of its OTC products is focused on
obtaining shelf space in retail outlets through sales representatives.
Customers
Virbac sells its products to approximately 31 customers for its ethical
line of products and approximately 229 customers for its OTC line. Virbac's
customers are 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. Virbac is
currently dependent upon a small number of customers for its ethical line of
products, which product line represented approximately 90% of Virbac's sales
revenue in fiscal 1997. For the nine months ended September 30, 1998, as well as
for the year ended December 31, 1997, approximately 69% of its sales were
attributable to nine customers. The loss of any one of these customers could
have a material adverse effect on Virbac's business, financial condition and
results of operations.
Competition
The dermatological and anti-microbial pet health care industries are
highly competitive, with many established manufacturers, suppliers and
distributors actively engaged in all phases of the business. Virbac believes it
is one of the top two companies in these industries in terms of gross sales.
Principal competitors of Virbac's ethical products line are DVM Pharmaceuticals
and IGI Inc. Virbac competes in these industries by producing innovative
products and offering incentive marketing programs to its customers. With some
products, such as Preventic, Virbac also targets niche markets where no other
company provides a product similar to Virbac's product.
Virbac's pet grooming products compete primarily with products of other
large, global, companion pet grooming supply companies such as Hartz Mountain
Company, Zodiac Pet Products and Lambert Kay. Approximately 15 companies
currently compete in the pet grooming products industry, of which Virbac ranks
approximately seventh in gross sales according to the September 1998 edition of
Pet Age magazine. Although some of Virbac's competitors offer broader product
lines and have greater
62
<PAGE>
name recognition, Virbac believes it competes effectively in the pet grooming
products industry through superior formulation of the products and the use of
attractive packaging. There can be no assurance that Virbac's competitors will
not develop or market products that are more effective or commercially
attractive than Virbac's current or future products.
Regulatory and Environmental Matters
Virbac's research and development activities, manufacturing, marketing and
labeling of its products are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and Canada. In
the United States, Virbac is principally regulated by the FDA as well as by the
FTC and the EPA. In Canada, Virbac is regulated by the Bureau of Veterinary
Drugs and the Pesticide Management Regulatory Agency.
Currently, Virbac's Fort Worth, Texas facility holds an approved
establishment number from the EPA for repackaging and an FDA establishment
number. Virbac believes that it has the proper FDA approvals or other marketing
authority to produce and market its current products and products being
developed.
The federal government has extensive enforcement powers over the
activities of veterinary pharmaceutical manufacturers, including authority to
withdraw product approvals, commence actions to seize and prohibit the sale of
unapproved or non-complying products, and to halt manufacturing operations that
are not in compliance with applicable laws and regulations. Virbac has not
experienced any such restrictions or prohibitions. However, any such
restrictions or prohibitions on sales or withdrawal of approval of products
marketed by Virbac could materially adversely affect Virbac's business,
financial condition and results to operation.
While Virbac believes that all of its current pharmaceuticals are in
compliance with all applicable FDA regulations or have received requisite
government approvals for manufacture and sale, such marketing authority is
subject to revocation by the applicable government agencies. In addition,
modifications or enhancements of approved products are in many circumstances
subject to additional FDA approvals which may be subject to a lengthy
application process and may ultimately be rejected. Virbac's manufacturing
facilities are continually subject to inspection by such governmental agencies
and manufacturing operations could be interrupted or halted in any such
facilities if such inspections prove unsatisfactory.
The product development and approval process within applicable
regulatory frameworks may take a number of years to successfully complete and
involves the expenditure of substantial resources. Additional government
regulation may be established that could prevent or delay regulatory approval of
any one or more of Virbac's products. Delays or rejections in obtaining
regulatory approvals would adversely affect Virbac's ability to commercialize
any product Virbac develops and Virbac's ability to receive product revenues or
royalties. If regulatory approval of a product is granted, the approval may
include limitations on the indicted uses for which the product may be marketed.
In addition to regulations enforced by the USDA and the FDA, Virbac is
subject to regulation under the Occupational Safety and Health Act, the EPA, the
Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other federal, state or local regulations. Virbac's research and development and
manufacturing activities involve the controlled use of hazardous materials and
chemicals. Although Virbac believes that its safety procedures for handling and
disposing of such materials comply
63
<PAGE>
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Virbac could be held liable for
any damages that result and any such liability could exceed the resources of
Virbac.
Employees
Virbac has approximately 96 full-time employees, 41 of whom are employed in
connection with the sales and marketing of Virbac's ethical product line and 12
of whom are employed in connection with the sales and marketing of its OTC line.
None of its employees are covered by collective bargaining agreements.
Legal Proceedings
From time to time, Virbac is a party to legal proceedings arising in
the ordinary course of business. Virbac believes that it is not a party to any
legal proceedings which, if adversely decided, would have a material adverse
effect on Virbac's business, financial condition and results of operations.
64
<PAGE>
MANAGEMENT AFTER THE MERGER
Directors and Executive Officers
The Directors and executive officers of the Company after the
consummation of the Merger will be:
Name Age Position
---- --- --------
Pascal Boissy.............. 56 Chairman and Director
Brian Crook, D.V.M......... 38 Chief Executive Officer and Director
Bruce G. Baker............. 55 Executive Vice President and Director
Robert J. Elfanbaum........ 35 Vice President and Chief Financial Officer
Pierre Pages, D.V.M........ 47 Director
Alec L. Poitevint, II...... 51 Director
Pascal Boissy has been the Chairman of the Board of Directors of Virbac
since April 1992. He has served as a member of the Board of Directors of VBSA
since 1989 and as President of VBSA since 1992. Mr. Boissy joined VBSA in 1973
as the Administration and Financial Manager. He was promoted to General
Secretary in 1975 and to General Manager in 1989. Mr. Boissy also serves as
President and Chairman of the Board of Directors of various subsidiaries of
VBSA. Mr. Boissy participates in community activities through his service as a
Rotarian member of the Advisory board of the Banque de France in Nice and as an
Advisor for Foreign Trade to the French Government.
Brian Crook, D.V.M. has been the Chief Executive Officer of Virbac
since January 1996. From March 1993 to December 1995, Dr. Crook was Vice
President-Sales and Education for Jay/RIK Medical in Boulder, Colorado, a
company specializing in pressure-relieving wheelchair seating and mattress
systems. From December 1991 to March 1993, he was a sales specialist and
clinical research associate for Centocor, Inc., a Pennsylvania biotechnology
company. From September 1989 to December 1995, he was employed as a professional
representative of Merck Sharpe & Dohme. Dr. Crook was a practicing veterinarian
in Denver, Colorado from 1986 to 1989, with an emphasis on companion animals.
Bruce G. Baker has been President and Chief Executive Officer of AGNU
since November 1, 1996. From March 1994 through October 1996, he was Vice
President and Deputy Chief Executive Officer of AGNU, and he has been a Director
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 also has served in various capacities relating to
European, Canadian, and Mexican market development.
Robert J. Elfanbaum, C.P.A., has been Vice President and Chief
Financial Officer of AGNU since August 23, 1996. From November 1994 through
August 22, 1996, he served as AGNU's 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 its Middle Market Group. Mr.
Elfanbaum is a past president of the St. Louis Chapter of the Institute of
Management Accountants and currently is serving as Chairman of the Nominating
Committee.
65
<PAGE>
Pierre Pages, D.V.M., has been the Executive Vice President and has
been a member of the Directory Board in charge of Operations, Production and
Quality Assurance of VBSA since January 1997. Dr. Pages joined VBSA in 1980 and
served as Marketing Director from 1985 to 1990. He was promoted to Operations
Director in 1990 and to International Operations Director in 1995. Prior to
joining Virbac, Dr. Pages served in various commercial and marketing positions
at Mars Petfood Group and American Cyanamid. Dr. Pages received his Doctor of
Veterinary Medicine degree from Maisons-Alfort in Paris, France in 1975 and
received his MBA in 1977 in Paris.
Alec L. Poitevint, II has been AGNU's Chairman since February 1, 1997
and a Director since January 1996. Mr. Poitevint has been Chairman and President
of Southeastern Minerals, Inc. and its affiliated companies since 1981 and 1976,
respectively. Southeastern Minerals Inc. is a manufacturer and distributor of
mineral premixes and ingredients for animal feed in the domestic and
international markets. Since May 1991, he has served as Director of the American
Feed Industry Insurance Company, Des Moines, Iowa, and from May 1994 to April
1995 he served as Chairman of the American Feed Industry Association. He is a
director of the Georgia Agribusiness Council and a life member of the Poultry
Leader Round Table of the Georgia Poultry Federation, and in 1988 and 1989 he
served as Chairman of the National Feed Ingredients Association. He also has
served in various capacities relating to Eastern European agricultural trade and
market development, including Director of the International Republican Institute
from March 1992 through January 1997. In addition, Mr. Poitevint currently
serves as Treasurer of the Republican National Committee and during 1996 served
as Treasurer of the Republican National Convention, a member of the RNC Budget
Committee, and Republican National Committeeman for Georgia. He has served as
the Vice Chairman and a director of the First Port City Bank, Bainbridge,
Georgia since January 1994 and February 1989, respectively.
Employment Agreements
It is currently anticipated that Dr. Crook will enter into an
employment agreement with AGNU after the Effective Time of the Merger. The
parties have not begun negotiations for the terms of such agreement. However, it
is expected that Dr. Crook's compensation will increase from his level of
compensation for fiscal 1998. Currently, Dr. Crook is paid a base salary of
$152,000 per year with a potential bonus of up to $40,000. Dr. Crook also
receives an annual $10,000 car allowance and customary benefits.
Messrs. Baker and Elfanbaum, who are expected to serve as Executive Vice
President and Chief Financial Officer, respectively, following the Merger, are
currently party to employment agreements with AGNU, expiring October 31, 2001
and 1999, respectively. Virbac has agreed that, in the event mutually
satisfactory amended employment agreements have not been reached with them
within 60 days following the Merger and either elects to terminate his
employment with AGNU, such termination will be considered a termination as a
result of a change of control within the meaning of their existing employment
agreements, entitling them to certain monetary benefits for the remaining terms
of the respective agreements. Under such circumstances, Mr. Baker would continue
to receive his annual salary of $195,000 through October 31, 1999 and $10,000
per month for the succeeding two years. Mr. Elfanbaum would continue to receive
his annual salary, which is currently $105,000, for two years, and both would
continue to receive healthcare and other employee benefits during such periods.
66
<PAGE>
MARKET PRICES OF AGNU COMMON STOCK
AGNU's Common Stock is traded on the Nasdaq National Market under the
symbol AGNU. The following table 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, 1997
First Quarter............................... 1.63 1.13
Second Quarter.............................. 1.75 1.13
Third Quarter............................... 1.38 1.06
Fourth Quarter.............................. 1.69 1.13
Fiscal year ended October 31, 1998
First Quarter............................... 1.50 1.06
Second Quarter.............................. 1.44 1.13
Third Quarter............................... 1.31 1.00
Fourth Quarter.............................. 1.50 0.81
Fiscal year ending October 31, 1999 First Quarter
(through December , 1998)..........................
AGNU 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, AGNU is prohibited from paying dividends without the consent of its
lender. As of December , 1998, AGNU had a total of stockholders, including
stockholders of record and approximately persons or entities holding AGNU Common
Stock in nominee name.
LEGAL MATTERS
The validity of the Merger Shares will be passed upon by Dyer Ellis &
Joseph PC, Washington, D.C., counsel to AGNU. Certain federal income tax
consequences of the Merger will be passed upon by Jones, Day, Reavis & Pogue,
counsel to Virbac.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AGNU at October 31, 1997 and
1996, and for each of the three years in the period ended October 31, 1997,
included in this Proxy Statement have been audited by PricewaterhouseCoopers
LLP, independent accountants, as stated in their report appearing herein.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Virbac at December 31, 1996
and 1997, and for each of the two years in the period ended December 31, 1997,
included in this Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
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<PAGE>
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at meetings of AGNU's stockholders in accordance with Rule
14a-8 under the Exchange Act. Such proposals should have been received by the
Company no later than November 4, 1998 in order to be included in the Company's
proxy materials relating to its 1999 Annual Meeting of Stockholders.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Agri-Nutrition Group Limited Page
<S> <C>
Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of October 31, 1997 and July 31, 1998
(unaudited)......................................................................................F-2
Consolidated Statement of Operations for the Three and Nine Months Ended
July 31, 1997 and 1998 (unaudited)...............................................................F-3
Consolidated Statement of Cash Flows for the Nine Months Ended
July 31, 1997 and 1998 (unaudited)...............................................................F-4
Consolidated Statement of Stockholders' Equity for the Nine Months
Ended July 31, 1998 (unaudited)..................................................................F-5
Notes to Consolidated Financial Statements (unaudited).............................................F-6
Consolidated Financial Statements:
Report of Independent Accountants.................................................................F-11
Consolidated Balance Sheet as of October 31, 1996 and 1997........................................F-12
Consolidated Statement of Operations for the Three Years Ended October 31, 1997...................F-13
Consolidated Statement of Cash Flows for the Three Years Ended October 31, 1997...................F-14
Consolidated Statement of Stockholders' Equity for the Three Years Ended
October 31, 1997...........................................................................F-16
Notes to Consolidated Financial Statements........................................................F-17
Report of Independent Accountants on Financial Statement Schedule.....................................F-34
Financial Statement Schedule..........................................................................F-35
Virbac, Inc.
Report of Independent Public Accountants..............................................................F-36
Consolidated Balance Sheets as of December 31, 1995 (unaudited), December 31,
1996 and 1997 and September 30, 1998 (unaudited)..................................................F-37
Consolidated Statement of Operations for the Years Ended December 31, 1995 (unaudited),
December 31, 1996 and 1997, and the Nine Months Ended
September 30, 1997 and 1998 (unaudited)...........................................................F-38
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1995 (unaudited), December 31, 1996 and 1997,
and the Nine Months Ended September 30, 1998 (unaudited)..........................................F-39
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1995 (unaudited), December 31, 1996
and 1997, and the Nine Months Ended
September 30, 1997 and 1998 (unaudited)...........................................................F-40
Notes to Consolidated Financial Statements............................................................F-41
</TABLE>
F-1
<PAGE>
Agri-Nutrition Group Limited
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, July 31,
1997 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................................... $ 145,505 $ 64,844
Accounts receivable.................................................. 3,817,417 4,082,490
Inventories.......................................................... 6,355,310 8,137,365
Prepaid expenses and other assets.................................... 1,260,672 1,421,507
--------------- ----------------
11,578,904 13,706,206
Property, plant and equipment, net................................... 5,788,688 5,603,383
Goodwill............................................................. 8,095,049 7,908,744
Other assets......................................................... 1,133,509 995,538
--------------- ----------------
$ 26,596,150 $ 28,213,871
=============== ================
Liabilities and Stockholders' Equity Current liabilities:
Current portion of long-term debt and notes payable............... $ 201,636 $ 528,950
Current portion of acquisition notes payable...................... 719,716 198,000
Accounts payable.................................................. 1,417,286 2,173,507
Accrued expenses.................................................. 1,467,948 647,226
--------------- ----------------
3,806,586 3,547,683
Long-term debt and notes payable..................................... 5,665,955 9,022,607
Acquisition notes payable............................................ 1,570,249 494,000
Commitments and contingencies (Notes 2 and 9)
Stockholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 9,304,280 and 9,333,580 shares issued
and outstanding, respectively).................................. 93,043 93,336
Additional paid-in capital........................................ 15,935,700 15,975,157
Accumulated deficit............................................... (395,841) (789,548)
--------------- ----------------
15,632,902 15,278,945
Cost of common stock held in Treasury
(46,850 and 88,161 shares in 1997 and 1998,
respectively)..................................................... (79,542) (129,364)
--------------- ----------------
15,553,360 15,149,581
Total Liabilities and Stockholders' Equity........................... $ 26,596,150 $ 28,213,871
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Operations (unaudited)
<TABLE>
<CAPTION>
For the three and nine months ended July 31,
1997 1998
Three Nine Three Nine
months months months months
<S> <C> <C> <C> <C>
Net sales............................ $ 8,093,922 $ 23,423,827 $ 8,046,043 $ 24,291,416
Cost of sales........................ 5,915,757 17,416,253 5,685,493 17,672,462
--------------- ---------------- ---------------- --------------
Gross profit......................... 2,178,165 6,007,574 2,360,550 6,618,954
Selling, general and
administrative expenses............. 1,754,668 5,195,900 2,036,455 6,542,093
Research and development............. 43,866 127,560 42,924 143,932
--------------- ---------------- ---------------- --------------
Operating income (loss).............. 379,631 684,114 281,171 (67,071)
Interest expense..................... (166,529) (490,753) (189,254) (571,580)
Other income (expense)
(Note 10)......................... 16,045 (138,375) (2,035) (957)
--------------- ---------------- ---------------- --------------
Income (loss) before income
tax benefit....................... 229,147 54,986 89,882 (639,608)
Income tax (expense) benefit......... (87,792) (20,828) (34,605) 245,901
--------------- ---------------- ---------------- --------------
Income (loss) from continuing
operations......................... 141,355 34,158 55,277 (393,707)
(Loss) income from discontinued
operations, net (Note 8)........... (13,238) 14,659 -- --
--------------- ---------------- ---------------- --------------
Net income (loss).................... $ 128,117 $ 48,817 $ 55,277 $ (393,707)
=============== ================ ================ ==============
Basic earnings (loss) per share (Note 3):
Income (loss) from continuing
operations...................... $ .02 $ .01 $ .01 $ (.04)
Income (loss) from
discontinued operations......... -- -- -- --
--------------- ---------------- ---------------- --------------
Net income (loss)................. $ .02 $ .01 $ .01 $ (.04)
=============== ================ ================ ==============
Diluted earnings (loss) per
share (Note 3):
Income (loss) from continuing
operations...................... $ .02 $ .01 $ .01 $ (.04)
Income from discontinued
operations........................ -- -- -- --
Net income (loss)................. $ .02 $ .01 $ .01 $ (.04)
=============== ================ ================ ==============
Basic shares outstanding
(Note 3).......................... 8,403,102 8,395,023 9,304,021 9,284,926
=============== ================ ================ ==============
Diluted shares outstanding
(Note 3).......................... 8,577,092 8,602,015 9,467,623 9,284,926
=============== ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Cash Flows (unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended July 31,
1997 1998
--------------- ---------------
<S> <C> <C>
Operating activities
Net income (loss) from continuing operations............................. $ 34,158 $ (393,707)
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization......................................... 642,871 870,788
Income from discontinued operations, net of taxes (Note 8)............ 14,659
Change in net assets from discontinued operations (Note 8)............ 1,343,398
Changes in operating assets and liabilities:
Increase in accounts receivable..................................... (1,252,834) (265,073)
Decrease (increase) in inventories.................................. 890,659 (1,782,055)
Decrease (increase) in prepaid expenses and other assets............ 101,063 (22,864)
(Decrease) increase in accounts payable............................. (526,517) 756,221
Decrease in accrued expenses........................................ (502,964) (820,722)
--------------- ---------------
Net cash provided by (used in) operating activities...................... 744,493 (1,657,412)
--------------- ---------------
Investing activities
Purchase of property, plant and equipment................................ (570,709) (499,178)
Net cash used in investing activities.................................... (570,709) (499,178)
Financing activities
(Repayment) borrowings of long-term debt and notes payable,
net................................................................... (1,087,286) 3,683,966
Repayment of Acquisition notes payable................................... (1,597,965)
Issuance of stock to directors........................................... 27,251 39,750
Purchase of Treasury Stock............................................... (29,556) (49,822)
--------------- ---------------
Net cash (used in) provided by financing activities...................... (1,089,591) 2,075,929
--------------- ---------------
Decrease in cash and cash equivalents.................................... (915,807) (80,661)
Cash and cash equivalents, beginning of period........................... 2,186,877 145,505
--------------- ---------------
Cash and cash equivalents, end of period................................. $ 1,271,070 $ 64,844
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
AGNU Common Stock in
AGNU 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, October 31,
1997................ 9,304,280 $ 93,043 $ 15,935,700 (46,850) $ (79,542) $ (395,841) $ 15,553,360
Issuance of stock to
directors and officers
(unaudited)......... 29,300 293 39,457 39,750
Treasury stock........
purchased
(unaudited)......... (41,311) (49,822) (49,822)
Net loss (unaudited).. (393,707) (393,707)
---------- -------- ------------ --------- ---------- ------------ ------------
Balance, July 31,
1998 (unaudited).... 9,333,580 $ 93,336 $ 15,975,157 (88,161) $ (129,364) $ (789,548) $ 15,149,581
========== ======== ============ ========= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
1. Unaudited consolidated financial statements
The consolidated balance sheet as of July 31, 1998, the
consolidated statements of operations for the three and nine-month
periods ended July 31, 1997 and 1998, the consolidated statements of
cash flows for the nine-month periods ended July 31, 1997 and 1998 and
the consolidated statement of stockholders' equity for the nine-month
period ended July 31, 1998 have been prepared by Agri-Nutrition Group
Limited (the Company) without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at and for the periods ended July 31, 1997
and 1998 have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where
inapplicable. The results of operations for the periods ended July 31,
1997 and 1998, respectively, are not necessarily indicative of the
operating results for the full year.
The consolidated financial statements have been restated to
reflect the Company's ingredients segment as a discontinued operation
in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations" (APB 30) (see Note 8).
2. Organization
Agri-Nutrition Group Limited, 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 (the Business) of Purina
Mills, Inc. (Purina). See Note 14 to the Company's Consolidated
Financial Statements for the year ended October 31, 1997 included
elsewhere in this Proxy Statement for further discussion of related
matters involving Purina. 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. In September 1997, the Company acquired
Mardel Laboratories, Inc. (Mardel). Zema, St. JON and Mardel formulate, package,
market and distribute pet health care, veterinary and grooming products
domestically and abroad.
See Notes 2 and 4 to the Company's 1997 Consolidated Financial
Statements included elsewhere in this Proxy Statement for additional
information related to the acquisitions of Zema, St. JON and Mardel,
including information regarding the additional purchase price which
must
F-6
<PAGE>
Agri-Nutrition Group Limited
Notes to Consolidated Financial Statements (unaudited) -- continued
be paid to the former owner of Zema if Zema achieves certain financial
goals. In addition, see Note 3 to the Company's 1997 Consolidated
Financial Statements included elsewhere in this Proxy Statement for
information about the Company's acquisition of 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, including information regarding additional consideration to be
paid based on shipments of Bromethalin to Purina over a five-year
period.
As stated in the 1997 Annual Report, the Pet Health Care
Division, which is comprised of St. JON, St. JON VRx, Zema and Mardel,
planned to integrate operations in fiscal year 1998 to benefit from
expected operating synergies. During the first six months of fiscal
1998 production shifted from the Raleigh facility to the Company's
other manufacturing locations. Consolidation of the sales and
administration functions of the Pet Health Care Division was completed
during the third quarter of fiscal 1998. The distribution functions
within the Pet Health Care Division are anticipated to be consolidated
by the end of the fourth quarter. During August 1998, the Company's
Raleigh facility was effectively shut down and is in the process of
being sublet.
3. Summary of significant accounting policies
The accounting policies followed by the Company are set forth
in Note 6 to the 1997 Consolidated Financial Statements included
elsewhere in this Proxy Statement. The financial statements included
herein should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in such report.
Earnings/loss per share
Commencing with its fiscal 1998 first quarter, the Company is
subject to the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (FAS 128) that was adopted by
the Financial Accounting Standards Board in February 1997. FAS 128
simplifies the standards for computing earnings per share and makes
them comparable to international earnings per share standards. See Note
6 to the Company's 1997 Consolidated Financial Statements included
elsewhere in this Proxy Statement for further information. The adoption
of FAS 128 does not materially affect the Company's fiscal 1998 third
quarter financial statements and management does not expect it to have
a material impact on the Company's future financial statements. The
adoption of FAS 128 had no material impact on fiscal 1997 financial
statements.
F-7
<PAGE>
Agri-Nutrition Group Limited
Notes to Consolidated Financial Statements (unaudited) -- continued
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1997 1998
---------------- ---------------
<S> <C> <C>
Raw materials.............................................................. $ 4,049,028 $ 4,816,661
Work-in-process............................................................ 501,801 459,770
Finished goods............................................................. 2,081,771 3,175,791
---------------- ---------------
6,632,600 8,452,222
Less: reserve for excess and obsolete inventories......................... (277,290) (314,857)
---------------- ---------------
$ 6,355,310 $ 8,137,365
================ ===============
</TABLE>
5. Financing
In May 1998, AGNU consolidated its existing credit agreements
increasing the facility to $9.2 million with a maturity date of March
31, 2001. The new bank agreement also increased borrowing availability
for working capital demand and modified the bank covenants. The new
facility consists of $4.5 million in revolving credit lines, the
available amount being based upon specified percentages of qualified
accounts receivable and inventory, and a $4.7 million revolving credit
line with available amounts being reduced $150,000 per quarter with the
first such reduction on November 30, 1998. On August 6, 1998 and
October 2, 1998, AGNU again amended its existing credit facilities,
increasing the latter revolving credit line to $5.2 million from $4.7
million to meet temporary working capital requirements. The interest
rate will range from prime minus 0.25% to prime plus 0.5%, depending on
AGNU's ratio of debt to net worth, as defined in the new agreement. At
July 31, 1998, the interest rate charged on borrowings outstanding
under the new agreement, as amended, was 8.75% which is the bank's
prime rate plus 0.25%. At July 31, 1998, approximately $0.7 million
would have been available under this new agreement after increasing
AGNU's credit line to $5.2 million.
At July 31, 1998, the Company was not in compliance with
certain covenants related to its various financing arrangements. The
bank has waived such covenant violations. In October 1998, the Company
amended its credit agreement to revise its debt convenants. The Company
is currently in compliance with its debt covenants, as amended.
6. Related party transactions
See Note 13 to the Company's 1997 Consolidated Financial
Statements included elsewhere in this Proxy Statement for a discussion
regarding related party transactions.
F-8
<PAGE>
Agri-Nutrition Group Limited
Notes to Consolidated Financial Statements (unaudited) -- continued
7. Employee benefit plans
During the nine months ended July 31, 1998, 29,300 shares and
options to purchase 65,000 shares of the Company's common stock were
granted to employees in connection with the Company's 1996 Incentive
Stock Plan. The exercise price of the options was $1.375 per share,
which approximated the fair value on the dates of grant. These options
vest ratably over two years from the date of grant and will expire ten
years from the grant date. No shares or options were issued in
connection with the Company's 1995 Incentive Stock Plan or the
Company's 1994 Incentive Stock Plan. See Note 12 to the Company's 1997
Consolidated Financial Statements included elsewhere in this Proxy
Statement for a discussion of the Company's incentive stock plans.
8. Discontinued operations
In June 1997, the Company discontinued the distribution of
ingredients to Purina. Consequently, in July 1997, the Company
distributed all of its remaining ingredients inventories to Purina and
discontinued its operations in this area. This segment of the Company's
business has been accounted for and presented as a discontinued
operation in accordance with APB 30 for all periods reflected herein.
At October 31, 1997, substantially all of the net assets relating to
the ingredients segment had either been disposed or had been deployed
into the Company's existing operations.
Management does not anticipate that the ingredients segment
will have any significant operations in the future. Furthermore,
management does not believe that there are any separately identifiable
fixed assets related to the ingredients segment and proceeds, if any,
related to disposition of such net assets subsequent to the June 1997
measurement date have not to date and are not expected to result in a
material net gain or loss in future periods. However, the ultimate
financial impact of the discontinuation of the segment could differ
from management's current estimates.
There were no net assets from discontinued operations at
October 31, 1997 and July 31, 1998. The operating results of the
discontinued operations are summarized as follows:
For the nine months ended
July 31,
1997 1998
---------------- ---------------
Net sales.................................. $ 5,433,411 $ --
================ ===============
Income before tax provision................ $ 23,835 $ --
Income tax provision....................... (9,176) --
---------------- ---------------
Net income................................. $ 14,659 $ --
================ ===============
F-9
<PAGE>
Agri-Nutrition Group Limited
Notes to Consolidated Financial Statements (unaudited) -- continued
9. Commitments and contingencies
From time to time, the Company becomes party to various claims
and legal actions arising during the ordinary course of business.
Management believes that the Company's costs and any potential
judgments resulting from such claims and actions will be covered by the
Company's product liability insurance, except for deductible limits.
The Company intends to defend such claims and actions in cooperation
with its insurers. It is management's opinion that, in any event, their
outcome would not have a material effect on the Company's financial
position, cash flows or results of operations.
10. Termination of Anthony Products Letter of Intent
In March 1997, the Company terminated its letter of intent
related to its proposed acquisition of Anthony Products Company. In
conjunction with this action, the Company recorded a $202,000 pre-tax
charge in the second quarter of fiscal 1997. Such amount is included in
other income (expense) in the accompanying consolidated statement of
operations. Net income excluding the impact of this charge for the nine
month period ended July 31, 1997 would have been approximately
$174,000.
11. Subsequent Events
In October 1998, the Company entered a definitive merger
agreement with Virbac, Inc., a U.S. subsidiary of the French public
animal health company Virbac, S.A., under which Virbac, S.A. will hold
approximately 60% of the outstanding stock of the combined companies.
The transaction, which is subject to approval by the Company's
stockholders, government approval and other customary conditions, is
expected to close in January 1999 and will be accounted for as an
acquisition of the Company by Virbac, Inc. pursuant to the purchase
method of accounting.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders 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 stockholders equity
present fairly, in all material respects, the consolidated financial position of
Agri-Nutrition and its subsidiaries at October 31, 1996 and October 31, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended October 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
December 12, 1997
F-11
<PAGE>
Agri-Nutrition Group Limited
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31,
1996 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................................... $ 2,186,877 $ 145,505
Accounts receivable, net.................................................... 3,065,612 3,817,417
Inventories (Note 7)........................................................ 5,863,548 6,355,310
Prepaid expenses and other current assets................................... 914,312 1,016,098
Deferred income taxes (Note 11)............................................. 254,065 244,574
Net assets of discontinued operations....................................... 1,347,539
-------------- --------------
13,631,953 11,578,904
Property, plant and equipment, net (Note 8)................................... 4,798,813 5,788,688
Goodwill...................................................................... 6,372,687 8,095,049
Other assets.................................................................. 1,046,599 1,133,509
-------------- --------------
$ 25,850,052 $ 26,596,150
============== ==============
Liabilities and Stockholders' Equity Current liabilities:
Current portion of long-term debt and notes payable (Note 9)................ $ 291,817 $ 201,636
Current portion of acquisition notes payable (Note 9)....................... 195,352 719,716
Accounts payable............................................................ 1,950,467 1,417,286
Accrued compensation expense................................................ 727,250 86,532
Accrued expenses............................................................ 538,819 1,381,416
-------------- --------------
3,703,705 3,806,586
Long-term debt and notes payable (Note 9)..................................... 5,719,364 5,665,955
Acquisition notes payable (Note 9)............................................ 2,104,648 1,570,249
Commitments and contingencies (Notes 2, 3, 4, 8 and 16)
Stockholders' equity (Notes 4, 12 and 13):
Common stock ($.01 par value; 20,000,000 shares
authorized; 8,430,949 and 9,304,280 shares
issued and outstanding, respectively)..................................... 84,309 93,043
Additional paid-in-capital.................................................. 14,817,183 15,935,700
Accumulated deficit......................................................... (529,171) (395,841)
-------------- --------------
14,372,321 15,632,902
Cost of common stock held in treasury
(25,650 and 46,850 shares in 1996 and 1997, respectively)................... (49,986) (79,542)
-------------- --------------
14,322,335 15,553,360
-------------- --------------
$ 25,850,052 $ 26,596,150
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-12
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales (including sales to Purina of $7.1
million, $5.4 million and $4.3 million
for the years ended October 31, 1995,
1996 and 1997, respectively).............................. $ 20,062,942 $ 28,661,307 $ 31,051,537
Cost of sales............................................... 15,978,924 20,783,847 22,850,923
-------------- -------------- --------------
Gross profit................................................ 4,084,018 7,877,460 8,200,614
Selling, general and administrative expenses 4,382,451 7,447,301 7,129,860
Research and development.................................... 185,882 142,760 92,273
Nonrecurring severance costs (Note 17)...................... -- 240,000 --
-------------- -------------- --------------
Operating (loss) income..................................... (484,315) 47,399 978,481
Interest expense............................................ (345,779) (596,086) (658,599)
Interest income and other................................... 528,361 158,904 (146,883)
-------------- -------------- --------------
Income (loss) before income tax benefit (expense) (301,733) (389,783) 192,999
Income tax benefit (expense)................................ 193,400 148,463 (74,328)
Income (loss) from continuing operations (108,333) (241,320) 118,671
Income from discontinued operations, net 139,766 113,900 14,659
-------------- -------------- --------------
Net income (loss) .......................................... $ 31,433 $ (127,420) $ 133,330
============== ============== ==============
Basic earnings (loss) per share (Note 6):
Income (loss) from continuing operations $ (.01) $ (.03) $ .01
Income from discontinued operations......................... .02 .01 --
-------------- -------------- --------------
Net income (loss)........................................... $ .01 $ (.02) $ .01
============== ============== ==============
Diluted earnings (loss) per share (Note 6):
Income (loss) from continuing operations $ (.01) $ (.03) $ .01
Income from discontinued operations......................... .02 .01 --
-------------- -------------- --------------
Income (loss)............................................... $ .01 $ (.02) $ .01
============== ============== ==============
Basic shares outstanding (Note 6)........................... 8,112,851 8,397,686 8,483,897
============== ============== ==============
Diluted shares outstanding (Note 6)......................... 8,112,851 8,397,686 8,699,914
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-13
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) from continuing operations $ (108,333) $ (241,320) $ 118,671
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization............................ 512,918 847,723 966,022
(Increase) decrease in deferred income taxes (140,851) (66,611) 58,491
Income from discontinued operations, net of
taxes.................................................. 139,766 113,900 14,659
Change in net assets from discontinued
operations............................................. 1,065,206 (1,007,633) 1,347,539
Changes in operating assets and liabilities,
excluding the effects of acquisitions (Notes 2 and 4):
Increase in accounts receivable........................ (483,143) (528,806) (410,942)
(Increase) decrease in inventories 61,714 (1,677,051) 692,492
(Increase) decrease in prepaids and other 157,781 (281,520) 48,984
Increase (decrease) in accounts payable (2,313,996) 1,419,731 (785,558)
Increase (decrease) in accounts payable to
Purina................................................ 930,954 (930,954) --
Increase (decrease) in accrued compensation
expense............................................... 255,064 278,189 (640,718)
Increase (decrease) in accrued expenses (224,349) (214,833) 373,423
-------------- -------------- --------------
Net cash provided (used) by operating activities (147,269) (2)289,185 1,783,063
-------------- -------------- --------------
Investing activities:
Acquisitions (Note 2, 3 and 4), net of cash
acquired................................................. (8,120,233) (520,189) (970,537)
Purchase of property, plant and equipment (464,052) (592,678) (996,683)
Purchase of Bromethalin Assets (Note 3) -- (1,056,097) --
Sale of short-term investments.............................. 1,357,832 1,191,379 --
-------------- -------------- --------------
Net cash used by investing activities (7,226,453) (977,585) (1,967,220)
-------------- -------------- --------------
Financing activities:
Proceeds from (repayment of) long-term debt
and notes payable........................................ (1,731,536) 3,090,125 (1,154,911)
Repayment of acquisition notes payable -- -- (700,000)
Proceeds from sale of common stock.......................... 250,000 52,823 27,252
Payments of loans from employees............................ -- 30,000 --
Purchase of Treasury Stock.................................. -- (49,986) (29,556)
-------------- -------------- --------------
Net cash provided (used) by financing activities (1,481,536) 3,122,962 (1,857,215)
-------------- -------------- --------------
Decrease in cash and cash equivalents (8,855,258) (143,808) (2,041,372)
Cash and cash equivalents, beginning of period 11,185,943 2,330,685 2,186,877
-------------- -------------- --------------
Cash and cash equivalents, end of period $ 2,330,685 $ 2,186,877 $ 145,505
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-14
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest..................................... $ 285,415 $ 363,422 $ 667,922
Cash paid for taxes........................................ 10,000 47,189 25,873
</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 2). 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
$6,500,000 and liabilities assumed were approximately $3,500,000.
During the year ended October 31, 1997, the Company acquired Mardel
Laboratories, Inc. for cash of approximately $1,000,000 (Note 4) and stock
valued at approximately $1,100,000. As additional consideration for the
acquisition of Mardel, the Company also issued a note payable of $300,000 to the
former owners of the acquired company to be paid in cash and stock over a period
of three years. Fair value assigned to assets acquired was approximately
$2,600,000, fair value assigned to goodwill was approximately $2,000,000 and
liabilities assumed were approximately $2,200,000.
The accompanying notes are an integral part of these consolidated
financial statements.
F-15
<PAGE>
Agri-Nutrition Group Limited
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
AGNU Common Stock in
AGNU 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,
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
Issuance of stock to
directors and officers 20,556 206 27,045 27,251
Issuance of stock for
acquisition......... 852,775 8,528 1,091,472 1,100,000
Treasury stock
purchased........... (21,200) (29,556) (29,556)
Net income............ 133,330 133,330
----------- --------- ----------- ---------- ---------- ------------ -----------
Balance, October 31,
1997................ 9,304,280 $ 93,043 $15,935,700 (46,850) $ (79,542) $ (395,841) $15,553,360
=========== ========= =========== ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-16
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements
1. Organization
Agri-Nutrition (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 (the Business)
of Purina Mills, Inc. (Purina). See Note 14 for further discussion of related
matters involving Purina. 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. In September 1997, the Company acquired
Mardel Laboratories, Inc. (Mardel). Zema, St. JON and Mardel formulate, package,
market and distribute pet health care, veterinary and grooming products
domestically and abroad. See Notes 2 and 4 for further discussion of these
acquisitions.
2. Acquisitions - Zema and St. JON
Through the Company's wholly owned subsidiary, Zema Acquisition Corporation,
substantially all of the net assets of Zema 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 and
related interest are due on or before April 28, 1998 and were conditioned on the
continued employment of Zema's president (see Note 9). In conjunction with
renegotiation of the employment contract of Zema's president in fiscal 1997,
such employment requirement of the note was waived. 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, 1997,
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 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 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 balance of the note payable to the former owner of St. JON at October 31,
1997
F-17
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
is $1,300,000 and is due in five remaining annual installments, together with
interest thereon, commencing March 1998 (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 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.
3. 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 IPO to fund the initial payment.
4. Acquisition - Mardel
Through the Company's wholly owned subsidiary, Mardel Acquisition Corporation,
substantially all of the net assets of Mardel were acquired effective September
1997. Mardel's expertise extends to fresh water and marine fish, birds, dogs,
cats, small animals and pond accessories. Mardel had net sales of approximately
$6,800,000 for the year ended December 31, 1996. The purchase price consisted of
approximately $1,000,000 in cash, $1,100,000 in common stock and a promissory
note of $300,000 payable in three annual installments, each consisting of
$49,000 of cash plus interest at prime, and $51,000 of the Company's common
stock, beginning September 1998. The Company primarily used the remaining
proceeds from its IPO to fund the $1,000,000 initial payment.
The acquisition of Mardel was accounted for pursuant to the purchase method of
accounting. The purchase price paid for Mardel 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 $2,000,000 was recorded as goodwill and is being
amortized on a straight-line basis over 30 years. The results of Mardel's
operations are included in the Company's consolidated financial statements from
the date of the acquisition.
The following table sets forth pro forma information for Agri-Nutrition as if
the acquisition of Mardel had taken place on November 1, 1995. The information
is unaudited and does not purport to represent actual revenue, net income or
earnings per share had the acquisitions actually occurred on November 1, 1995
and is not necessarily indicative of results that may be obtained in the future
($ in 000's except per share amounts):
F-18
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Pro Forma Information
(Unaudited)
Year Ended October 31,
1996 1997
---------------- ---------------
<S> <C> <C>
Net sales.................................................................. $ 35,456 $ 35,967
Income (loss) from continuing operations................................... (450) 158
Basic earnings (loss) per share............................................ (.05) .02
Diluted earnings (loss) per share.......................................... (.05) .02
Basic shares outstanding................................................... 9,250,462 9,552,689
Diluted shares outstanding................................................. 9,250,462 9,603,518
</TABLE>
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. In September 1997, the Company used its
remaining IPO proceeds in conjunction with the acquisition of Mardel, as
discussed in Note 4. As of October 31, 1997, all proceeds had been expended.
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 generally 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, 1995, 1996 and 1997, the provision for
uncollectible amounts was $47,031, $53,029, and $133,705, respectively.
F-19
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
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.
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 and accounts receivable.
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 46%, 31% and 25% of sales from continuing operations in
the years ended October 31, 1995, 1996 and 1997, respectively, and 42% and 22 %
of accounts receivable at October 31, 1996 and 1997, 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, 1996 and 1997, 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.
F-20
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
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.
A summary of estimated useful lives used in computing depreciation for financial
statement reporting purposes follows:
Estimated
useful life
Building and leasehold improvements 5-30 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, 1995, 1996 and
1997, was $50,000, $195,000 and $209,000, 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, 1997.
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 3, 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, 1995, 1996 and 1997, was approximately $57,000,
$142,000 and $87,000, respectively.
F-21
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
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.
Earnings (loss) per share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," which
changed the method of computation of earnings per share. SFAS 128, which was
adopted by the Company in fiscal 1998, requires the computation of Basic EPS and
Diluted EPS. Basic EPS is based on the weighted average number of outstanding
common shares during the period, but does not consider dilution for potentially
dilutive securities. Diluted EPS reflects dilutive potential common shares.
Dilutive potential common shares arising from the effect of outstanding stock
options are computed using the treasury stock method, if dilutive. Earnings per
share for fiscal 1997, 1996 and 1995 have been restated in accordance with SFAS
128.
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,
1997.
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.
F-22
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset. Management believes that there has
been no impairment at October 31, 1997.
Employee stock-based compensation
In October 1995, the FASB issued Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" (FAS 123), which defines the fair
value based method of accounting for stock-based compensation plans. FAS 123
allows companies to use the fair value method defined in the statement or to
continue use the intrinsic value method as outlined in APB Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25). FAS 123 was adopted during
the Company's fiscal 1997 and the Company will continue to use the provisions of
APB 25 in determining net income. See Note 12 for the pro forma impact on the
net income (loss) and earnings (loss) per share for the years ended October 31,
1996 and 1997.
7. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31,
1996 1997
---------------- ---------------
<S> <C> <C>
Raw materials.............................................................. $ 3,700,881 $ 4,049,028
Work-in-process............................................................ 312,300 501,801
Finished goods............................................................. 1,998,799 2,081,771
---------------- ---------------
6,011,980 6,632,600
Less reserve for excess and obsolete inventories........................... (148,432) (277,290)
---------------- ---------------
$ 5,863,548 $ 6,355,310
================ ===============
</TABLE>
F-23
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
8. Property, plant and equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
October 31,
1996 1997
---------------- ---------------
<S> <C> <C>
Land....................................................................... $ 638,794 $ 638,794
Buildings.................................................................. 1,668,183 1,895,779
Machinery and equipment.................................................... 3,399,986 4,583,080
Leasehold improvements..................................................... 228,880 374,203
Furniture and fixtures..................................................... 158,607 229,243
Vehicles................................................................... 39,232 34,944
---------------- ---------------
6,133,682 7,756,043
Less accumulated depreciation.............................................. (1,384,511) (1,968,282)
---------------- ---------------
4,749,171 5,787,761
Construction in progress................................................... 49,642 927
---------------- ---------------
$ 4,798,813 $ 5,788,688
================ ===============
</TABLE>
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, 1997 are as
follows:
1998.................................... $ 561,469
1999.................................... 429,479
2000.................................... 277,554
2001.................................... 209,631
---------------
Total minimum lease payments............ $ 1,478,133
===============
Rental expense under all operating leases approximated $392,000, $548,000 and
$406,000 for the years ended October 31, 1995, 1996 and 1997, respectively.
9. Financing
Revolving credit agreement
The Company has revolving credit facilities which aggregated $8.025 million at
October 31, 1997. In June 1997, the Company modified its existing credit
agreements increasing the aggregate lines by $650,000, extending their maturity
dates through March 31, 1999, lowering the interest rates and commitment fees
charged and revising certain of the debt covenant calculations. The amended
facilities consist of up to an aggregate of $4.8 million in revolving credit
lines, the available amount being based upon specified percentages of qualified
accounts receivable and inventory, and a $3.35 million revolving credit line
with available amounts being reduced $125,000 per quarter. The interest rate
will range from prime minus .25% to prime plus .5%, depending on the Company's
ratio of debt to net worth, as defined in the agreements. At October 31, 1997,
the interest rate charged on borrowings outstanding under the
F-24
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
agreements, as amended, was 8.5% which is the bank's prime rate. At October 31,
1997, approximately $2.8 million is available for additional borrowings under
these facilities.
At October 31, 1997, the Company and its subsidiaries were in compliance with
all covenants related to its various financing arrangements.
Acquisition notes payable
In connection with the acquisitions completed during fiscal 1995 (see Note 2),
the Company entered into notes payable agreements with the former owners of Zema
and St. JON. At October 31, 1997, 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 (8.5% at October 31, 1997), is due and payable in full on or before April
28, 1998, is recorded in current liabilities, and aggregates approximately
$372,000 at October 31, 1997.
At October 31, 1997, the Company had a $1,300,000 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. In April 1997, the Company restructured this debt
agreement. Under the revised agreement, the Company paid $500,000 in April 1997,
in addition to the $450,000 scheduled payment of principle and accrued interest,
and will pay off the remaining amounts in five annual installments of $324,563
beginning in March 1998. The interest rate on the note was not revised and is
fixed at 7.6% per annum. Accrued interest on this note is approximately $59,000
at October 31, 1997 and is recorded in current liabilities as of such date.
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. 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 and paid 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.
In connection with the acquisition of Mardel during fiscal 1997, the Company
entered into a notes payable agreement with the former owners. At October 31,
1997 the Company had a note balance of $300,000 payable in three annual
installments of $49,000 of cash plus interest at prime, and $51,000 of the
Company's common stock, beginning September 1998.
F-25
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
Financing agreements
The Company entered into agreements to finance certain of its insurance
premiums. The financing agreements provide for monthly principal and interest
payments of approximately $30,000 and $28,832, covering periods from August 1996
to August 1997 and August 1997 to August 1998, respectively, and an additional
$6,882 monthly principle and interest covering periods from July 1997 to July
2000. The aggregate amount financed under these agreements are approximately
$292,000 and $372,087, respectively. Of these amounts, approximately $292,000
and $243,232 remain outstanding at October 31, 1996 and 1997, respectively, and
are included in current portion of long-term debt and notes payable at those
dates. Additionally, $128,855 represents premiums for fiscal years ended October
31, 1999 and 2000, and are recorded in long-term debt.
10. Common stock transactions
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.
During the year ended October 31, 1997, the Company purchased 21,200 shares of
its common stock at an aggregate cost of $29,556 under the stock repurchase
plan. At October 31, 1997, the number of shares available to acquire that was
authorized by the 1995 stock repurchase plan was 444,794. The Company expects to
finance additional treasury stock purchases, if any, with available funds.
11. Income taxes
The components of the net income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Current:
Federal................................................ $ (63,836) $ (71,156) $ --
State.................................................. 11,287 (10,696) 15,837
--------------- ---------------- ---------------
(52,549) (81,852) 15,837
--------------- ---------------- ---------------
Deferred:
Federal................................................ (143,279) (62,567) 73,854
State.................................................. 2,428 (4,044) (15,363)
--------------- ---------------- ---------------
(140,851) (66,611) 58,491
--------------- ---------------- ---------------
$ (193,400) $ (148,463) $ 74,328
=============== ================ ===============
</TABLE>
Total tax expense (benefit) above excludes tax provision of $87,000, $71,000 and
$9,000, related to discontinued operations for the years ended October 31, 1995,
1996 and 1997, respectively.
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:
F-26
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Income tax benefit at statutory rate...................... $ (102,589) $ (132,526) $ 65,620
(Decrease) in valuation allowance......................... (95,732)
State income taxes, net of federal benefit................ 9,052 (9,728) 313
Other, net................................................ (4,131) (6,209) 8,395
--------------- ---------------- ---------------
$ (193,400) $ (148,463) $ 74,328
=============== ================ ===============
</TABLE>
Deferred tax (assets) liabilities are comprised of the following at October 31:
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Purchase accounting basis differences..................... $ 94,573 $ 180,307 $ 272,162
Fixed assets.............................................. 7,223 50,302 359,182
Other..................................................... 27,351 4,074 29,367
Gross deferred tax liabilities.......................... 129,147 234,683 660,711
--------------- ---------------- ---------------
Inventories............................................... (135,679) (192,329) (273,503)
Accruals.................................................. (79,884) (101,943) (270,146)
Net operating loss carryforward........................... (195,065) (271,863) (441,670)
Other..................................................... (4,823) (21,463) (43,810)
--------------- ---------------- ---------------
Gross deferred tax assets............................... (415,451) (587,598) (1,029,129)
--------------- ---------------- ---------------
Deferred tax assets valuation allowance................... 98,850 98,850 123,844
--------------- ---------------- ---------------
Net deferred tax assets................................... $ (187,454) $ (254,065) $ (244,574)
=============== ================ ===============
</TABLE>
At October 31, 1997, the Company has approximately $1,028,000 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 three 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 participated in separate plans that were established
prior to the acquisitions of Zema and St. JON by the Company (see Note 2) until
November 1, 1996, at which time such plans were merged with PM Resources
non-union plan into a single plan for Company employees. Employees of Mardel
participate in a separate plan established prior to the acquisition of Mardel by
the Company (see Note 4). However, the Company anticipates merging such plan
into the Company's plan for non-union employees during fiscal 1998.
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 $135,513, $227,600 and $181,418 for the years ended October 31, 1995, 1996
and 1997, respectively.
F-27
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
In September 1993, the Company adopted a Stock Purchase Plan for Employees of
Resources. 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. 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 ranged from $3.50 to $4.25
per share, and the options granted in fiscal 1996 ranged 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. Additionally in fiscal 1997, the Company repriced
232,500 outstanding employee options previously issued under the 1994 ISP at a
revised exercise range of $1.4375 to $1.5625 per share, which approximated fair
value on the dates of installment. All other terms of the options remain
unchanged. The Company also issued 11,430 shares of common stock to employees
under the 1994 ISP, during the year ended October 31, 1995. During the year
ended October 31, 1996, the Company also issued 28,365 shares of the Company's
AGNU Common Stock under the 1994 ISP to executives and outside directors of the
Company. No shares were issued under the 1994 ISP in the year ended October 31,
1997.
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 stockholders 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 years ended October 31, 1996 and 1997.
Effective March 7, 1996, the Company's stockholders 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 370,000 and 257,000 shares of the Company's common stock were granted
to employees under the 1996 ISP during the year ended October 31, 1996 and 1997,
respectively. The
F-28
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
exercise prices of the options granted range from $1.37 to $1.56 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. Also, during the year ended October 31, 1997, the Company issued
20,556 shares of the Company's common stock under the 1996 ISP to executives and
outside directors of the Company.
FAS 123 was adopted during the Company's fiscal 1997 and the Company will
continue to use the provisions of APB 25 in determining net income. See below
for various disclosures related to FAS 123 and the pro forma impact of FAS 123
on the net income (loss) and net income (loss) per share for the years ended
October 31, 1996 and 1997.
<TABLE>
<CAPTION>
Weighted
Incentive Stock Average
Option Plan Exercise Price
<S> <C> <C>
Outstanding at October 31, 1995 ..................................... 795,500 $ 1.20
Granted ($1.56 to $2.63)............................................. 989,000 1.58
-----------------
Outstanding at October 31, 1996...................................... 1,784,500 1.41
Granted ($1.19 to $1.56)............................................. 192,000 1.46
-----------------
Outstanding at October 31, 1997...................................... $ 1,976,500 $ 1.42
=================
</TABLE>
During fiscal 1997 a total of 185,000 options issued in prior years had the
exercise prices reduced from a weighted average price of $3.27 an option to
$1.56 an option, respectively.
During fiscal 1997, the Company adopted FAS 123, which addresses accounting for
stock options and warrant plans and selected the "intrinsic value based method"
for valuing stock options granted to employees. Had compensation cost for all of
the Company's stock option plans been determined based upon the fair value at
the grant dates consistent with the methodology prescribed in FAS 123, the
Company's net income (loss) and net income (loss) per share would have increased
(decreased) to the pro forma amounts listed below using the weighted average
fair values indicated.
<TABLE>
<CAPTION>
For the Year Ended October 31,
1996 1997
---------------- -----------------
<S> <C> <C>
Net income (loss) as reported...................................... $ (127,420) $ 133,330
Pro forma net loss................................................. (232,858) (75,278)
Basic earnings (loss) per share as reported........................ (.02) .01
Pro forma basic loss per share..................................... (.03) (.01)
Weighted average fair value of options granted..................... $ 1.14 $ 1.10
</TABLE>
F-29
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants in
fiscal 1996 and 1997: risk-free interest rates ranging from 5.4% to 6.5%,
expected volatility of 75% to 95%, no dividends, and an expected life of four to
six years. FAS 123 does not require pro forma disclosure of the effect of
options and warrants granted in years prior to fiscal 1996. The pro forma effect
of compensation costs using the fair value based method are not indicative of
future amounts when the new method will apply to all outstanding option and
warrant grants.
The following table summarizes information for stock warrants and options
outstanding at October 31, 1997:
<TABLE>
<CAPTION>
Weighted Average Exercisable
Range of Number Remaining Exercise Number Weighted Average
Exercise Price Outstanding Life Price Outstanding Exercise Price
----------------- ------------------ ------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$ .81 558,000 1.3 years $ .81 558,000 $ .81
1.19-2.00 1,353,500 6.8 years 1.55 1,353,500 1.55
2.62 15,000 8.3 years 2.62 15,000 2.62
4.25 50,000 2.5 years 4.25 41,667 4.25
</TABLE>
13. Related party transactions
During fiscal 1996, the Company amended previously issued options to purchase
387,500 shares of common stock increasing the exercise price of $.81 per share
to $1.56 per share, in conjunction with the management restructuring discussed
in Note 17.
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 2), the
Company entered into an operating lease agreement with a limited partnership of
which the general partner is president of the 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, $95,000 and $132,000 for the years ended October 31, 1995, 1996 and
1997, 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 2),
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, as
amended 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
F-30
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
facility. Rent expense under this agreement was $27,884, $167,301 and $231,680
for the years ended October 31, 1995, 1996 and 1997, respectively.
In September 1997, in connection with the acquisition of Mardel (see Note 4),
the Company entered into an operating lease agreement with the former owners of
Mardel. The lease expires in February 1999, with an option to extend the term
for an additional five years, and relates to the land and buildings that
comprise Mardel's primary operating facility. Rent expense under this agreement
was $10,500 for the period from the date of the Mardel acquisition through
October 31, 1997.
During the years ended October 31, 1995, 1996 and 1997 the Company had net sales
of approximately $822,000, $954,000 and $944,000, respectively, to a national
animal health marketing, warehousing, and distribution company that is also a
stockholder of the Company. An officer of such corporation is also a stockholder
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, St. JON and Mardel.
14. Manufacturing and Supply Agreement
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.
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.
15. Discontinued operations
In June 1997, the Company discontinued the distribution of ingredients to
Purina. Consequently, in July 1997, the Company distributed all of its remaining
ingredients inventories to Purina and discontinued its operations in this area.
This segment of the Company's business has been accounted for and presented as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations" (APB 30) for all periods reflected
herein. At October 31, 1997, substantially all of the net assets relating to the
ingredients segment have either been disposed or have been deployed into the
Company's existing operations.
Management does not anticipate that the ingredients segment will have any
significant operations in the future. Furthermore, management does not believe
that there are any separately identifiable fixed assets
F-31
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
related to the ingredients segment and proceeds, if any, related to disposition
of such net assets subsequent to the June 1997 measurement date have not to date
and are not expected to result in a material net gain or loss in future periods.
However, the ultimate financial impact of the discontinuation of the segment
could differ from management's current estimates.
The operating results of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended October 31,
1995 1996 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Net sales................................................. $ 8,914,317 $ 7,722,255 $ 5,531,411
Income before income tax provision........................ 227,262 185,204 23,835
Income tax provision..................................... 87,496 71,304 9,176
--------------- ---------------- ---------------
Net income ............................................... $ 139,766 $ 113,900 $ 14,659
=============== ================ ===============
</TABLE>
The net assets of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
October 31,
1996 1997
---------------- ---------------
<S> <C> <C>
Current assets, primarily accounts receivable and inventories $ 1,738,000 $ --
Property, plant and equipment, net......................................... 109,000
Current liabilities........................................................ (499,461) --
---------------- ---------------
Net assets of discontinued operations...................................... $ 1,347,539 $ --
================ ===============
</TABLE>
16. 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 insurers. It is management's opinion that, in any event,
their outcome would not have a material effect on the Company's financial
position, cash flows or results of operations.
17. Other matters
Termination of Anthony Products Letter of Intent
In March 1997, the Company terminated its letter of intent related to its
proposed acquisition of Anthony Products Company. In conjunction with this
action, the Company recorded a $202,000 pre-tax charge in the second quarter of
fiscal 1997. Such amount is included in other income (expense) in the
accompanying consolidated statement of operations.
F-32
<PAGE>
Agri-Nutrition Group Limited
Notes to Financial Statements -- continued
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 were paid
during fiscal 1997.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Agri-Nutrition Group Limited
Our audits of the consolidated financial statements referred to in our report
dated December 12, 1997, appearing on page F-11 of this Proxy Statement also
included an audit of the Financial Statement Schedule included on page F-35 of
this Proxy Statement. 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.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
December 12, 1997
F-34
<PAGE>
AGRI-NUTRITION GROUP LIMITED
SCHEDULE VIII - RULE 12-09
VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
OCTOBER 31, 1997
<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 -- $ 24,994 (1) -- $ 123,844
Inventory Reserve $ 148,432 $ (31,806) $160,664 (1) -- $ 277,290
Allowance for
Doubtful Accounts $ 53,029 $ (5,518) $ 86,194 (1) -- $ 33,705
</TABLE>
(1) The FAS 109 valuation allowance, inventory reserve and allowance for
doubtful account allowances were increased by this amount in connection with the
Company's acquisition of Mardel Laboratories, Inc. in September 1997.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Virbac, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Virbac, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virbac, Inc. and subsidiaries
as of December 31, 1996 and 1997, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
February 6, 1998
F-36
<PAGE>
Virbac, Inc. And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1997 1998
------ ----------------- ---------------- ---------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 124,203 $ 84,047 $ 230,716
Accounts receivable, net of allowance for doubtful accounts of
$58,995, $46,395 and $21,789, respectively 2,013,781 1,528,356 2,539,399
Inventories, net of obsolescence reserve of $65,728,
$47,856 and $45,786, respectively 2,739,370 3,485,472 4,052,036
Prepaid expenses 330,938 358,133 245,972
----------------- ---------------- ---------------
Total current assets 5,208,292 5,456,008 7,068,123
----------------- ---------------- ---------------
NOTE RECEIVABLE 450,000 450,000 450,000
PROPERTY AND EQUIPMENT, net 5,756,095 5,354,289 5,001,353
INTANGIBLE ASSETS, net 2,345,589 2,096,444 2,322,465
OTHER ASSETS 32,559 34,437 69,268
----------------- ---------------- ---------------
Total assets $ 13,792,535 $ 13,391,178 $ 14,911,209
================= ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 189,199 $ 820,236 $ 1,060,664
Accrued liabilities 786,043 808,856 1,367,870
Advance from parent 4,000,000 1,000,000 2,000,000
Current portion of notes payable 400,000 400,000 1,400,000
----------------- ---------------- ---------------
Total current liabilities 5,375,242 3,029,092 5,828,534
----------------- ---------------- ---------------
NOTES PAYABLE, net of current portion 3,000,000 6,200,000 5,800,000
NOTE PAYABLE TO PARENT 450,000 450,000 450,000
----------------- ---------------- ---------------
Total liabilities 8,825,242 9,679,092 12,078,534
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 10,000,000 shares authorized
and 8,399,810 issued and outstanding 8,399,810 8,399,810 8,399,810
Additional paid-in capital 10,452 10,452 10,452
Retained deficit (3,442,969) (4,698,176) (5,577,587)
----------------- ---------------- ---------------
Total stockholders' equity 4,967,293 3,712,086 2,832,675
----------------- ---------------- ---------------
Total liabilities and stockholders' equity $ 13,792,535 $ 13,391,178 $ 14,911,209
================= ================ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-37
<PAGE>
Virbac, Inc. And Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Nine Months
For the Years ended December 31, Ended September 30,
1995 1996 1997 1997 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 18,659,499 $ 17,493,683 $ 16,235,284 $ 14,317,417 $ 12,868,678
COST OF GOODS SOLD 8,168,258 6,843,010 5,909,671 5,170,728 4,743,755
-------------- ------------- -------------- ------------ ------------
Gross profit 10,491,241 10,650,673 10,325,613 9,146,689 8,124,923
-------------- ------------- -------------- ------------ ------------
OPERATING EXPENSES:
Sales and marketing 5,744,483 5,475,140 5,737,787 4,718,958 4,682,017
General and administrative 2,927,670 3,308,936 2,665,945 2,027,772 2,167,718
Research and development 1,400,713 1,450,516 1,388,903 1,142,883 692,362
Warehouse and distribution 1,405,232 1,305,435 1,263,798 1,037,496 1,046,127
-------------- ------------- -------------- ------------ ------------
Income (loss) from operations (986,857) (889,354) (730,820) 219,580 (463,301)
-------------- ------------- -------------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (631,430) (530,349) (525,342) (402,525) (420,658)
Interest income and other 345,697 32,455 955 (3,627) 4,548
-------------- ------------- -------------- ------------ ------------
LOSS BEFORE INCOME TAXES (1,272,590) (1,387,248) (1,255,207) (186,572) (879,411)
-------------- ------------- -------------- ------------ ------------
BENEFIT FROM INCOME TAXES 177,000 -- -- -- --
-------------- ------------- -------------- ------------ ------------
NET LOSS $ (1,095,590) $ (1,387,248) $ (1,255,207) $ (186,572) $ (879,411)
============== ============= ============== ============ ============
Loss per common share $ (.20) $ (.17) $ (.15) $ (.02) $ (.10)
============== ============= ============== ============ ============
Weighted average number of common
shares outstanding 5,596,347 8,386,445 8,399,810 8,399,810 8,399,810
============== ============= ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-38
<PAGE>
Virbac, Inc. And Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995 (unaudited) 5,346,347 $ 5,346,347 $ -- $ (960,131) $ 4,386,216
Issuance of common stock
(unaudited) 3,000,000 3,000,000 -- -- 3,000,000
Net loss (unaudited) -- -- -- (1,095,590) (1,095,590)
------------ ------------ ----------- -------------- -------------
BALANCE, December 31,
1995 (unaudited) 8,346,347 8,346,347 -- (2,055,721) 6,290,626
Common stock issued in
connection with employment
contract (Note 10) 53,463 53,463 10,452 -- 63,915
Net loss -- -- -- (1,387,248) (1,387,248)
------------ ------------ ----------- -------------- -------------
BALANCE, December 31, 1996 8,399,810 8,399,810 10,452 (3,442,969) 4,967,293
Net loss -- -- -- (1,255,207) (1,255,207)
------------ ------------ ----------- -------------- -------------
BALANCE, December 31, 1997 8,399,810 8,399,810 10,452 (4,698,176) 3,712,086
Net loss (unaudited) -- -- -- (879,411) (879,411)
------------ ------------ ----------- -------------- -------------
BALANCE, September 30,
1998 (unaudited) 8,399,810 $ 8,399,810 $ 10,452 $ (5,577,587) $ 2,832,675
============ ============ =========== ============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-39
<PAGE>
Virbac, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended December 31, Ended September 30,
1995 1996 1997 1997 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,095,590) $ (1,387,248) $ (1,255,207) $ (186,572) $ (879,411)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 704,630 855,908 889,031 434,580 536,677
Gain on sale of assets -- (3,036) (4,360) -- --
Common stock issuance (Note 10) -- 63,915 -- -- --
Changes in operating assets and liabilities-
Accounts receivable, net (40,778) 360,082 485,425 (140,058) (1,011,043)
Inventories 327,507 1,410,322 (746,102) (836,845) (566,564)
Prepaid expenses 82,914 48,588 (27,195) 137,306 112,161
Accounts payable (163,112) (698,291) 631,037 437,527 240,428
Accrued liabilities (69,642) 390,619 22,813 381,443 222,258
------------ ------------- -------------- ------------- -------------
Net cash (used in) provided
by operating activities (254,071) 1,040,859 (4,558) 227,381 (1,345,494)
------------ ------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in other assets (824,356) (22,583) (1,878) (153,950) 88,917
Purchase of property and equipment (2,480,803) (144,810) (148,591) (76,719) (57,733)
Proceeds from sale of property and equipment -- 13,615 7,749 -- --
Acquisition of intangible assets -- (79,843) (92,878) 8,510 (139,021)
------------ ------------- -------------- ------------- -------------
Net cash used in
investing activities (3,305,159) (233,621) (235,598) (222,159) (107,837)
------------ ------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 3,000,000 -- -- -- --
Proceeds from borrowings 1,000,000 4,000,000 6,700,000 3,900,000 800,000
Payments on notes payable and line of credit (450,000) (5,700,000) (2,500,000) (4,000,000) --
Advances from parent, net -- 1,000,000 (4,000,000) -- 800,000
------------ ------------- -------------- ------------- -------------
Net cash provided by (used in)
financing activities 3,550,000 (700,000) 200,000 (100,000) 1,600,000
------------ ------------- -------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH (9,230) 107,238 (40,156) (94,778) 146,669
CASH, beginning of year 26,195 16,965 124,203 124,203 84,047
------------ ------------- -------------- ------------- -------------
CASH, end of year $ 16,965 $ 124,203 $ 84,047 $ 29,425 $ 230,716
============ ============= ============== ============= =============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 718,529 $ 489,917 $ 470,573 $ 397,342 $ 490,700
============ ============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-40
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
1. SUMMARY SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business and Principles of Consolidation
Virbac, Inc., a Delaware corporation, was incorporated February 1984, and is a
majority owned subsidiary of Virbac S.A. (the "Parent"), a French corporation.
The consolidated financial statements include the accounts of Virbac, Inc. and
its wholly owned subsidiaries: Francodex, Inc.; Allerderm, Inc.; and Health
Companion Laboratories, Inc. (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
The Company's principal business is the manufacture and distribution of animal
health care products. The Company distributes its products to veterinarians and
pet supply stores.
The Company is economically dependent on its parent, which has expressed its
intention to continue its financial support of the Company.
Interim Financial Statements
The financial statements for the nine months ended September 30, 1997 and 1998,
have been prepared by the Company, without audit, pursuant to Accounting
Principles Board (APB) Opinion No. 28, "Interim Financial Reporting." Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the APB Opinion No. 28; nevertheless,
management of the Company believes that the disclosures herein are adequate to
prevent the information presented from being misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company with respect
to the results of its operations for the nine months ended September 30, 1997
and 1998, have been included herein. The results of operations for the nine
month period is not necessarily indicative of the results for the full year.
Cash and Cash Equivalents
The Company classifies as cash and cash equivalents amounts on deposit in banks
and cash invested temporarily in various instruments with maturities of three
months or less at time of purchase.
F-41
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
Inventories
Inventories are stated at the lower of cost or market, with cost determined on
an average cost method. Finished goods consist of direct materials, direct labor
and overhead. The major components of inventory were as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997 1998
---------------- ---------------- -----------------
(unaudited)
<S> <C> <C> <C>
Raw materials........................ $ 400,993 $ 980,341 $ 995,904
Finished goods....................... 1,659,401 1,680,288 2,118,627
Packaging............................ 678,976 824,843 937,505
---------------- ---------------- -----------------
Total inventory............... $ 2,739,370 $ 3,485,472 $ 4,052,036
================ ================ =================
</TABLE>
Property and Equipment
Property and equipment are stated at cost. For financial reporting purposes,
depreciation and amortization are computed on the straight-line method.
Accelerated methods are used for tax purposes. The costs of maintenance and
repairs are charged to expense as incurred, while betterments that increase
property lives are capitalized. When an asset is retired, the cost and related
accumulated depreciation and amortization are removed from the accounts and any
gain or loss is reflected in operations.
Intangible Assets
Intangible assets consist primarily of goodwill, covenant not to compete
trademarks and patent costs. These intangible assets are amortized over their
estimated useful lives (3-40 years) on the straight-line method. In conformance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," the Company's management continually evaluates whether events and
circumstances indicate that the remaining estimated useful life of intangible
assets may warrant revisions or that the remaining balance of intangibles or
other long-lived assets may not be recoverable. Management believes that its
intangible assets are fully recoverable.
Income Taxes
Income taxes are provided based upon the provisions of SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred taxes under the asset
and liability method.
Revenue Recognition
Revenue is recognized upon shipment of the product.
F-42
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
Loss Per Common Share
The Company has only common stock outstanding, and therefore, only basic loss
per common share is presented on the consolidated income statements. Basic loss
per common share is calculated by dividing net loss by the weighted average
number of common shares outstanding during the period.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosures of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications
Certain amounts previously reported in the 1996 financial statements have been
reclassified to conform with the 1997 presentation.
2. NOTE RECEIVABLE:
Note receivable represents a loan to a corporation (the "Borrower") formed by a
former executive of the Company. This loan, secured by the Borrower's inventory
and accounts receivable, bears interest at 6% per year with interest payments
due semiannually. Principal payments of $50,000 are due annually. The Borrower
has not made any scheduled payments to the Company in two years.
The Company has a corresponding note payable to its parent, which it will only
repay as payments are received from the Borrower. (See Note 6.)
F-43
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
3. PROPERTY AND EQUIPMENT:
Property and equipment, as of December 31, 1996 and 1997, consist of the
following:
<TABLE>
<CAPTION>
Estimated
Useful Lives
in Years 1996 1997
----------------- -------------- -------------
<S> <C> <C> <C>
Land -- $ 642,072 $ 642,072
Buildings and improvements 20 4,548,362 4,555,262
Production equipment 5-7 1,306,479 1,362,025
Furniture and fixtures 5-7 534,666 540,779
Computer equipment and software 5-7 513,185 582,805
-------------- --------------
7,544,764 7,682,943
Less- Accumulated depreciation (1,788,669) (2,328,654)
-------------- --------------
$ 5,756,095 $ 5,354,289
============== ==============
</TABLE>
In 1996 and 1997, depreciation expense was approximately $537,000 and $547,000,
respectively. In 1995, depreciation expense was approximately $407,000
(unaudited).
4. INTANGIBLE ASSETS:
Intangible assets, as of December 31, 1996 and 1997, consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives
in Years 1996 1997
----------------- -------------- --------------
<S> <C> <C> <C>
Goodwill 20 $ 3,367,553 $ 3,367,553
Patents, licenses and trademarks 3-40 334,807 427,625
Covenant not to compete 5 600,000 600,000
-------------- -------------
4,302,360 4,395,178
Less- Accumulated amortization (1,956,771) (2,298,734)
-------------- -------------
$ 2,345,589 $ 2,096,444
============== =============
</TABLE>
In 1996 and 1997, amortization expense was approximately $319,000 and $342,000,
respectively. In 1995, amortization expense was approximately $298,000
(unaudited).
F-44
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
5. NOTES PAYABLE:
Notes payable as of December 31, 1996 and 1997, consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Note payable to a financial institution, dated July 6, 1994, with interest
due quarterly from the date of initial advance at LIBOR plus .95%
($2,100,000 at 6.73% and $500,000 at 6.73%, as of December 31, 1997),
principal balance due in semiannual installments of $400,000 on July 1 and
January 1, due in full on
July 1, 1999; guaranteed by Parent $ 3,400,000 $ 2,600,000
Revolving line of credit with a financial institution up to $4,000,000;
interest due quarterly at LIBOR plus .75% (6.52% as
of December 31, 1997); expires July 6, 2000; guaranteed by Parent -- 4,000,000
----------------- ---------------
$ 3,400,000 $ 6,600,000
Less- Current maturities (400,000) (400,000)
----------------- ---------------
$ 3,000,000 $ 6,200,000
================ ===============
</TABLE>
Maturities of notes payable are as follows:
1998 $ 400,000
1999 2,200,000
2000 4,000,000
----------------
Total $ 6,600,000
================
On February 4, 1997, the Company obtained an uncommitted line of credit (the
"facility") from a financial institution under which it may borrow up to
$1,000,000. The facility is guaranteed by the Parent and expires on June 30,
1998. There was no amount outstanding as of December 31, 1997. The facility
includes certain restrictive covenants including limitations on the payment of
dividends as well as the maintenance of certain financial ratios. As of December
31, 1997, the Company was in compliance with all debt covenants.
6. NOTE PAYABLE TO AND ADVANCES FROM PARENT.
The Company has a $450,000 note payable to its parent as of December 31, 1997
and 1996. The terms of this note payable mirror the terms of the note receivable
from the Borrower (see Note 2). Therefore, payment will be made to its parent
only as payments are received on the note receivable.
F-45
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
The Company has an advance from its Parent at December 31, 1997 and 1996 in the
amount of $1,000,000 and $4,000,000, respectively. Interest on this advance is
paid monthly at a rate equaling LIBOR (7.80% at December 31, 1997). Subsequent
to December 31, 1997, the Company paid the advance from its parent in full with
borrowings under the facility.
7. INCOME TAXES:
Due to the Company's net losses in 1997 and 1996, and due to the lack of any
loss carryback opportunities, the Company had no taxes currently payable or
refundable during 1997. The effective income tax rate differs from the statutory
federal income tax rate principally as a result of the valuation allowance
related to the net operating loss carryforward.
The following table summarizes the net deferred tax assets as of December 31,
1996 and 1997:
1996 1997
--------------- --------------
Asset reserves $ 42,000 $ 32,000
Nondeductible liabilities 132,000 138,000
Net operating loss carryforward 296,000 533,000
Depreciation and amortization 88,000 157,000
Other 22,000 44,000
------------- -------------
580,000 904,000
Valuation allowance (580,000) (904,000)
------------- -------------
Deferred income tax, net $ -- $ --
============= =============
Management has concluded that, based on the Company's history of losses, it is
currently more likely than not that the Company will not realize its net
deferred tax assets. Therefore, the Company has provided a 100% valuation
allowance on its net deferred tax assets.
The Company's tax net operating loss carryforwards of approximately $1,567,000
will begin to expire in the year 2010. The Company has available an unused tax
credit carryforward of $58,000 which may be available against future taxable
income and expires beginning the year 2008.
F-46
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases facilities, cars, and certain machinery under noncancelable
operating leases which expire at various dates through 2000. Future minimum
lease payments under noncancelable operating leases as of December 31, 1997, are
as follows:
1998 $ 19,244
1999 5,759
2000 1,440
---------
Total minimum lease payments $ 26,443
==========
Total rent expense under operating leases was $30,413 and $42,438 in fiscal
years 1996 and 1997, respectively. Total rent expense under operating leases for
1995 was $81,363 (unaudited).
Litigation
The Company is subject to certain litigation and claims arising out of the
conduct of its business. While the final outcome of any litigation or claim
cannot be determined with certainty, management believes that the final outcome
of any current litigation or claim will not have a material adverse effect on
the Company's financial position or results of operations.
9. RELATED-PARTY TRANSACTIONS:
The Company made purchases from the Parent and its related affiliates in the
amount of $2,195,955 and $2,468,816 in 1996 and 1997, respectively. The Company
had sales to its parent and its related affiliates in the amount of $25,277 and
$102,344 in 1996 and 1997, respectively. In 1995, the Company made $1,453,190
(unaudited) of purchases from and had sales of $66,420 (unaudited) to the Parent
and its related affiliates.
Also in 1997, the Company was reimbursed $400,000 by the Parent for advertising
costs that also benefit the Parent. The reimbursement is included in selling and
marketing expense.
10. EMPLOYMENT CONTRACT:
The Company had an employment agreement with a former executive that provides
involuntary termination pay equal to one year's salary and provides for a bonus
payment based on increases between the current year pre-tax profit and the
previous year's highest pretax profit. Additionally, an ownership position in
the Company of 2% and 4% will be assigned if certain sales and pretax profits
are achieved. In 1996, certain targets were met and 53,463 shares of common
stock were issued with $63,915 charged to compensation expense. The agreement
was for three years and terminated on October 30, 1996.
F-47
<PAGE>
Virbac, Inc. And Subsidiaries
Notes to Consolidated Financial Statements -- continued
The Company has also entered into an employment contract with a key executive.
This five-year agreement terminates on December 31, 1998, unless terminates
earlier by either party. This agreement contains annual salary amounts,
commissions if certain sales targets are met, and covenants not to compete.
11. 401(k) BENEFIT PLAN:
The Company sponsors a 401(k) plan covering all employees subject to certain
eligibility and entry requirements. The Company matches 15% of employee
voluntary contributions, not to exceed 20% of employee's eligible compensation.
The contributions charged to operating expenses were approximately $14,000 and
$22,000 for 1996 and 1997, respectively. Contributions in 1995 were
approximately $32,000 (unaudited).
12. SUBSEQUENT EVENTS (unaudited):
In October 1998, the Company ceased manufacturing operations in its facility in
New Castle, Indiana. All products manufactured at that facility are now being
manufactured for the Company by third parties. The Company has not yet
determined for what the facility will be used in the future. Management believes
that the costs associated with the shut down of this facility will not be
material to the results of the Company's operations.
In October 1998, the Company entered into an agreement and plan of merger with
Agri-Nutrition Group Limited ("AGNU"). This transaction, which is subject to the
approval of AGNU's shareholders, government approval, and other conditions, is
expected to close in January 1999, and will be accounted for as an acquisition
of AGNU by the Company pursuant to the purchase method of accounting.
F-48
<PAGE>
[card front]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AGRI-NUTRITION GROUP LIMITED -- COMMON STOCK PROXY -- for the Special Meeting of
Stockholders at a.m., local time, , January , 1999, at , Missouri 63044.
The undersigned hereby appoints Alec L. Poitevint, II and Robert J. Elfanbaum,
or either of them, with full power of substitution, as Proxies to represent and
vote all of the shares of Common Stock of Agri-Nutrition Group Limited (the
"Company") held of record by the undersigned at the above-stated Special
Meeting, and any adjournments thereof, upon the matter set forth in the Notice
of Special Meeting of Stockholders and Proxy Statement dated January , 1999,
relating to such Special Meeting, as follows:
APPROVAL OF (A) THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 16, 1998,
AS AMENDED (THE "MERGER AGREEMENT"), AMONG AGRI-NUTRITION GROUP LIMITED, VIRBAC
S.A., A FRENCH CORPORATION, INTERLAB S.A.S., A FRENCH CORPORATION AND WHOLLY
OWNED SUBSIDIARY OF VBSA, AND VIRBAC, INC., A DELAWARE CORPORATION AND
SUBSIDIARY OF INTERLAB S.A.S., AND THE TRANSACTIONS CONTEMPLATED BY SAID MERGER
AGREEMENT; AND (B) AN AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO, AMONG OTHER THINGS, CHANGE THE COMPANY'S NAME TO VIRBAC CORPORATION AND
INCREASE ITS AUTHORIZED COMMON STOCK FROM 20,000,000 TO 38,000,000 SHARES (THE
"CERTIFICATE AMENDMENT").
___ FOR ___ AGAINST ___ ABSTAIN
The Board of Directors recommends a vote FOR the approval of the Merger
Agreement and the Certificate Amendment.
In their discretion, the Proxies are authorized to vote upon such other matters
as may properly come before the Special Meeting.
This proxy, when properly executed, will be voted as specified. If no
specification is made, it will be voted FOR the approval of the Merger Agreement
and the Certificate Amendment, and in the discretion of the Proxy or Proxies on
any other business.
[card reverse]
Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on
this proxy. When signing as attorney, trustee, executor, administrator, guardian
or corporate officer, please give your FULL title.
Any proxy heretofore given by the undersigned is hereby revoked. Receipt of the
Notice of the Special Meeting and Proxy Statement is hereby acknowledged. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
- -------------------------------- ----------------------------------
SIGNATURE DATE SIGNATURE DATE
<PAGE>
APPENDIX A
CONFIDENTIAL:
SUBJECT TO
CONFIDENTIALITY AGREEMENT
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
AGRI-NUTRITION GROUP LIMITED,
VIRBAC S.A.
AND
VIRBAC, INC.
October 16, 1998
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE MERGER.............................................................................................1
Section 1.1. The Merger.............................................................................1
Section 1.2. Effective Time.........................................................................1
Section 1.3. Closing................................................................................2
Section 1.4. Effects of the Merger..................................................................2
Section 1.5. Certificate of Incorporation and Bylaws................................................2
Section 1.6. Directors..............................................................................2
Section 1.7. Officers...............................................................................2
Section 1.8. Alternative Structure..................................................................3
ARTICLE II CONVERSION OF SECURITIES..............................................................................3
Section 2.1. Effect on Capital Stock................................................................3
Section 2.2. Adjustments of Parent's Share Ownership in AGNU........................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND VIRBAC...................................................3
Section 3.1. Organization and Authority.............................................................4
Section 3.2. Subsidiaries...........................................................................4
Section 3.3. Capitalization.........................................................................4
Section 3.4. Authorization..........................................................................5
Section 3.5. Consent and Approvals; No Violations...................................................5
Section 3.6. Financial Statements...................................................................5
Section 3.7. Absence of Certain Changes or Events...................................................6
Section 3.8. No Undisclosed Liabilities.............................................................6
Section 3.9. Proxy Statement........................................................................7
Section 3.10. Benefit Plans..........................................................................7
Section 3.11. Litigation.............................................................................8
Section 3.12. Compliance with Applicable Law.........................................................9
Section 3.13. Tax Matters............................................................................9
Section 3.14. Customer Warranties...................................................................11
Section 3.15. Brokers...............................................................................11
Section 3.16. Material Contracts....................................................................11
Section 3.17. Labor Matters.........................................................................12
Section 3.18. Environmental Matters.................................................................12
Section 3.19. Virbac Intellectual Property..........................................................13
Section 3.20. Year 2000 Issues......................................................................13
Section 3.21. Regulatory Compliance.................................................................14
Section 3.22. State Takeover Statutes Inapplicable..................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AGNU................................................................14
Section 4.1. Organization and Authority............................................................14
Section 4.2. Subsidiaries..........................................................................15
Section 4.3. Capitalization........................................................................15
Section 4.4. Authorization.........................................................................15
Section 4.5. Consents and Approvals; No Violations.................................................16
Section 4.6. SEC Reports and Financial Statements..................................................16
Section 4.7. Absence of Certain Changes or Events..................................................17
Section 4.8. No Undisclosed Liabilities............................................................17
Section 4.9. Proxy Statement.......................................................................18
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.10. Benefit Plans.........................................................................18
Section 4.11. Litigation............................................................................19
Section 4.12. Compliance with Applicable Law........................................................20
Section 4.13. Tax Matters...........................................................................20
Section 4.14. Customer Warranties...................................................................22
Section 4.15. Brokers...............................................................................22
Section 4.16. Material Contracts....................................................................22
Section 4.17. Labor Matters.........................................................................22
Section 4.18. Environmental Matters.................................................................23
Section 4.19. AGNU Intellectual Property............................................................23
Section 4.20. Year 2000 Issues......................................................................24
Section 4.21. Regulatory Compliance.................................................................24
Section 4.22. Voting Requirements...................................................................24
Section 4.23. Issuance of Merger Shares.............................................................24
ARTICLE V COVENANTS.............................................................................................25
Section 5.1. Affirmative Covenants of Virbac.......................................................25
Section 5.2. Negative Covenants of Virbac..........................................................25
Section 5.3. Affirmative Covenants of AGNU.........................................................27
Section 5.4. Negative Covenants of AGNU............................................................28
ARTICLE VI ADDITIONAL AGREEMENTS................................................................................30
Section 6.1. Access and Information................................................................30
Section 6.2. Confidentiality.......................................................................30
Section 6.3. Proxy Statement.......................................................................31
Section 6.4. AGNU Stockholder Approval.............................................................32
Section 6.5. Further Action; Commercially Reasonable Best Efforts..................................32
Section 6.6. Public Announcements..................................................................33
Section 6.7. Directors' and Officers' Insurance and Indemnification................................33
Section 6.8. HSR Act Matters.......................................................................34
Section 6.9. No Solicitation.......................................................................34
Section 6.10. Affiliate Agreements..................................................................36
Section 6.11. Conduct of Business of Parent and Surviving Corporation...............................36
Section 6.12. Expenses..............................................................................36
Section 6.13. Termination Fee.......................................................................37
Section 6.14. Tax Treatment.........................................................................37
Section 6.15. Assumption of Certain Obligations.....................................................37
Section 6.16. No Action.............................................................................37
Section 6.17. Employment Agreements Undertaking........................................................37
Section 6.18. Cash Infusion............................................................................37
ARTICLE VII CLOSING CONDITIONS..................................................................................38
Section 7.1. Conditions to Obligations of AGNU, Parent and Virbac to Effect the Merger.............38
(a) Stockholder Approval..................................................................38
(b) No Order..............................................................................38
(c) Regulatory Approvals..................................................................38
(d) Third Party Consents..................................................................38
(e) Tax Opinion of Virbac's Counsel.......................................................38
(f) Non-Competition Agreement.............................................................39
Section 7.2. Additional Conditions to Obligations of AGNU..........................................39
(a) Representations and Warranties........................................................39
(b) Agreements and Covenants..............................................................39
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(c) No Material Adverse Effect............................................................39
(d) Cash Infusion by Parent...............................................................39
(e) Fairness Opinion......................................................................39
(f) Supply Agreement......................................................................40
Section 7.3. Additional Conditions to Obligations of Parent and Virbac.............................40
(a) Representations and Warranties........................................................40
(b) Agreements and Covenants..............................................................40
(c) No Material Adverse Effect............................................................40
(d) Stockholders' Agreements..............................................................40
ARTICLE VIII POST-CLOSING COVENANTS.............................................................................40
Section 8.1. Stock Repurchase......................................................................40
Section 8.2. Contingent Stock Repurchase...........................................................40
(a) Contingent Repurchase.................................................................40
(b) Contingent Capital Contribution.......................................................41
(c) Adjustments...........................................................................41
(d) Board Discretion......................................................................41
Section 8.3. Minority Stockholder Director Nominee.................................................41
Section 8.4. Release of VBSA Guarantee.............................................................42
Section 8.5. Fiscal Year of Surviving Corporation..................................................42
Section 8.6. Further Assurances....................................................................42
ARTICLE IX REGISTRATION RIGHTS..................................................................................42
Section 9.1. Demand Registration...................................................................42
Section 9.2. Indemnification by the Surviving Corporation..........................................43
Section 9.3. Indemnification by Parent.............................................................44
Section 9.4. Notices of Claims, Etc................................................................44
Section 9.5. Other Indemnification.................................................................45
Section 9.6. Contribution..........................................................................45
Section 9.7. Registration Covenants of the Surviving Corporation...................................45
Section 9.8. Expenses..............................................................................48
Section 9.9. Rule 145..............................................................................48
Section 9.10. Limitation on Requirement to File or Amend Registration Statement.....................48
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.....................................................................49
Section 10.1. Termination...........................................................................49
Section 10.2. Effect of Termination.................................................................51
Section 10.3. Amendment, Extension and Waiver.......................................................51
ARTICLE XI GENERAL PROVISIONS...................................................................................51
Section 11.1. Nonsurvival of Representations, Warranties and Agreements.............................51
Section 11.2. Notices...............................................................................52
Section 11.3. Certain Definitions...................................................................53
Section 11.4. Headings..............................................................................54
Section 11.5. Entire Agreement......................................................................54
Section 11.6. Severability..........................................................................55
Section 11.7. No Third Party Beneficiaries..........................................................55
Section 11.8. Governing Law.........................................................................55
Section 11.9. Disclosure Schedules..................................................................55
Section 11.10. Counterparts..........................................................................55
Exhibit A Restated Certificate of Incorporation of AGNU
</TABLE>
A-4
<PAGE>
Exhibit B Restated Bylaws of AGNU
Exhibit C Virbac Affiliate Agreement
Exhibit D VBSA Affiliate Agreement
Exhibit E Addendum to Agreement
Exhibit F Employment Agreements Undertaking
Exhibit G Noncompetition Agreement
Exhibit H Supply Agreement
Exhibit I Form of Stockholder's Agreement
Exhibit J Opinion of Environmental Counsel of AGNU
Schedule 1.6 Directors of Surviving Corporation
Schedule 1.7 Officers of Surviving Corporation
Schedule 7.3 Parties to Stockholders' Agreements
Appendix A Virbac Disclosure Schedule
Appendix B AGNU Disclosure Schedule
A-5
<PAGE>
TABLE OF DEFINED TERMS
Term Location
Acquisition Agreement 6.9(b)
Acquisition Proposal 6.9(e)
Affiliate 11.3(a)
AGNU Preamble
AGNU 1997 l0-K 4.13(a)
AGNU Benefit Plans 4.10(a)
AGNU Common Stock 2.1
AGNU Compensation Agreements 4.10(a)
AGNU Disclosure Schedule Article IV
AGNU Fairness Opinion 5.3(c)
AGNU Intellectual Property 4.19
AGNU Options 2.2
AGNU Pension Plans 4.10(b)
AGNU Permits 4.12
AGNU Preferred Stock 4.3
AGNU Required Consents 4.5
AGNU SEC Documents 4.6
AGNU Stockholders' Meeting 3.9
AGNU Stockholder Approval 4.4
AGNU's Systems 4.20(a)
AGNU Termination Breach 10.1(c)
Agreement Preamble
Bargaining Agreements 10.1(j)
Blue Sky Laws 11.3(b)
Broker Fee 3.5
Business Day 11.3(c)
Cash Infusion 6.18
Certificate of Merger 1.2
Claim 6.7(a)
Closing 1.3
Closing Date 1.3
Code Recitals
Confidentiality Agreement 11.1
Constituent Corporations 1.1
Contingent Contribution 8.2(b)
Contingent Period 8.2(a)
Contingent Price 8.2(a)
Contingent Repurchase 8.2(a)
Control 11.3(d)
Controlled by 11.3(d)
DGCL Recitals
Drug Regulatory Agency 3.21(a)
Effective Time 1.2
Environmental Law 3.18
Environmental Permits 3.18
EPA 3.21(a)
ERISA 3.10(b)
Exchange Act 3.5
FDA 3.21(a)
GAAP 3.6
Governmental Entity 3.5
Hazardous Substance 3.18
HSR Act 3.5
Indemnified Party 6.7(a)
Liens 3.2
Material Adverse Effect 11.3(e)
Merger Recitals
Merger Shares 2.1
Merger Sub 1.8
Order 10.1(d)
Ordinary Course of Business 11.3(f)
Parent Recitals
Person 11.3(g)
Proxy Statement 3.9
Registrable Securities 9.1(e)
Registration Demand 9.1(a)
Registration Statement 9.7(a)
Representatives 6.1
Repurchase Price 8.2(a)
SEC 4.6
Securities Act 3.5
Share Adjustment 2.2
Stock Repurchase 8.1
Subsidiary 11.3(h)
Superior Proposal 6.9(e)
Surviving Corporation 1.1
Surviving Corporation Bylaws 1.5(b)
Surviving Corporation Certificate 1.5(a)
Termination Date 10.1(h)
Termination Fee 6.13
under Common Control with 11.3(d)
USDA 3.21(a)
VBSA Preamble
Virbac Preamble
Virbac Benefit Plans 3.10(a)
Virbac Compensation Agreements 3.10(a)
Virbac Debt 6.18
Virbac Disclosure Schedule Article III
Virbac Financial Statements 3.6
Virbac Intellectual Property 3.19
A-6
<PAGE>
Virbac Material Contracts 3.16
Virbac Pension Plans 3.10(b)
Virbac Permits 3.12
Virbac Required Approvals 3.5
Virbac Stockholders 2.1
Virbac's Systems 3.20(a)
Virbac Termination Breach 10.1(b)
Year 2000 Compliant 3.20(c)
A-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
16, 1998, among Agri-Nutrition Group Limited, a Delaware corporation ("AGNU"),
Virbac S.A., a French corporation ("VBSA"), and Virbac, Inc., a Delaware
corporation ("Virbac").
WHEREAS, the respective Boards of Directors of AGNU and Virbac deem it
advisable, consistent with their respective long-term business strategies and in
the best interests of their respective stockholders, that Virbac merge with and
into AGNU, or at Virbac's sole discretion a newly formed subsidiary of AGNU (the
"Merger"), pursuant to the terms and subject to the conditions set forth in this
Agreement and in accordance with the Delaware General Corporation Laws (the
"DGCL"), and such Boards of Directors have approved the Merger and this
Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a tax-free reorganization pursuant to Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
is intended to be and is hereby adopted as a plan of reorganization;
WHEREAS, as promptly as possible after the date hereof VBSA will form a
direct or indirect wholly owned subsidiary, which will be incorporated under the
laws of France or another jurisdiction selected by VBSA ("Parent") for the
purpose of holding the shares of AGNU to be issued in the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, AGNU, VBSA and Virbac hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.2), AGNU and Virbac will consummate the Merger. At
the Effective Time, Virbac will be merged with and into AGNU, the separate
corporate existence of Virbac will cease, AGNU will continue as the surviving
corporation (AGNU and Virbac are sometimes referred to herein as the
"Constituent Corporations" and AGNU is sometimes referred to herein as the
"Surviving Corporation") and AGNU will succeed to and assume all the rights and
obligations of Virbac in accordance with the DGCL. Following consummation of the
Merger, the Surviving Corporation will change its name to "Virbac Corporation."
Section 1.2. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VII, the parties
will cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL, together with any required related certificates, with the Secretary of
State of the State of Delaware in such form as required by the DGCL and in such
form as approved by Virbac and AGNU prior to such filing. The Merger will become
effective (the "Effective Time") at the time the original, properly executed
Certificate of Merger is accepted for filing by the office of the Secretary of
State of the State of Delaware in accordance with the DGCL or at such other time
which the parties hereto agree upon and designate in the Certificate of Merger
as the Effective Time. AGNU will submit a Certificate of Merger for filing at
the time of the Closing and may submit a draft thereof prior thereto for
pre-clearance.
A-8
<PAGE>
Section 1.3. Closing. Upon the terms and subject to the conditions of
this Agreement, the closing of the Merger (the "Closing") will take place at a
time, on a date and at a place to be mutually agreed by AGNU and Virbac or,
failing such agreement, on the second Business Day after satisfaction or waiver
of the conditions set forth in Article VII (the "Closing Date").
Section 1.4. Effects of the Merger. The Merger has the effects set
forth in this Agreement, the Certificate of Merger and the applicable provisions
of the DGCL.
Section 1.5. Certificate of Incorporation and Bylaws. At the Effective
Time:
(a) The Restated Certificate of Incorporation of AGNU will be
amended and restated in its entirety to read as set forth in Exhibit A
attached hereto and, as so amended and restated, will be the
certificate of incorporation of the Surviving Corporation (the
"Surviving Corporation Certificate") until amended in accordance with
the terms thereof and applicable law.
(b) The By-Laws of AGNU will be amended and restated in their
entirety to read as set forth in Exhibit B attached hereto and, as so
amended and restated, will be the bylaws of the Surviving Corporation
(the "Surviving Corporation Bylaws") until amended in accordance with
the terms thereof and applicable law.
Section 1.6. Directors. All of the directors of AGNU will resign
effective as of the Effective Time. The number of directors to serve on the
Board of Directors of the Surviving Corporation as of the Effective Time will be
five, the members of each class of which will be the individuals set forth on
Schedule 1.6 hereto. The individual who will serve as Chairman of the Board of
Directors of the Surviving Corporation will be designated by Virbac. Such
individuals will hold office from the Effective Time until his or her successor
is duly appointed and qualified or until his or her earlier death, resignation
or removal in accordance with the Surviving Corporation Certificate and
Surviving Corporation Bylaws.
Section 1.7. Officers. The officers of the Surviving Corporation will
be the individuals to be set forth on Schedule 1.7 by Virbac. Such individuals
will hold office from the Effective Time until his or her successor is duly
appointed and qualified or until his or her earlier death, resignation or
removal in accordance with the Surviving Corporation Certificate and Surviving
Corporation Bylaws.
Section 1.8. Alternative Structure. Virbac may elect in its sole
discretion to effect the Merger with a newly formed wholly owned subsidiary of
AGNU ("Merger Sub"), with either Virbac or Merger Sub as the "Surviving
Corporation", in which event AGNU agrees to form Merger Sub, change AGNU's name
to "Virbac Corporation" and execute, deliver an file such further documents and
do all acts necessary, desirable or proper to effect such structure.
A-9
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1. Effect on Capital Stock. At the Effective Time and without
any action on the part of AGNU, Parent, Virbac or any holders of shares of the
Constituent Corporations, all of the issued and outstanding shares of Virbac
Common Stock immediately prior to the Effective Time will be automatically
converted into the right to receive that number of duly authorized, validly
issued, fully paid and nonassessable shares (the "Merger Shares") of the common
stock, par value $.01 per share, of AGNU (the "AGNU Common Stock"), equal to the
product of (a) the difference between (i) the number of shares of AGNU Common
Stock issued and outstanding immediately prior to the Effective Time and (ii)
1,000,000 and (b) 1.5. All of the shares of Virbac Common Stock to be converted
into AGNU Common Stock pursuant to this Section 2.1 will cease to be
outstanding, will automatically be canceled and retired and will cease to exist
as of the Effective Time. At the Closing, AGNU will deliver or cause to be
delivered to the holders of Virbac Common Stock (the "Virbac Stockholders")
stock certificates of AGNU representing such Virbac Stockholders' proportionate
amount of Merger Shares.
Section 2.2. Adjustments of Parent's Share Ownership in AGNU. After the
Effective Time and until the final Share Adjustment (as defined below) is made
following the expiration, termination or exercise of all options (the "AGNU
Options") to purchase AGNU Common Stock that are outstanding as of the Effective
Time, AGNU will, contemporaneously with the issuance of AGNU Common Stock upon
the exercise of an AGNU Option or pursuant to that certain Agreement and Plan of
Merger dated as of July 16, 1997 among AGNU, Mardel Acquisition Corporation and
Mardel Laboratories, Inc., issue to Parent (a "Share Adjustment") an additional
number of shares of AGNU Common Stock, if any, equal to the product of (a) the
aggregate number of shares of AGNU Common Stock issued upon the exercise of such
AGNU Option and (b) 1.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND VIRBAC
Subject to the exceptions set forth and identified in the disclosure
schedule attached hereto as Appendix A (the "Virbac Disclosure Schedule"),
Parent and Virbac represent and warrant to AGNU as follows:
Section 3.1. Organization and Authority. Each of Virbac and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now being
conducted. Each of Virbac and its Subsidiaries is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary (each of which jurisdictions is
identified in Item 3.1 of the Virbac Disclosure Schedule) other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing would not, in the aggregate, have a Material Adverse Effect (as defined
in Section 11.3(e). Virbac has delivered to AGNU complete and correct copies of
its certificate of incorporation and bylaws, in each case, as in effect on the
date hereof.
Section 3.2. Subsidiaries. Item 3.2 of the Virbac Disclosure Schedule
lists each direct and indirect Subsidiary of Virbac. Except as set forth in Item
3.2 of the Virbac Disclosure Schedule, all the outstanding shares of capital
stock of each Subsidiary are owned, directly or indirectly, by Virbac, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"), and are duly
authorized, validly issued, fully paid and nonassessable. Except for the capital
stock of its Subsidiaries and except as otherwise indicated in Item 3.2 of the
Virbac Disclosure Schedule, Virbac does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity.
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Section 3.3. Capitalization. As of the date of this Agreement, the
authorized capital stock of Virbac consists of 10,000,000 shares of Virbac
Common Stock. At the close of business on October 16, 1998, (i) 8,399,810 shares
of Virbac Common Stock were issued and outstanding and (ii) no shares of Virbac
Common Stock were held by Virbac in its treasury. Except as set forth above, as
of October 16, 1998, no shares of capital stock or other voting securities of
Virbac are issued, reserved for issuance or outstanding. Of the issued and
outstanding shares of capital stock of Virbac, 8,346,347 shares of Virbac Common
Stock are owned by VBSA (and, upon formation of Parent, will be owned by Parent)
and 53,463 shares of Virbac Common Stock are owned by Mr. Roger D. Brandt. All
outstanding shares of Virbac Common Stock are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. There are no
bonds, debentures, notes or other indebtedness of Virbac having the right to
vote (or convertible into, or exercisable or exchangeable for, securities having
the right to vote) on any matters on which stockholders of Virbac may vote. As
of the date hereof, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Virbac or any of its Subsidiaries is a party or by which any of them is bound
obligating Virbac or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
voting securities of Virbac or of any of its Subsidiaries or obligating Virbac
or any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
contractual obligations of Virbac or any of its Subsidiaries to vote or to
dispose of any shares of the capital stock of any of Virbac's Subsidiaries.
Section 3.4. Authorization. Virbac has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation by Virbac of the Merger and of the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Virbac and no other corporate proceedings on the
part of Virbac are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by Virbac and, assuming this Agreement constitutes a valid and binding
obligation of AGNU, constitutes a valid and binding obligation of Virbac,
enforceable against Virbac in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights generally and to general principles of equity.
Section 3.5. Consent and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933 (the
"Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), the
AGNU Stockholder Approval, applicable requirements of the National Association
of Securities Dealers or the Nasdaq, foreign laws, the filing of the Certificate
of Merger and any required related certificates under the DGCL, and the other
matters referred to in Item 3.5 of the Virbac Disclosure Schedule (collectively,
the "Virbac Required Approvals"), neither the execution, delivery or performance
of this Agreement by Virbac nor the consummation by Virbac of the transactions
contemplated hereby will (i) conflict with or result in the breach of any
provision of the certificate of incorporation or bylaws of Virbac, (ii) require
any permit, authorization, consent or approval of, or any filing with, any
federal, state or local government or any court, tribunal, administrative agency
or commission or other governmental or other regulatory authority or agency,
domestic or foreign (a "Governmental Entity"), except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not have, individually or in the aggregate, a Material Adverse
Effect, (iii) result in a violation or breach of, or constitute, with or without
due notice or lapse of time or both, a default, or give rise to any right of
termination, amendment, cancellation or acceleration under, any of the material
terms, conditions or provisions of any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license, contract,
agreement or other instrument or obligation to which Virbac or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Virbac, any of its Subsidiaries or any
of their respective properties or assets, except in the case of clauses (iii) or
(iv) for violations, breaches or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect.
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Section 3.6. Financial Statements. Virbac has heretofore made available
to AGNU true and complete copies of the following financial statements of Virbac
(the "Virbac Financial Statements"): (i) audited balance sheet as of December
31, 1997 and related notes thereto, (ii) audited statement of operations for the
two years ended December 31, 1997 and December 31, 1996, and related notes
thereto, (iii) audited statement of cash flows for the two years ended December
31, 1997 and December 31, 1996, and related notes thereto, (iv) unaudited
balance sheet as of August 31, 1998 and (v) the unaudited statement of
operations for the eight months ended August 31, 1998. The Virbac Financial
Statements, as of the respective dates thereof, (i) complied as to form in all
material respects with applicable accounting requirements, (ii) have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved and (iii) fairly
present (subject, in the case of the unaudited statements, to normal, recurring,
year-end audit adjustments) the consolidated financial position of Virbac and
its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods indicated therein.
The unaudited financial statements by Virbac referred to in this Section 3.6 are
attached hereto as Item 3.6 of the Virbac Disclosure Schedule, provided however,
that Virbac will make available to AGNU, by October 30, 1998, true and complete
copies of an unaudited statement of cash flows for the eight months ended August
31, 1998, which shall then be deemed to be included in the Virbac Financial
Statements.
Section 3.7. Absence of Certain Changes or Events. Except as set forth
in Item 3.7 of the Virbac Disclosure Schedule, since December 31, 1997, Virbac
and its Subsidiaries have conducted their respective businesses only in the
Ordinary Course of Business, and there has not been, in the aggregate, (1) any
changes that have had a Material Adverse Effect, (2) any declaration, setting
aside or payment of any dividend or other distribution with respect to its
capital stock or any redemption, purchase or other acquisition of any of its
capital stock, (3) any split, combination or reclassification of any of its
capital stock or any issuance or the authorization of any issuance of any
capital stock or any options, warrants, rights or other securities in respect
of, in lieu of or in substitution for, shares of its capital stock, (4) (A) any
granting by Virbac or any of its Subsidiaries to any officer or employee of
Virbac or any of its Subsidiaries of any increase in compensation, except in the
Ordinary Course of Business, including in connection with promotions consistent
with past practice or as was required under employment agreements in effect as
of December 31, 1997, (B) any granting by Virbac or any of its Subsidiaries to
any such officer or employee of any increase in severance or termination pay,
except as was required under employment, severance or termination agreements in
effect as of December 31, 1997 and previously made available to AGNU, or (C) any
entry by Virbac or any of its Subsidiaries into any employment, severance or
termination agreement with any such officer or employee, (5) any event,
circumstance, damage, destruction or loss, whether or not covered by insurance,
that has, or reasonably could be expected to have, a Material Adverse Effect,
(6) any revaluation by Virbac of any of its material assets that has, or
reasonably could be expected to have, a Material Adverse Effect in the
aggregate, (7) any material change in accounting methods, principles or
practices by Virbac or (8) any adoption, amendment or termination of any bonus,
profit sharing, incentive, severance or other plan, contract or commitment for
the benefit of any of its directors, officers or employees.
Section 3.8. No Undisclosed Liabilities. Except as set forth in the
Virbac Financial Statements or in Item 3.8 of the Virbac Disclosure Schedule,
neither Virbac nor any of its Subsidiaries has any material liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise.
Since December 31, 1997, except for liabilities incurred by Virbac or its
Subsidiaries in the Ordinary Course of Business, neither Virbac nor any of its
Subsidiaries has incurred any material liabilities of any nature, whether or not
accrued, contingent or otherwise, and that in the aggregate would be reasonably
expected to have a Material Adverse Effect.
Section 3.9. Proxy Statement. None of the information supplied or to be
supplied by Virbac specifically for inclusion or incorporation by reference in
the Proxy Statement (the "Proxy Statement"), will, at the time the Proxy
Statement is first mailed to the stockholders of AGNU and at the time of the
special meeting of stockholders of AGNU (the "AGNU Stockholders' Meeting")
called for the purpose of approving the Merger and the issuance of the Merger
Shares, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under
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which they are made, not misleading. Notwithstanding the foregoing, no
representation or warranty is made by Virbac with respect to statements made or
incorporated by reference therein based on information supplied by AGNU
specifically for inclusion or incorporation by reference in the Proxy Statement.
Section 3.10. Benefit Plans.
(a) Except as disclosed in Item 3.10(a) of the Virbac
Disclosure Schedule, since December 31, 1997, there has not been any
adoption or amendment in any material respect by Virbac or any of its
Subsidiaries of any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, restricted stock, phantom stock, retirement, severance,
disability, hospitalization, medical or other plan, arrangement or
understanding providing benefits to any current or former employee,
officer or director of Virbac or any of its Subsidiaries (collectively,
"Virbac Benefit Plans"). Except as disclosed in Item 3.10(a) of the
Virbac Disclosure Schedule, there exist no employment, consulting,
severance, change in control, termination, rabbi trust or
indemnification agreements, arrangements or understandings between
Virbac or any of its Subsidiaries and any current or former employee,
officer or director of Virbac or any of its Subsidiaries (collectively,
"Virbac Compensation Agreements").
(b) Item 3.10(b) of the Virbac Disclosure Schedule contains a
list of all "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Virbac Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other Virbac Benefit Plans maintained, or contributed to, by
Virbac or any of its Subsidiaries for the benefit of any current or
former employees, officers or directors of Virbac or any of its
Subsidiaries. Virbac has delivered to AGNU true, complete and correct
copies of (i) each Virbac Benefit Plan (or, in the case of any
unwritten Virbac Benefit Plans, descriptions thereof) and all
amendments thereto, (ii) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Virbac
Benefit Plan (if any such report was required), (iii) the most recent
summary plan description for each Virbac Benefit Plan for which such
summary plan description is required, (iv) each trust agreement and
group annuity contract relating to any Virbac Benefit Plan and (v) each
Compensation Agreement (or in the case of any unwritten Virbac
Compensation Agreements, descriptions thereof) and all amendments
thereto.
(c) Except as disclosed in Item 3.10(b) of the Virbac
Disclosure Schedule, all Virbac Pension Plans intended to qualify under
the Code have been the subject of determination letters from the
Internal Revenue Service to the effect that such Virbac Pension Plans
are qualified under Section 401(a) of the Code, and no such
determination letter has been revoked nor, to the best knowledge of
Virbac, has revocation been threatened, nor has any such Virbac Pension
Plan been amended since the date of its most recent determination
letter in any respect that would adversely affect its qualification.
Except as disclosed in Item 3.10(a) of the Virbac Disclosure Schedule,
there is no material pending or, to Virbac's knowledge, threatened
litigation relating to any of the Virbac Benefit Plans or the Virbac
Compensation Agreements.
(d) No Virbac Pension Plan is subject to Title IV of ERISA.
None of Virbac, any of its Subsidiaries, any officer of Virbac or, to
the knowledge of Virbac, any trustee or administrator of an Virbac
Benefit Plan that is subject to ERISA, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary
responsibility involving such Virbac Benefit Plan that could subject
Virbac, any of its Subsidiaries or any officer of Virbac or any of its
Subsidiaries to any material tax or penalty on prohibited transactions
imposed by such Section 4975 or to any material liability under Section
502(i) or (1) of ERISA.
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(e) With respect to any Virbac Benefit Plan that is an
employee welfare benefit plan, except as disclosed in Item 3.10(b) of
the Virbac Disclosure Schedule, (i) no such Virbac Benefit Plan is
unfunded or funded through a "welfare benefits fund," as such term is
defined in Section 419(e) of the Code, (ii) each such Virbac Benefit
Plan that is a "group health plan," as such term is defined in Section
5000(b)(1) of the Code, complies in all material respects with the
applicable requirements of Section 4980B(f) of the Code and (iii) each
such Virbac Benefit Plan (including any such Plan covering retirees or
other former employees) may be amended or terminated without material
liability to Virbac or any of its Subsidiaries at any time. Except as
disclosed in Item 3.10(b) of the Virbac Disclosure Schedule, there has
been no written or, to Virbac's knowledge, oral communication to
employees by Virbac or any of its Subsidiaries that would reasonably be
expected to promise or guarantee such employees retiree health or life
insurance or other retiree death benefits on a permanent basis.
(f) Except as disclosed in Item 3.10(f) of the Virbac
Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement will not (i) entitle any employees of Virbac or any
of the Subsidiaries to severance pay, (ii) accelerate the time of
payment or vesting or trigger any payment of compensation or benefits
under, or increase the amount payable or trigger any other material
obligation pursuant to, any of the Virbac Benefit Plans or the Virbac
Compensation Agreements or (iii) result in any material breach or
violation of, or a default under, any of the Virbac Benefit Plans or
the Virbac Compensation Agreements.
Section 3.11. Litigation. Except as set forth in Item 3.11 of the
Virbac Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of Virbac, threatened against
Virbac or any of its Subsidiaries that could reasonably be expected to have,
directly or indirectly or in the aggregate, a Material Adverse Effect. Except as
set forth in Item 3.11 of the Virbac Disclosure Schedule, neither Virbac nor any
of its Subsidiaries is subject to any outstanding order, writ, injunction or
decree that could reasonably be expected to have, directly or indirectly, in the
aggregate, a Material Adverse Effect.
Section 3.12. Compliance with Applicable Law. Except as disclosed in
Item 3.12 of the Virbac Disclosure Schedule, Virbac and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, concessions, franchises
and approvals of all Governmental Entities necessary to own or lease their
respective assets and to conduct their respective businesses (the "Virbac
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders, concessions, franchises and approvals that would not, in the
aggregate, have a Material Adverse Effect. Virbac and its Subsidiaries are in
compliance with the terms of the Virbac Permits, except where the failure so to
comply would not have a Material Adverse Effect. Except as disclosed in Item
3.12 of the Virbac Disclosure Schedule, to the best knowledge of Virbac and its
Subsidiaries, Virbac and its Subsidiaries are in compliance with all laws,
ordinances or regulations of any Governmental Entity, except for such possible
violations or failures of compliance that would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Item 3.12 of the Virbac Disclosure Schedule, as of the date of this Agreement,
to the best knowledge of Virbac or any of its Subsidiaries, no investigation or
review by any Governmental Entity with respect to Virbac or any of its
Subsidiaries is pending, threatened, nor has any Governmental Entity indicated
an intention to conduct any such investigation or review, other than, in each
case, those the outcome of which would not be reasonably expected, in the
aggregate, to have a Material Adverse Effect.
Section 3.13. Tax Matters. Except as set forth in Item 3.13 of the
Virbac Disclosure Schedule:
(a) Each of Virbac and its Subsidiaries has filed all tax
returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are
complete and accurate in all respects, except to the extent that such
failures to file or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have a Material
Adverse Effect on Virbac. Virbac and each of its Subsidiaries has
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paid (or Virbac has paid on its behalf) or made provision for all taxes
shown as due on such tax returns and reports. No claim has been made
since December 31, 1997 by an authority in a jurisdiction where Virbac
or any of its Subsidiaries does not file tax returns that it is or may
be subject to taxation by that jurisdiction. The most recent financial
statements of Virbac reflect adequate reserves for all taxes payable by
Virbac and its Subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements, and no
deficiencies for any taxes have been proposed, asserted or assessed
against Virbac or any of its Subsidiaries that are not adequately
reserved for, except for inadequately reserved taxes and inadequately
reserved deficiencies that would not, individually or in the aggregate,
have a Material Adverse Effect on Virbac. There are no liens for taxes
(other than for current taxes not yet due and payable) on the assets of
Virbac or its Subsidiaries. No requests for waivers of the time to
assess any taxes against Virbac or any of its Subsidiaries have been
granted or are pending, except for requests with respect to such taxes
that have been adequately reserved for in the most recent financial
statements of Virbac, or, to the extent not adequately reserved, the
assessment of which would not, individually or in the aggregate, have a
Material Adverse Effect on Virbac. Neither Virbac nor any of its
Subsidiaries is a party to or bound by any agreement providing for the
allocation or sharing of taxes. Neither Virbac nor any of its
Subsidiaries has filed a consent pursuant to or agreed to the
application of Section 341(f) of the Code. Each of Virbac and its
Subsidiaries has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662
of the Code. All taxes that are required by the laws of the United
States, any state or political subdivision thereof, or any foreign
country to be withheld or collected by Virbac or any of its
Subsidiaries have been duly withheld or collected and, to the extent
required, have been paid to the proper governmental authorities or
properly deposited as required by applicable laws. None of Virbac and
its Subsidiaries (i) has been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common
parent of which was Virbac), or (ii) has any liability for the taxes of
any person (other than any of Virbac and its Subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract or otherwise. For purposes of this Agreement, the term tax
(including, with correlative meaning, the terms "taxes" and "taxable")
will include all federal, state, local, and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise, and other taxes, duties, or assessments of any
nature whatsoever, together with all interest, penalties, and additions
imposed with respect to such amounts.
(b) No claim has been made since August 31, 1998 by an
authority in a jurisdiction where Virbac or any of its Subsidiaries
does not pay sales and/or use taxes that it is or may be subject to a
requirement to remit such taxes in that jurisdiction. Since August 31,
1998 Virbac and its Subsidiaries have collected and/or remitted any
sales and/or use taxes required to be collected and/or remitted by all
states in which Virbac or its Subsidiaries conduct business activities,
except to the extent that a failure to collect and/or remit such sales
and/or use taxes would not have a Material Adverse Effect on Virbac.
(c) None of the compensation paid by Virbac since January 1,
1997, and none of the compensation, if any, that may be payable as a
result of the Merger will be subject to the limitations set forth in
Section 162(m) of the Code.
(d) No amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of Virbac or any of its Subsidiaries who is a "disqualified
individual" (as such term is defined in Section 280G(c) of the Code or
proposed Treasury Regulation Section 1.280G-1) under any Virbac
Compensation Agreement or Virbac Benefit Plan currently in effect would
be an "excess parachute payment" (as such term is defined in Section
280G(b)(l) of the Code).
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(e) Virbac is not aware of any circumstance or event that is
reasonably likely to prevent the Merger from being treated as a
tax-free reorganization pursuant to Section 368(a) of the Code.
Section 3.14. Customer Warranties. Except as disclosed in Item 3.14 of
the Virbac Disclosure Schedule, there are no pending, nor are there to the best
knowledge of Virbac any threatened, material claims under or pursuant to any
warranty, whether expressed or implied, on products or services sold prior to
the date of this Agreement by Virbac or any of its Subsidiaries. Item 3.14 of
the Virbac Disclosure Schedule identifies all such claims asserted from December
31, 1997 to the date of this Agreement and describes the resolution or status of
each such claim.
Section 3.15. Brokers. No broker, investment banker, financial advisor
or other Person other than Fountain Agricounsel, LCC, whose fee (the "Broker
Fee") will be paid by Virbac, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Virbac. A true and complete copy of Virbac's engagement letter with Fountain
Agricounsel, LCC is set forth as Item 3.15 of the Virbac Disclosure Schedule.
Section 3.16. Material Contracts. Item 3.16 to this Agreement
constitutes a complete and accurate list of each of the following contracts or
agreements, whether oral or written, express or implied, to which Virbac or any
of its Subsidiaries is a party, or by which Virbac or any of its Subsidiaries
may be bound involving the payment of (a) any note, bond, mortgage or other
instrument which evidences or secures indebtedness of Virbac with a balance
outstanding of $25,000 or more, which cannot be redeemed or prepaid at the
option of Virbac for an amount which, when added to the outstanding principal
balance, would be less than $50,000, (b) any lease of real or personal property,
or any sublease of real property, by Virbac, as lessee, pursuant to which Virbac
reasonably anticipates the payment of aggregate rent, taxes, insurance,
utilities (if applicable) and other charges in excess of $25,000 over the
remaining term of the lease, exclusive of all optional renewal periods and
optional extensions of the term (provided, however, that any such lease will not
be deemed a Virbac Material Contract in the event Virbac has the contractual
right to terminate the lease in question on 30 days' notice or less, without
incurring a penalty or premium in excess of $50,000), or (c) any lease of real
or personal property, or any sublease of real property, by Virbac, as lessor,
pursuant to which Virbac reasonably anticipates the collection of aggregate rent
in excess of $50,000 over the remaining term of the lease, exclusive of all
optional renewal periods and extensions of the term (provided, however, that any
such lease will not be deemed a Virbac Material Contract in the event Virbac has
the contractual right to terminate the lease in question on 30 days' notice or
less without incurring a penalty or premium in excess of $25,000 (the "Virbac
Material Contracts"). True and correct copies of the Virbac Material Contracts
and any agreements or amendments thereto have been made available for review by
AGNU. None of the Virbac Material Contracts is currently subject to
renegotiation or other adjustment of its terms either in whole or in part. None
of Virbac or its Subsidiaries is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party, by which its respective assets, business or operations may be bound
or affected, or under which it or any of its respective assets, business or
operations receives benefits, which default, in the aggregate, is reasonably
likely to have a Material Adverse Effect, and there has not occurred any event
that, with lapse of time or giving of notice or both, would constitute such a
default. Except as disclosed in Item 3.16 of the Virbac Disclosure Schedule,
neither Virbac nor any of its Subsidiaries is subject to, or bound by, any
contract containing covenants which (i) limit the ability of Virbac or any of
its Subsidiaries to compete in any line of business or against any Person or
entity, or (ii) involve any restriction of the method by which, or the
geographical area in which, Virbac or any of its Subsidiaries may carry on its
business, other than as may be required by law or any applicable Governmental
Entity.
Section 3.17. Labor Matters. Neither Virbac nor any of its Subsidiaries
is a party to, or is bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor
is Virbac or any of its Subsidiaries the subject of a proceeding asserting that
it or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or
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seeking to compel it or such Subsidiary to bargain with any labor organization
as to wages and conditions of employment, nor is there any strike or other labor
dispute involving Virbac or any of its Subsidiaries, pending or, to the best of
its knowledge, threatened, nor is it aware of any activity involving its or any
of the Subsidiaries' employees seeking to certify a collective bargaining unit
or engaging in any other organization activity. Neither Virbac nor any of its
Subsidiaries has been, within the last three years, nor, to the knowledge of
Virbac and its Subsidiaries, are they likely to become the subject of, or
involved in, any investigation, complaint or proceeding by the United States
Department of Labor, the Office of Federal Contract Compliance, the Equal
Employment Opportunity Commission or any similar federal, state or local body
dealing with any employment policies and practices of Virbac or such
Subsidiaries or any Person currently employed by them, except for any such
investigation, complaint or proceeding that, in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
Section 3.18. Environmental Matters. Except as set forth in Item 3.18
of the Virbac Disclosure Schedule and except for matters which are not
reasonably likely, in the aggregate, to have a Material Adverse Effect: (i)
neither the businesses of Virbac and its Subsidiaries nor the operation thereof
violates any applicable environmental law and no condition or event has occurred
which, with notice or the passage of time or both, would constitute a violation
of any Environmental Law; (ii) Virbac and each of its Subsidiaries are in
possession of all permits required under any applicable Environmental Law
("Environmental Permits") for the conduct or operation of the businesses of
Virbac and each of its Subsidiaries, (iii) Virbac and each of its Subsidiaries
are in compliance in all material respects with all of the requirements and
limitations included in the Environmental Permits, (iv) none of Virbac or any of
its Subsidiaries has stored or used any Hazardous Substance; (v) neither Virbac
nor any of its Subsidiaries has received any written notice, demand letter,
claim or request for information alleging any violation of, or liability under,
any Environmental Law; and (vi) none of Virbac or any of its Subsidiaries has
buried, dumped, disposed, spilled or released any pollutants, contaminants or
hazardous wastes, substances or materials on, beneath or adjacent to any of its
property or any property adjacent thereto.
As used herein, the term "Environmental Law" means any federal, state
or local law, regulation, order, decree, permit, authorization, common law or
agency requirement relating to: (A) the protection of the environment, health,
safety, or natural resources, (B) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
indoor air, pollution, contamination or any injury or threat of injury to
persons or property involving any Hazardous Substance. The term "Hazardous
Substance" means any substance in any concentration that is listed, classified
or regulated pursuant to any Environmental Law.
Section 3.19. Virbac Intellectual Property. The term "Virbac
Intellectual Property" means all of Virbac's and its Subsidiaries' (i)
registered or unregistered trademarks and other marks, service marks, trade
names or other trade rights, and pending applications for any such registration,
(ii) rights in or to patents and copyrights and pending applications therefor
and (iii) rights to other trademarks, service marks and other marks, trade names
and other trade rights and all other trade secrets, designs, plans,
specifications, technology, know-how, methods, designs, concepts, and other
proprietary rights, whether or not registered. Except as set forth in Item 3.19
of the Virbac Disclosure Schedule, (a) Virbac and each of its Subsidiaries is
the sole owner of and has the exclusive right to use its Virbac Intellectual
Property free from any Liens, (b) no Person has a right to receive a royalty or
similar payment in respect of any Virbac Intellectual Property, whether pursuant
to any contractual arrangements entered into by Virbac or any of its
Subsidiaries or otherwise, (c) to Virbac's knowledge, none of the Virbac
Intellectual Property, nor Virbac's or any of its Subsidiaries' use thereof,
infringe or otherwise violate the rights of any third party, and (d) to Virbac's
knowledge, Virbac is not aware of any infringement or violation of Virbac's or
any of its Subsidiaries' rights in or to the Virbac Intellectual Property by any
third party. Virbac and its Subsidiaries have the exclusive right to use, sell,
license and dispose of, and has the right to bring actions for infringement of,
the Virbac Intellectual Property.
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Section 3.20. Year 2000 Issues.
(a) Virbac has conducted an inventory and assessment of all
software, computers, network equipment, technical infrastructure,
production equipment and other equipment and systems that are material
to the operation of the business of Virbac and that rely on, utilize or
perform date or time processing ("Virbac's Systems").
(b) Any failure of any of Virbac's Systems to be Year 2000
Complaint will not cause a Material Adverse Effect.
(c) "Year 2000 Compliant" means the party's system will at all
times: (1) consistently and accurately handle and process date and time
information and data values before, during and after January 1, 2000,
including but not limited to accepting date input, providing date
output, and performing calculations on or utilizing dates or portions
of dates; (2) function accurately and in accordance with its
specifications without interruption, abnormal endings, degradation,
change in operation or other impact, or disruption of other systems,
resulting from processing date or time data with values, before, during
and after January 1, 2000; (3) respond to and process two-digit date
input in a way that resolves any ambiguity as to century; and (4) store
and provide output of date information in ways that are unambiguous as
to century.
Section 3.21. Regulatory Compliance.
(a) To Virbac's knowledge, since the most recent audit, if
any, by the United States Department of Agriculture ("USDA"), Food and
Drug Administration ("FDA"), Environmental Protection Agency ("EPA") or
any other federal, state, local or foreign governmental entity that is
concerned with the safety, efficacy, reliability or manufacturing of
animal health or pharmaceutical products (each, a "Drug Regulatory
Agency"), no act or omission has occurred at Virbac's facilities which
would subject Virbac to noncompliance with the standards of the USDA,
FDA, EPA or any other applicable Drug Regulatory Agency.
(b) Item 3.21 of the Virbac Disclosure Schedule sets forth a
list, for the period between August 31, 1998 and the date hereof, of
(i) all regulatory or warning letters, notices of adverse findings and
similar letters or notices issued by the USDA, FDA, EPA or Drug
Regulatory Agency, if any, to Virbac or any of its Subsidiaries that
would have a Material Adverse Effect, (ii) all product recalls,
notifications and safety alerts conducted by Virbac or any of its
Subsidiaries, whether or not required by the USDA, FDA or EPA or Drug
Regulatory Agency, and any request from the USDA, FDA, EPA or any Drug
Regulatory Agency requesting Virbac or any of its Subsidiaries to cease
to investigate, test or market any product, which recalls,
notifications, safety alerts or requests would have a Material Adverse
Effect, and (iii) any criminal injunctive, seizure or civil penalty
actions begun or threatened by the USDA, FDA, EPA or any Drug
Regulatory Agency against Virbac or any of its Subsidiaries and known
by Virbac or any of its Subsidiaries and all related consent decrees
issued with respect to Virbac or any of its Subsidiaries. Copies of all
documents referred to in Item 3.21 have been made available to AGNU.
Section 3.22. State Takeover Statutes Inapplicable. As of the date
hereof and at all times on or prior to the Effective Time, Section 203 of the
DGCL is, and will be, inapplicable to the Merger and the transactions
contemplated thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AGNU
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Subject to the exceptions set forth and identified in the disclosure
schedule attached hereto as Appendix B (the "AGNU Disclosure Schedule"), AGNU
represents and warrants to Parent and Virbac as follows:
Section 4.1. Organization and Authority. AGNU is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted. AGNU is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary other
than in such jurisdictions where any failure to be so duly qualified or licensed
and in good standing would not, in the aggregate, have a Material Adverse
Effect. AGNU has delivered to Virbac complete and correct copies of its
certificate of incorporation and bylaws, in each case, as in effect on the date
hereof.
Section 4.2. Subsidiaries. Item 4.2 of the AGNU Disclosure Schedule
lists each direct and indirect Subsidiary of AGNU. Except as set forth in Item
4.2 of the AGNU Disclosure Schedule, all the outstanding shares of capital stock
of each Subsidiary are owned, directly or indirectly, by AGNU, free and clear of
all Liens, and are duly authorized, validly issued, fully paid and
nonassessable. Except for the capital stock of its Subsidiaries and except as
otherwise indicated in Item 4.2 of the AGNU Disclosure Schedule, AGNU does not
own, directly or indirectly, any capital stock or other ownership interest in
any corporation, partnership, joint venture or other entity.
Section 4.3. Capitalization. The authorized capital stock of AGNU
consists of 20,000,000 shares of AGNU Common Stock and 2,000,000 shares of
preferred stock, par value $.01 per share ("AGNU Preferred Stock"), of AGNU. At
the close of business on October 16, 1998, (i) 9,384,480 shares of the AGNU
Common Stock were issued, (ii) no shares of the AGNU Preferred Stock were issued
and outstanding, (iii) 129,961 shares of AGNU Common Stock were held by AGNU in
its treasury (none of which will be held in Treasury as of the Effective Time),
and (iv) no shares of AGNU Preferred Stock were held by AGNU in its treasury.
Except as set forth above and in Item 4.3 of the AGNU Disclosure Schedule, as of
October 16, 1998, no shares of capital stock or other voting securities of AGNU
are issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of AGNU are duly authorized, validly issued, fully paid and
nonassessable and not issued in violation of any preemptive rights. There are no
bonds, debentures, notes or other indebtedness of AGNU having the right to vote
(or convertible into, or exercisable or exchangeable for, securities having the
right to vote) on any matters on which stockholders of AGNU may vote. Attached
to Item 4.3 of the AGNU Disclosure Schedule is a schedule of (i) shares of AGNU
Common Stock reserved for issuance upon exercise of options pursuant to the AGNU
Stock Option Plans and (ii) options to purchase shares of AGNU Common Stock
containing the name of each Optionee, the date of grant, vesting schedule,
exercise price and option termination date.
Section 4.4. Authorization. AGNU has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to the approval and
adoption of this Agreement and the issuance of the Merger Shares pursuant to
this Agreement by the holders of a majority of the votes of the holders of
shares of AGNU Common Stock cast thereon (the "AGNU Stockholder Approval"), to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by AGNU of the Merger and of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of AGNU and no other corporate proceedings on the
part of AGNU are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by AGNU and, assuming this Agreement constitutes a valid and binding
obligation of Parent and Virbac, constitutes a valid and binding obligation of
AGNU, enforceable against AGNU in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
Section 4.5. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the
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Exchange Act, the HSR Act, the filing of the Certificate of Merger and any
required related certificate under the DGCL, the laws of other states in which
AGNU is incorporated or qualified to do or is doing business and state takeover
laws, such filings and approvals as may be required under state laws in those
jurisdictions in which Virbac or any of its Subsidiaries is licensed or holds a
permit to engage in business and the other matters referred to in Item 4.5 of
the AGNU Disclosure Schedule (collectively, the "AGNU Required Consents"),
neither the execution, delivery or performance of this Agreement by AGNU nor the
consummation by AGNU of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the certificate of
incorporation or bylaws of AGNU, (ii) require any permit, authorization, consent
or approval of, or any filing with, any Governmental Entity, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings would not have, individually or in the aggregate, a Material
Adverse Effect, (iii) result in a violation or breach of, or constitute, with or
without due notice or lapse of time or both, a default, or give rise to any
right of termination, amendment, cancellation or acceleration, under, any of the
terms, conditions or provisions of any loan or credit agreement, note, bond,
mortgage, indenture, permit, concession, franchise, license, lease, contract,
agreement or other instrument or obligation to which AGNU or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to AGNU, any of its Subsidiaries or any
of their properties or assets, except in the case of clauses (iii) and (iv) for
violations, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 4.6. SEC Reports and Financial Statements. AGNU has filed with
the SEC, and has heretofore made available to Virbac, true and complete copies
of all forms, reports, schedules, statements and other documents required to be
filed with the Securities and Exchange Commission (the "SEC") by it since
January 1, 1996 under the Exchange Act or the Securities Act (such forms,
reports, schedules, statements and other documents, including any financial
statements or schedules included therein, are referred to as (the "AGNU SEC
Documents"). Except to the extent revised or superseded by a subsequently filed
AGNU SEC Document, the AGNU SEC Documents, at the time filed, (i) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of AGNU included or incorporated by reference in the AGNU SEC
Documents (i) as of the time filed, complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and (iii) fairly
present (subject, in the case of the unaudited statements, to normal, recurring,
year-end audit adjustments) the consolidated financial position of AGNU and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods indicated therein.
Section 4.7. Absence of Certain Changes or Events. Except (i) as
disclosed in the AGNU SEC Documents filed and publicly available prior to the
date of this Agreement and (ii) as set forth in Item 4.7 of the AGNU Disclosure
Schedule, since the date of the most recent financial statements included in the
AGNU SEC Documents, AGNU and its Subsidiaries have conducted their respective
businesses only in the Ordinary Course of Business, and there has not been, in
the aggregate, (1) any changes that have had a Material Adverse Effect, (2) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock or any redemption, purchase or other acquisition of
any of its capital stock (except for its ordinary quarterly cash dividends with
respect to the AGNU Common Stock), (3) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any capital stock or any options, warrants,
rights or other securities in respect of, in lieu of or in substitution for,
shares of its capital stock, (4) (A) any granting by AGNU or any of its
Subsidiaries to any officer or employee of AGNU or any of its Subsidiaries of
any increase in compensation, except in the Ordinary Course of Business,
including in connection with promotions consistent with
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past practice or as was required under employment agreements in effect as of the
date of the most recent financial statements included in the AGNU SEC Documents,
(B) any granting by AGNU or any of its Subsidiaries to any such officer or
employee of any increase in severance or termination pay, except as was required
under employment, severance or termination agreements in effect as of the date
of the most recent financial statements included in the AGNU SEC Documents and
previously made available to AGNU, or (C) any entry by AGNU or any of its
Subsidiaries into any employment, severance or termination agreement with any
such officer or employee, (5) any event, circumstance, damage, destruction or
loss, whether or not covered by insurance, that has, or reasonably could be
expected to have, a Material Adverse Effect, (6) any material change in
accounting methods, principles or practices by AGNU or (7) any adoption,
amendment or termination of any bonus, profit sharing, incentive, severance or
other plan, contract or commitment for the benefit of any of its directors,
officers or employees.
Section 4.8. No Undisclosed Liabilities. Except as set forth in AGNU's
audited, consolidated financial statements included in AGNU's Annual Report on
Form 10-K filed for the fiscal year ended October 31, 1997 or in Item 4.8 of the
AGNU Disclosure Schedule, neither AGNU nor any of its Subsidiaries has any
material liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise. Since the date of the most recent financial statements
included in the AGNU SEC Documents, except as set forth in the AGNU SEC
Documents and except for liabilities incurred by AGNU and its Subsidiaries in
the Ordinary Course of Business, neither AGNU nor any of its Subsidiaries has
incurred any material liabilities of any nature, whether or not accrued,
contingent or otherwise that would be reasonably expected to have a Material
Adverse Effect.
Section 4.9. Proxy Statement. None of the information supplied or to be
supplied by AGNU specifically for inclusion or incorporation by reference in the
Proxy Statement, will, at the time the Proxy Statement is first mailed to the
stockholders of AGNU and at the time of the AGNU Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply with the Exchange Act and the rules
and regulations thereunder. Notwithstanding the foregoing, no representation or
warranty is made by AGNU with respect to statements made or incorporated by
reference therein based on information supplied by Parent or Virbac specifically
for inclusion or incorporation by reference in the Proxy Statement.
Section 4.10. Benefit Plans.
(a) Except as disclosed in Item 4.10 of the AGNU Disclosure
Schedule, since February 11, 1998, there has not been any adoption or
amendment in any material respect by AGNU or any of its Subsidiaries of
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, restricted
stock, phantom stock, retirement, severance, disability,
hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or
director of AGNU or any of its Subsidiaries (collectively, "AGNU
Benefit Plans"). Except as disclosed in Item 4.10 of the AGNU
Disclosure Schedule, there exist no employment, consulting, severance,
change in control, termination or indemnification agreements, rabbi
trust, arrangements or understandings between AGNU or any of its
Subsidiaries and any current or former employee, officer or director of
AGNU or any of its Subsidiaries (collectively, "AGNU Compensation
Agreements").
(b) Item 4.10 of the AGNU Disclosure Schedule contains a list
of all "employee pension benefit plans" (as defined in Section 3(2) of
ERISA) (sometimes referred to herein as "AGNU Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other AGNU Benefit Plans maintained, or contributed to, by AGNU
or any of its Subsidiaries for the benefit of any current or former
employees, officers or directors of AGNU or any of its Subsidiaries.
AGNU has delivered to Virbac true, complete and correct copies of (i)
each AGNU Benefit Plan (or, in the case of any unwritten
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AGNU Benefit Plans, descriptions thereof) and all amendments thereto,
(ii) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each AGNU Benefit Plan (if any such
report was required), (iii) the most recent summary plan description
for each AGNU Benefit Plan for which such summary plan description is
required, (iv) each trust agreement and group annuity contract relating
to any AGNU Benefit Plan and (v) each Compensation Agreement (or in the
case of any unwritten AGNU Compensation Agreements, descriptions
thereof) and all amendments thereto.
(c) Except as disclosed in Item 4.10 of the AGNU Disclosure
Schedule, all AGNU Pension Plans intended to qualify under the Code
have been the subject of determination letters from the Internal
Revenue Service to the effect that such AGNU Pension Plans are
qualified under Section 401(a) of the Code, and no such determination
letter has been revoked nor, to the best knowledge of AGNU, has
revocation been threatened, nor has any such AGNU Pension Plan been
amended since the date of its most recent determination letter in any
respect that would adversely affect its qualification. Except as
disclosed in Item 4.10 of the AGNU Disclosure Schedule, there is no
material pending or, to AGNU's knowledge, threatened litigation
relating to any of the AGNU Benefit Plans or the AGNU Compensation
Agreements.
(d) No AGNU Pension Plan is subject to Title IV of ERISA. None
of AGNU, any of its Subsidiaries, any officer of AGNU or, to the
knowledge of AGNU, any trustee or administrator of an AGNU Benefit Plan
that is subject to ERISA, has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility involving such
AGNU Benefit Plan that could subject AGNU, any of its Subsidiaries or
any officer of AGNU or any of its Subsidiaries to any material tax or
penalty on prohibited transactions imposed by such Section 4975 or to
any material liability under Section 502(i) or (1) of ERISA.
(e) With respect to any AGNU Benefit Plan that is an employee
welfare benefit plan, except as disclosed in Item 4.10 of the AGNU
Disclosure Schedule, (i) no such AGNU Benefit Plan is unfunded or
funded through a "welfare benefits fund," as such term is defined in
Section 419(e) of the Code, (ii) each such AGNU Benefit Plan that is a
"group health plan," as such term is defined in Section 5000(b)(1) of
the Code, complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code and (iii) each such AGNU
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated without material liability to
AGNU or any of its Subsidiaries at any time. Except as disclosed in
Item 4.10 of the AGNU Disclosure Schedule, there has been no written
or, to AGNU's knowledge, oral communication to employees by AGNU or any
of its Subsidiaries that would reasonably be expected to promise or
guarantee such employees retiree health or life insurance or other
retiree death benefits on a permanent basis.
(f) Except as disclosed in Item 4.10 of the AGNU Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any employees of AGNU or any of the
Subsidiaries to severance pay, (ii) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation
pursuant to, any of the AGNU Benefit Plans or the AGNU Compensation
Agreements or (iii) result in any material breach or violation of, or a
default under, any of the AGNU Benefit Plans or the AGNU Compensation
Agreements.
Section 4.11. Litigation. Except as set forth in Item 4.11 of the AGNU
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of AGNU, threatened against AGNU
or any of its Subsidiaries that could reasonably be expected to have, directly
or indirectly or in the aggregate, a Material Adverse Effect. Except as set
forth in Item 4.11 of the AGNU Disclosure Schedule, neither AGNU nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
that could reasonably be expected to have, directly or indirectly, or in the
aggregate, a Material Adverse Effect.
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Section 4.12. Compliance with Applicable Law. AGNU and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders, concessions,
franchises and approvals of all Governmental Entities necessary to own or lease
their respective assets and to conduct their respective businesses (the "AGNU
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders, concessions, franchises and approvals that would not, in the
aggregate, have a Material Adverse Effect. AGNU and its Subsidiaries are in
compliance with the terms of the AGNU Permits, except where the failure so to
comply would not have a Material Adverse Effect. Except as disclosed in Item
4.12 of the AGNU Disclosure Schedule, to the best knowledge of AGNU and its
Subsidiaries, AGNU and its Subsidiaries are in compliance with all laws,
ordinances or regulations of any Governmental Entity, except for such possible
violations or failures of compliance that would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Item 4.12 of the AGNU Disclosure Schedule, as of the date of this Agreement, to
the best knowledge of AGNU or any of its Subsidiaries, no investigation or
review by any Governmental Entity with respect to AGNU or any of its
Subsidiaries is pending or threatened, nor has any Governmental Entity indicated
an intention to conduct any such investigation or review, other than, in each
case, those the outcome of which would not be reasonably expected, in the
aggregate, to have a Material Adverse Effect.
Section 4.13. Tax Matters. Except as set forth in Item 4.13 of the
AGNU Disclosure Schedule:
(a) Each of AGNU and its Subsidiaries has filed all tax
returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are
complete and accurate in all respects, except to the extent that such
failures to file or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have a Material
Adverse Effect on AGNU. AGNU and each of its Subsidiaries has paid (or
AGNU has paid on its behalf) or made provision for all taxes shown as
due on such tax returns and reports. No claim has been made since July
31, 1998 by an authority in a jurisdiction where AGNU or any of its
Subsidiaries does not file tax returns that it is or may be subject to
taxation by that jurisdiction. The most recent financial statements
contained in AGNU's Annual Report on Form 10-K ("AGNU 1997 10-K") for
the fiscal year ended October 31, 1997 reflect adequate reserves for
all taxes payable by AGNU and its Subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial
statements, and no deficiencies for any taxes have been proposed,
asserted or assessed against AGNU or any of its Subsidiaries that are
not adequately reserved for, except for inadequately reserved taxes and
inadequately reserved deficiencies that would not, individually or in
the aggregate, have a Material Adverse Effect on AGNU. There are no
liens for taxes (other than for current taxes not yet due and payable)
on the assets of AGNU or its Subsidiaries. No requests for waivers of
the time to assess any taxes against AGNU or any of its Subsidiaries
have been granted or are pending, except for requests with respect to
such taxes that have been adequately reserved for in the most recent
financial statements contained in the AGNU SEC Documents, or, to the
extent not adequately reserved, the assessment of which would not,
individually or in the aggregate, have a Material Adverse Effect on
AGNU. Except as set forth in the AGNU 1997 10- K, neither AGNU nor any
of its Subsidiaries is a party to or bound by any agreement providing
for the allocation or sharing of taxes. Neither AGNU nor any of its
Subsidiaries has filed a consent pursuant to or agreed to the
application of Section 341(f) of the Code. Each of AGNU and its
Subsidiaries has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662
of the Code. All taxes that are required by the laws of the United
States, any state or political subdivision thereof, or any foreign
country to be withheld or collected by AGNU or any of its Subsidiaries
have been duly withheld or collected and, to the extent required, have
been paid to the proper governmental authorities or properly deposited
as required by applicable laws. None of AGNU and its Subsidiaries (i)
has been a member of an affiliated group filing a consolidated federal
income tax return (other than a group the common parent of which was
AGNU), or (ii) has any liability for the taxes of any person (other
than any of AGNU and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a
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transferee or successor, by contract or otherwise. For purposes of this
Agreement, the term tax (including, with correlative meaning, the terms
"taxes" and "taxable") includes all federal, state, local, and foreign
income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise, and other taxes, duties, or
assessments of any nature whatsoever, together with all interest,
penalties, and additions imposed with respect to such amounts.
(b) No claim has been made since July 31, 1998 by an authority
in a jurisdiction where AGNU or any of its Subsidiaries does not pay
sales and/or use taxes that it is or may be subject to a requirement to
remit such taxes in that jurisdiction. Since July 31, 1998, AGNU and
its Subsidiaries have collected and/or remitted all sales and/or use
taxes required to be collected and/or remitted by all states in which
AGNU or its Subsidiaries conduct business activities, except to the
extent that a failure to collect and/or remit such sales and/or use
taxes would not have a Material Adverse Effect on AGNU.
(c) None of the compensation paid by AGNU since January 1,
1997, and none of the compensation, if any, that may be payable as a
result of the Merger will be subject to the limitations set forth in
Section 162(m) of the Code.
(d) No amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of AGNU or any of its Subsidiaries who is a "disqualified
individual" (as such term is defined in Section 280G(c) of the Code or
proposed Treasury Regulation Section 1.280G-1) under any AGNU
Compensation Agreement or AGNU Benefit Plan currently in effect would
be an "excess parachute payment" (as such term is defined in Section
280G(b)(l) of the Code).
(e) AGNU is not aware of any circumstance or event that is
reasonably likely to prevent the Merger from being treated as a
tax-free reorganization pursuant to Section 368(a) of the Code.
Section 4.14. Customer Warranties. Except as disclosed in Item 4.14 of
the AGNU Disclosure Schedule, there are no pending, nor are there to the best
knowledge of AGNU any threatened, material claims under or pursuant to any
warranty, whether expressed or implied, on products or services sold prior to
the date of this Agreement by AGNU or any of its Subsidiaries. Item 4.14 of the
AGNU Disclosure Schedule identifies all such claims asserted from December 31,
1997 to the date of this Agreement and describes the resolution or status of
each such claim.
Section 4.15. Brokers. No broker, investment banker, financial advisor
or other Person, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of AGNU.
Section 4.16. Material Contracts. None of AGNU or its Subsidiaries, nor
any of their respective assets, business or operations, is a party to, or is
bound or affected by, or receives benefits under, any contract or agreement or
amendment thereto that in each case is required to be filed as an exhibit to an
Annual Report on Form 10-K filed by AGNU that has not been filed as an exhibit
to AGNU's Annual Report on Form 10-K filed for the fiscal year ended October 31,
1997 or as an exhibit to another filed AGNU SEC Document. True and correct
copies of such contracts, and any agreements or amendments thereto, have been
made available for review by Virbac. None of the Material Contracts is currently
subject to renegotiation or other adjustment of its terms either in whole or in
part. None of AGNU or its Subsidiaries is in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its respective assets, business or operations
may be bound or affected, or under which it or any of its respective assets,
business or operations receives benefits, which default, in the aggregate, is
reasonably likely to have a Material Adverse Effect, and there has not occurred
any event that, with lapse of time or giving of notice or both, would constitute
such a default. Except as disclosed in Item 4.16
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of the AGNU Disclosure Schedule, neither AGNU nor any of its Subsidiaries is
subject to, or bound by, any contract containing covenants which (i) limit the
ability of AGNU or any of its Subsidiaries to compete in any line of business or
against any Person or entity, or (ii) involve any restriction of the method by
which, or the geographical area in which, AGNU or any of its Subsidiaries may
carry on its business, other than as may be required by law or any applicable
Governmental Entity.
Section 4.17. Labor Matters. Except as disclosed in the AGNU SEC
Documents filed and publicly available prior to the date of this Agreement,
neither AGNU nor any of its Subsidiaries is a party to, or is bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is AGNU or any of its Subsidiaries
the subject of a proceeding asserting that it or any such Subsidiary has
committed an unfair labor practice (within the meaning of the National Labor
Relations Act) or seeking to compel it or such Subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving AGNU or any of its Subsidiaries, pending
or, to the best of its knowledge, threatened, nor is it aware of any activity
involving its or any of the Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
Neither AGNU nor any of its Subsidiaries has been, within the last three years,
nor, to the knowledge of AGNU and its Subsidiaries, are they likely to become
the subject of, or involved in, any investigation, complaint or proceeding by
the United States Department of Labor, the Office of Federal Contract
Compliance, the Equal Employment Opportunity Commission or any similar federal,
state or local body dealing with any employment policies and practices of AGNU
or such Subsidiaries or any Person currently employed by them, except for any
such investigation, complaint or proceeding that, in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
Section 4.18. Environmental Matters. Except as set forth in Item 4.18
of the AGNU Disclosure Schedule and except for matters which are not reasonably
likely, in the aggregate, to have a Material Adverse Effect: (i) neither the
businesses of AGNU and its Subsidiaries nor the operation thereof violates any
applicable environmental law and no condition or event has occurred which, with
notice or the passage of time or both, would constitute a violation of any
Environmental Law; (ii) AGNU and each of its Subsidiaries are in possession of
all Environmental Permits for the conduct or operation of the businesses of AGNU
and each of its Subsidiaries, (iii) AGNU and each of its Subsidiaries are in
compliance in all material respects with all of the requirements and limitations
included in the Environmental Permits, (iv) none of AGNU or any of its
Subsidiaries has stored or used any Hazardous Substance; (v) neither AGNU nor
any of its Subsidiaries has received any written notice, demand letter, claim or
request for information alleging any violation of, or liability under, any
Environmental Law; and (vi) none of AGNU or any of its Subsidiaries has buried,
dumped, disposed, spilled or released any pollutants, contaminants or hazardous
wastes, substances or materials on, beneath or adjacent to any of its property
or any property adjacent thereto.
Section 4.19. AGNU Intellectual Property. The term "AGNU Intellectual
Property" means all of AGNU's and its Subsidiaries' (i) registered or
unregistered trademarks and other marks, service marks, trade names or other
trade rights, and pending applications for any such registration, (ii) rights in
or to patents and copyrights and pending applications therefor and (iii) rights
to other trademarks, service marks and other marks, trade names and other trade
rights and all other trade secrets, designs, plans, specifications, technology,
know-how, methods, designs, concepts, and other proprietary rights, whether or
not registered. Except as set forth in Item 4.19 of the AGNU Disclosure Schedule
and except with respect to the representation and warranty in Section 4.19(b),
which AGNU will not make as of the date hereof but will make as of October 30,
1998 (and, if necessary, will update by such date Item 4.19 of the AGNU
Disclosure Schedule with respect thereto), (a) AGNU and each of its Subsidiaries
is the sole owner of and has the exclusive right to use its AGNU Intellectual
Property free from any Liens, (b) no Person has a right to receive a royalty or
similar payment in respect of any AGNU Intellectual Property, whether pursuant
to any contractual arrangements entered into by AGNU or any of its Subsidiaries
or otherwise, (c) to AGNU's knowledge, none of the AGNU Intellectual Property,
nor AGNU's or any of its Subsidiaries' use thereof,
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infringe or otherwise violate the rights of any third party, and (d) to AGNU's
knowledge, AGNU is not aware of any infringement or violation of AGNU's or any
of its Subsidiaries' rights in or to the AGNU Intellectual Property by any third
party. AGNU and its Subsidiaries has the exclusive right to use, sell, license
and dispose of, and has the right to bring actions for infringement of, the AGNU
Intellectual Property.
Section 4.20. Year 2000 Issues.
(a) AGNU has conducted an inventory and assessment of all
software, computers, network equipment, technical infrastructure,
production equipment and other equipment and systems that are material
to the operation of the business of AGNU and that rely on, utilize or
perform date or time processing ("AGNU's Systems");
(b) Any failure of any of AGNU's Systems to be Year 2000
Complaint will not cause a Material Adverse Effect.
Section 4.21. Regulatory Compliance.
(a) To AGNU's knowledge, since the most recent audit by the
USDA, FDA, EPA or any Drug Regulatory Agency, no act or omission has
occurred at AGNU's facilities which would subject AGNU to noncompliance
with the standards of the USDA, FDA, EPA or any other applicable Drug
Regulatory Agency.
(b) Item 4.21 of the AGNU Disclosure Schedule sets forth a
list, for the period between July 31, 1998 and the date hereof, of (i)
all regulatory or warning letters, notices of adverse findings and
similar letters or notices issued by the USDA, FDA, EPA or Drug
Regulatory Agency, if any, to AGNU or any of its Subsidiaries that
would have a Material Adverse Effect, (ii) all product recalls,
notifications and safety alerts conducted by AGNU or any of its
Subsidiaries, whether or not required by the USDA, FDA, EPA or Drug
Regulatory Agency, and any request from the USDA, FDA, EPA or any Drug
Regulatory Agency requesting AGNU or any of its Subsidiaries to cease
to investigate, test or market any product, which recalls,
notifications, safety alerts or requests would have a Material Adverse
Effect, and (iii) any criminal injunctive, seizure or civil penalty
actions begun or threatened by the USDA, FDA, EPA or any Drug
Regulatory Agency against AGNU or any of its Subsidiaries and known by
AGNU or any of its Subsidiaries and all related consent decrees issued
with respect to AGNU or any of its Subsidiaries. Copies of all
documents referred to in Item 4.21 have been made available to Virbac.
Section 4.22. Voting Requirements. The affirmative vote of the holders
of a majority of the voting power of all outstanding shares of the AGNU Common
Stock at the AGNU Stockholders' Meeting to approve this Agreement and the
issuance of the Merger Shares is the only vote of the holders of any class or
series of the AGNU's capital stock necessary to approve this Agreement, the
issuance of the Merger Shares and the transactions contemplated by this
Agreement.
Section 4.23. Issuance of Merger Shares. The Merger Shares have been
duly authorized by the AGNU Board of Directors and, when issued as contemplated
by this Agreement, will be validly issued, fully paid and nonassessable, free of
any preemptive rights created by, and not in violation of, any statute, the
certificate of incorporation of AGNU, the bylaws of AGNU or any agreement to
which AGNU is a party or by which AGNU is bound. The Merger Shares will be
exempt from registration under the Securities Act and under applicable Blue Sky
Laws. The offering or sale of any of the Merger Shares as contemplated by this
Agreement does not give rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any securities of
AGNU.
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ARTICLE V
COVENANTS
Section 5.1. Affirmative Covenants of Virbac. Virbac hereby covenants
and agrees that, prior to the Effective Time or earlier termination of this
Agreement, unless otherwise expressly contemplated by this Agreement or
consented to in writing by AGNU, which consent will not be unreasonably
withheld, Virbac will, and will cause each of Virbac's Subsidiaries to:
(a) operate its business in the Ordinary Course of Business
and in accordance, in all material respects, with applicable laws and
regulations;
(b) use its commercially reasonable best efforts to preserve
substantially intact its business organization, maintain its rights and
franchises, use its commercially reasonable best efforts to retain the
services of its respective principal officers and key employees and
maintain its relationships with its respective principal suppliers,
contractors, distributors, customers and others having material
business relationships with it to the effect that the goodwill and
ongoing businesses of Virbac and its Subsidiaries is not impaired in
any material respect at the Effective Time;
(c) maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
and
(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;
provided, however, that the loss of any officers, employees, consultants,
customers, payors or suppliers prior to the Effective Time will not constitute a
breach of this Section 5.1 unless such loss would have a Material Adverse
Effect.
Section 5.2. Negative Covenants of Virbac. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by AGNU or
as set forth in Item 5.2 of the Virbac Disclosure Schedule, from the date hereof
until the Effective Time or earlier termination of this Agreement, Virbac will
not and will cause its Subsidiaries not to:
(a) (i) increase the compensation payable to or to become
payable to any of its directors, officers or employees; (ii) grant any
severance or termination pay to, or enter into or modify any employment
or severance agreement with, any of its directors, officers or
employees; or (iii) adopt or amend any employee benefit plan or
arrangement, except as may be required by applicable law;
(b) declare, set aside or pay any dividend on, or make any
other distribution in respect of, any of its capital stock; provided,
however, that this Section 5.2(b) will not prohibit any wholly owned
(directly or indirectly) Subsidiary of Virbac from declaring, setting
aside or paying any dividend on, or making any distribution in respect
of, its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of
its capital stock or any securities or obligations convertible into or
exercisable or exchangeable for any share of its capital stock, or any
options, warrants or conversion or other rights to acquire any shares
of its capital stock or any such securities or obligations; (ii) effect
any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock;
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(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of
any class of its capital stock (including shares held in treasury) or
other equity securities, any securities or obligations directly or
indirectly convertible into or exercisable or exchangeable for any such
shares, or any rights (including, without limitation, stock
appreciation or stock depreciation rights), warrants or options to
acquire, any such shares or securities or any rights, warrants or
options directly or indirectly to acquire any such shares or
securities; or (ii) amend or otherwise modify the terms of any such
securities, obligations, rights, warrants or options;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire all or substantially
all assets of any other Person (other than the purchase of receivables
in the Ordinary Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its assets, except for
dispositions of assets in the Ordinary Course of Business and sales of
receivables in the Ordinary Course of Business;
(g) propose or adopt any amendments to its certificate of
incorporation or bylaws;
(h) (i) change any of its methods of accounting in effect as
of the date of this Agreement or (ii) make or rescind any material
election relating to taxes, settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to taxes, or change any of its methods of
reporting income or deductions for Federal income tax purposes from
those employed in the preparation of the Federal income tax returns for
the taxable year ended December 31, 1997, except, in the case of clause
(i) or clause (ii), as may be required by law or GAAP, consistently
applied;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or
not evidenced by a note, bond, debenture or similar instrument, other
than (i) intercompany indebtedness and indebtedness incurred in the
Ordinary Course of Business under the existing loan agreements
described in Item 5.2 of the Virbac Disclosure Schedule or under any
refinancing, renewal or refunding thereof, and (ii) trade payables
incurred in the Ordinary Course of Business;
(j) take any action that would prevent the Merger from being
treated as a tax-free reorganization pursuant to Section 368(a) of the
Code;
(k) take any action that would or could reasonably be expected
to result in any of its representations and warranties set forth in
this Agreement being untrue in any material respect (but without
duplication of any standard of materiality set forth in such
representation or warranty) or in any of the conditions to the Merger
set forth in Article VII not being satisfied in any material respect;
or
(l) agree in writing or otherwise to do any of the foregoing.
Section 5.3. Affirmative Covenants of AGNU. AGNU hereby covenants and
agrees that, unless otherwise expressly contemplated by this Agreement or
consented to in writing by Parent and Virbac, which consent will not be
unreasonably withheld, AGNU will, and will cause each of AGNU's Subsidiaries to:
(a) prior to the Effective Time or earlier termination of
this Agreement:
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(i) operate its business in the Ordinary Course
of Business and in accordance, in all material respects, with
applicable laws and regulations;
(ii) use its commercially reasonable best efforts to
preserve substantially intact its business organization,
maintain its rights and franchises, use its commercially
reasonable best efforts to retain the services of its
respective principal officers and key employees and maintain
its relationships with its respective principal suppliers,
contractors, distributors, customers and others having
material business relationships with it to the effect that the
goodwill and ongoing businesses of AGNU and its Subsidiaries
is not impaired in any material respect at the Effective Time;
(iii) maintain and keep its properties and assets in
as good repair and condition as at present, ordinary wear and
tear excepted; and
(iv) keep in full force and effect insurance
comparable in amount and scope of coverage to that currently
maintained;
provided, however, that the loss of any officers, employees,
consultants, customers, payors or suppliers prior to the
Effective Time will not constitute a breach of this Section
5.3 unless such loss would have a Material Adverse Effect; and
(b) within 60 days after the Effective Time, complete a tender
offer to repurchase up to $3,000,000 of AGNU Common Stock (other than
the Merger Shares) at a price per share of $3.00, which price has been
determined by AGNU's Board of Directors.
(c) AGNU will obtain an opinion of Duff & Phelps LLC, dated
the date the Proxy Statement is first mailed to the Stockholders of
AGNU, to the effect that, as of such date, the financial terms of the
Merger are fair to AGNU's stockholders from a financial point of view
(the "AGNU Fairness Opinion") and will promptly deliver a complete and
correct signed copy of such opinion to Virbac.
(d) AGNU will take any appropriate actions required so that no
shares of AGNU Common Stock are held in its treasury as of the
Effective Time.
Section 5.4. Negative Covenants of AGNU. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Virbac or
as set forth in Item 5.4 of the AGNU Disclosure Schedule, from the date hereof
until the Effective Time, AGNU will not:
(a) (i) increase the compensation payable to or to become
payable to any of its directors, officers or employees (other than
through executive bonuses consistent with past practice and, with
respect to Bruce G. Baker and Robert J. Elfanbaum, to be payable in
cash or stock options not in excess of 50% of the maximum amount
allowable in their respective employment agreements currently in effect
with AGNU); (ii) grant any severance or termination pay to, or enter
into or modify any employment or severance agreement with, any of its
directors, officers or employees; or (iii) adopt or amend any employee
benefit plan or arrangement, except as may be required by applicable
law;
(b) declare, set aside or pay any dividend on, or make any
other distribution in respect of, any of its capital stock; provided,
however, that this Section 5.4(b) will not prohibit any wholly owned
(directly or indirectly) Subsidiary of AGNU from declaring, setting
aside or paying any dividend on, or making any distribution in respect
of, its capital stock;
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(c) (i) redeem, repurchase or otherwise reacquire any share of
its capital stock or any securities or obligations convertible into or
exercisable or exchangeable for any share of its capital stock, or any
options, warrants or conversion or other rights to acquire any shares
of its capital stock or any such securities or obligations; (ii) effect
any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock;
(d) (i) except as set forth in Section 5.4(a) and except for
issuance of shares pursuant to options outstanding on the date hereof,
issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of
its capital stock (including shares held in treasury) or other equity
securities, any securities or obligations directly or indirectly
convertible into or exercisable or exchangeable for any such shares, or
any rights (including, without limitation, stock appreciation or stock
depreciation rights), warrants or options to acquire, any such shares
or securities or any rights, warrants or options directly or indirectly
to acquire any such shares or securities; or (ii) amend or otherwise
modify the terms of any such securities, obligations, rights, warrants
or options;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire all or substantially
all assets of any other Person (other than the purchase of receivables
in the Ordinary Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its assets, except for
dispositions of assets in the Ordinary Course of Business and sales of
receivables in the Ordinary Course of Business;
(g)propose or adopt any amendments to its Restated Certificate
of Incorporation or By-Laws;
(h) (i) change any of its methods of accounting in effect as
of the date of this Agreement or (ii) make or rescind any material
election relating to taxes, settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to taxes, or change any of its methods of
reporting income or deductions for Federal income tax purposes from
those employed in the preparation of the Federal income tax returns for
the taxable year ended October 31, 1997, except, in the case of clause
(i) or clause (ii), as may be required by law or GAAP, consistently
applied;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or
not evidenced by a note, bond, debenture or similar instrument, other
than (i) indebtedness incurred in the Ordinary Course of Business under
the existing loan agreements described in Item 5.4 of the AGNU
Disclosure Schedule or under any refinancing, renewal or refunding
thereof, and (ii) trade payables incurred in the Ordinary Course of
Business;
(j) take any action that would prevent the Merger from being
treated as a tax-free reorganization pursuant to Section 368(a) of the
Code;
(k) take any action that would or could reasonably be expected
to result in any of its representations and warranties set forth in
this Agreement being untrue in any material respect (but without
duplication of any standard of materiality set forth in such
representation or warranty) or in any of the conditions to the Merger
set forth in Article VII not being satisfied in any material respect;
or
(l) agree in writing or otherwise to do any of the foregoing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1. Access and Information. From the date hereof to the
Effective Time or earlier termination of this Agreement, each party will, and
will cause its Subsidiaries to, afford to the other party and its officers,
employees, accountants, consultants, legal counsel and other representatives of
the other party (collectively, the "Representatives") reasonable access during
normal business hours to the properties, executive personnel and all information
concerning the business, properties, contracts, records and personnel of such
party and its Subsidiaries as the other party may reasonably request; provided,
however, that no investigation pursuant to this Section 6.1 or otherwise will
alter any representation or warranty of any party hereto or the conditions to
the obligations of the parties hereto.
Section 6.2. Confidentiality. Each party agrees that it will not, and
will cause its Affiliates and Representatives not to, use, directly or
indirectly, any information obtained pursuant to Section 6.1 (as well as any
other information obtained prior to the date hereof in anticipation of entering
into this Agreement, which is subject to a Confidentiality and Non-Solicitation
Agreement dated as of April 3, 1998 among AGNU and Virbac (the "Confidentiality
Agreement")) for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Subject to the requirements of law, each party
will keep confidential, and will cause its Affiliates and Representatives to
keep confidential, all information and documents obtained pursuant to Section
6.1 (as well as any other information obtained prior to the date hereof in
anticipation of entering into this Agreement) unless such information (i) was
already known to such party, (ii) becomes available to such party from other
sources not known by such party to be bound by a confidentiality obligation,
(iii) is disclosed with the prior written approval of the party to which such
information pertains or (iv) is or becomes readily ascertainable from published
information or trade sources. In the event that this Agreement is terminated or
the transactions contemplated by this Agreement otherwise fail to be
consummated, each party will promptly cause all copies of documents or extracts
thereof containing information and data as to another party hereto to be
returned to the party which furnished the same.
Section 6.3. Proxy Statement.
(a) As promptly as practicable after the execution of this
Agreement, AGNU will prepare and file with the SEC preliminary proxy
materials which will consist of the preliminary Proxy Statement in
connection with the vote of AGNU's stockholders with respect to the
Merger and the issuance of the Merger Shares. No amendment or
supplement to the Proxy Statement that amends or supplements
information relating to Virbac or AGNU will be made by the applicable
party without the approval of the other party, such approval not to be
unreasonably withheld. As promptly as practicable after all comments
are received from the SEC with respect to the preliminary Proxy
Statement and after the furnishing by AGNU of all information required
to be contained therein, AGNU will file with the SEC the definitive
Proxy Statement to be sent or given in connection with the vote of the
AGNU stockholders at the AGNU Stockholders' Meeting. AGNU will take any
action required to be taken under any applicable Federal or state
securities or Blue Sky Laws in connection with the issuance of the
Merger Shares. Virbac will furnish all information concerning it and
the holders of its capital stock as AGNU may reasonably request in
connection with such actions.
(b) The information supplied by Virbac for inclusion in the
Proxy Statement to be sent to the stockholders of AGNU in connection
with the AGNU Stockholders' Meeting will not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first
mailed to stockholders of Virbac or, except to the extent amended or
supplemented, at the time of the AGNU Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or
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necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If, at any
time prior to the AGNU Stockholders' Meeting, any event or circumstance
relating to Virbac or any of its Affiliates, or its or their respective
officers or directors, is discovered by Virbac which should be set
forth in a supplement to the Proxy Statement, Virbac will promptly
inform AGNU.
(c) The information supplied by AGNU for inclusion in the
Proxy Statement to be sent to the stockholders of AGNU for the AGNU
Stockholders' Meeting will not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to
stockholders of AGNU or, except to the extent amended or supplemented,
at the time of the AGNU Stockholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
are made, not misleading. All documents that AGNU is responsible for
filing with the SEC in connection with the transactions contemplated
herein will comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the Exchange
Act.
(d) Notwithstanding the foregoing, no party makes any
representations or warranties with respect to any information that has
been supplied by the other party or by its auditors, attorneys,
financial advisors, other consultants or advisors specifically for use
in any "blue sky" filing, the Proxy Statement, or any other documents
to be filed with the SEC or any regulatory agency in connection with
the transactions contemplated hereby.
Section 6.4. AGNU Stockholder Approval. AGNU, acting through its Board
of Directors, will, in accordance with applicable law and its Restated
Certificate of Incorporation and By-Laws, duly call, give notice of, convene and
hold one or more meetings of AGNU's stockholders as soon as practicable
following the date on which the definitive Proxy Statement is filed to approve
and adopt this Agreement and the Merger and to approve the issuance of the
Merger Shares. AGNU will, through its Board of Directors, recommend to AGNU's
stockholders that AGNU's stockholders approve and adopt this Agreement and the
Merger and approve the issuance of the Merger Shares, except where required
otherwise by the fiduciary duties of the Board of Directors of AGNU under
applicable law. In the event that AGNU's Board of Directors withdraws or
modifies its recommendation, AGNU nonetheless will cause the AGNU Stockholders'
Meeting to be convened and a vote taken with respect to the Merger and the
issuance of the Merger Shares and the Board of Directors may communicate to
AGNU's stockholders its basis for such withdrawal or modification. Subject to
the preceding sentence, AGNU will use its commercially reasonable best efforts
to solicit from stockholders of AGNU proxies in favor of the approval and
adoption of this Agreement and the Merger and approval of the issuance of the
Merger Shares and to take all other actions reasonably necessary or in AGNU's
reasonable judgment advisable to secure the AGNU Stockholder Approval as
promptly as practicable.
Section 6.5. Further Action; Commercially Reasonable Best Efforts.
(a) Each of the parties will use its commercially reasonable
best efforts to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable
under applicable laws or otherwise to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable,
including, without limitation, using its commercially reasonable best
efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and
parties to contracts with Virbac and AGNU as are necessary for the
transactions contemplated herein.
(b) From the date of this Agreement until the Effective Time
or earlier termination of this Agreement, each of the parties will
promptly notify the other in writing of any pending or, to the
knowledge of such party, threatened action, proceeding or investigation
by any Governmental Entity or any other
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Person (i) challenging or seeking damages in connection with the
Merger, or (ii) seeking to restrain or prohibit the consummation of the
Merger or otherwise limit the right of AGNU to own or operate all or
any portion of the business or assets of Virbac.
(c) Parent and Virbac will give prompt written notice to AGNU,
and AGNU will give prompt written notice to Virbac, of the occurrence,
or failure to occur, of any event, which occurrence or failure to occur
would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at
any time from the date of this Agreement to the Effective Time or
earlier termination of this Agreement. Each party will use its
commercially reasonable best efforts to not take any action, or enter
into any transaction, which would cause any of its representations or
warranties contained in this Agreement to be untrue or result in a
breach of any covenant made by it in this Agreement.
(d) Parent, Virbac and AGNU will cooperate with one another to
lift any injunctions or remove any other impediments to the
consummation of the transactions contemplated herein.
Section 6.6. Public Announcements. AGNU, on the one hand, and VBSA, on
the other hand, (a) will consult with each other before issuing, and give each
other the opportunity to review and comment upon, any press release or other
written public statements with respect to the transactions contemplated by this
Agreement, including the Merger, (b) will agree to coordinate the timing of the
announcement and not issue any such press release or make any such written
public statement prior to such consultation, except as may be required by Law or
any listing agreement with any exchange on which the respective securities of
AGNU and VBSA are traded.
Section 6.7. Directors' and Officers' Insurance and Indemnification.
(a) From and after the Effective Time and for not less than
five years, AGNU will indemnify, defend and hold harmless each person
who on or prior to the Effective Time was an officer, director or
employee of Virbac and its Subsidiaries and who on or prior to the
Effective Time was entitled to indemnification pursuant to the
certificate of incorporation or bylaws of Virbac or an indemnity
agreement with Virbac (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties"), against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees),
judgments, fines, penalties and amounts paid in settlement of or
otherwise in connection with any claim, action, suit, proceeding or
investigation (a "Claim") arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as
such occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the
same extent that such Indemnified Parties are so entitled to
indemnification as of the Effective Time under the DGCL, the
certificate of incorporation and the bylaws of Virbac. In the event of
any such Claim, AGNU will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party
to the fullest extent permitted under the DGCL, upon receipt from the
Indemnified Party to whom expenses are advanced of an undertaking to
repay such advances contemplated by the DGCL. AGNU also will cause the
Surviving Corporation to honor any agreement in effect as of the date
hereof and previously disclosed to AGNU providing for the
indemnification of any director, officer or employee or agent, in
accordance with the terms and conditions of such agreement.
(b) AGNU will cause to be maintained in effect for not less
than five years after the Effective Time the current policies of
directors' and officers' liability insurance and fiduciary liability
insurance maintained by Virbac with respect to Claims arising from
facts or events which occurred prior to the Effective Time; provided,
however, that AGNU may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are no
less advantageous for the officers, directors and other persons covered
thereby.
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(c) This Section 6.7 will survive the consummation of the
Merger, is intended to benefit the Indemnified Parties and their
respective heirs and personal representatives, is binding on all
successors and assigns of AGNU and the Surviving Corporation and is
enforceable by the foregoing parties as third party beneficiaries.
Section 6.8. HSR Act Matters. AGNU, VBSA, Parent and Virbac, as may be
required pursuant to the HSR Act, promptly will complete all documents required
to be filed with the Federal Trade Commission and the United States Department
of Justice in order to comply with the HSR Act and, not later than thirty days
after the date hereof, together with the Persons who are required to join in
such filings, will file the same with the appropriate Governmental Entities.
AGNU, Parent and Virbac will promptly furnish all materials thereafter required
by any of the Governmental Entities having jurisdiction over such filings, and
will take all reasonable actions and will file and use their commercially
reasonable best efforts to have declared effective or approved all documents and
notifications with any such Governmental Entity, as may be required under the
HSR Act or other Federal antitrust laws for the consummation of the Merger and
the other transactions contemplated hereby. Virbac will pay all costs associated
with the HSR Act filings.
Section 6.9. No Solicitation.
(a) AGNU, Virbac, their respective Subsidiaries and their
respective officers, directors, employees, representatives, agents or
Affiliates will cease any discussion or negotiations with any parties
that may be ongoing with respect to an Acquisition Proposal (as defined
below). AGNU and Virbac will not, nor will they permit any of their
Subsidiaries to, and they will use their commercially reasonable best
efforts to cause their officers, directors, employees, agents or
Affiliates not to, directly or indirectly, (i) solicit, initiate or
knowingly encourage (including by way of furnishing information), or
knowingly take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected
to lead to, any Acquisition Proposal, or (ii) participate in any
discussions or negotiations regarding any Acquisition Proposal;
provided, however, that if the Board of Directors of AGNU or Virbac
determines in good faith, after consultation with, and based on the
advice of legal counsel, that it is required to do so in order to
comply with its fiduciary duties to its stockholders under applicable
law, it may, in response to an unsolicited Acquisition Proposal, and
subject to compliance with Section 6.9(c), (1) furnish information with
respect to AGNU or Virbac, as the case may be, to any Person making
such unsolicited Acquisition Proposal pursuant to an executed
confidentiality agreement with such Person, and (2) participate in
discussions or negotiations regarding such Acquisition Proposal.
(b) Except as set forth in this Section 6.9, neither the Board
of Directors of AGNU nor any committee thereof will (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to
Virbac, the approval or recommendation by such Board of Directors or
such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition
Proposal, or (iii) cause AGNU to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") with respect to any
Acquisition Proposal. Notwithstanding the foregoing, in the event that
the Board of Directors of AGNU determines in good faith, after
consultation with and based on the advice of legal counsel, that it is
required to do so in order to comply with its fiduciary duties to
AGNU's stockholders under applicable law, the Board of Directors of
AGNU may (subject to the following sentences) (1) withdraw or modify
its approval or recommendation of the Merger and this Agreement (or
decide not to recommend it before the Proxy Statement is sent to the
stockholders of AGNU) only at a time that is after the fifth Business
Day following Virbac's receipt of written notice advising Virbac that
the Board of Directors of AGNU has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal
and identifying the Person making such Superior Proposal or (2)
terminate this Agreement by exercising its termination right under
Section
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10.1(h), as applicable. In addition, if AGNU proposes to terminate this
Agreement pursuant to Section 10.1(h), it will pay to Virbac the
Termination Fee (as defined in Section 6.13) at the time prescribed in
Section 6.13.
(c) In addition to the obligations of AGNU set forth in
paragraphs (a) and (b) of this Section 6.9, AGNU will promptly advise
Virbac orally and in writing of any request for information of a nature
which would assist a potential bidder in preparing an Acquisition
Proposal or of any Acquisition Proposal, the material terms and
conditions of such request or Acquisition Proposal and the identity of
the Person making such request or Acquisition Proposal. AGNU will keep
Virbac fully informed on a prompt and current basis of the status and
details (including amendments or proposed amendments) of any such
request or Acquisition Proposal.
(d) Nothing contained in this Section 6.9 prohibits AGNU from
taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to AGNU's stockholders if, in the good faith judgment of the
Board of Directors of AGNU, after consultation with and based on the
advice of legal counsel, failure so to disclose would be inconsistent
with its fiduciary duties to AGNU's stockholders under applicable law;
provided, however, neither AGNU, its Board of Directors nor any
committee thereof will, except as permitted by Section 6.9(b), withdraw
or modify, or propose to withdraw or modify, its position with respect
to this Agreement or the Merger or approve or recommend, or propose to
approve or recommend, an Acquisition Proposal.
(e) For purposes of this Agreement, "Acquisition Proposal"
means any bona fide proposal or offer from any Person relating to any
merger, consolidation, business combination, sale of a significant
amount of assets outside of the Ordinary Course of Business, sale of
shares of capital stock outside of the Ordinary Course of Business,
tender or exchange offer or similar transaction involving AGNU or any
of its Subsidiaries. For purposes of this Agreement, a "Superior
Proposal" means an Acquisition Proposal made by a third party after
October 16, 1998 which, in the good faith judgment of the Board of
Directors of AGNU taking into account, to the extent deemed appropriate
by the Board of Directors, the various legal, financial and regulatory
aspects of the proposal and the Person making such proposal, (i) if
accepted, is reasonably likely to be consummated, and (ii) if
consummated, is reasonably likely to result in a more favorable
transaction to AGNU's stockholders from a financial point of view than
the transaction contemplated hereunder considering, among other things,
and to the extent deemed appropriate in good faith by the Board of
Directors, the long-term prospects and interests of AGNU and its
stockholders and other relevant constituencies.
Section 6.10. Affiliate Agreements. Parent will execute and deliver to
AGNU on or before the date of mailing of the Proxy Statement an agreement in the
form attached hereto as Exhibit C with regard to the fact that, at the time
Parent consented to the Merger and approved this Agreement, Parent is an
"affiliate" of AGNU for purposes of Rule 145 under the Securities Act and
applicable SEC rules and regulations. At the Closing, VBSA will execute and
deliver to AGNU an agreement in the form attached hereto as Exhibit D.
Section 6.11. Conduct of Business of Parent and Surviving Corporation.
VBSA will, as promptly as practicable, cause Parent to be duly incorporated and
to execute and deliver an addendum to this Agreement in the form attached hereto
as Exhibit E making it a party hereto and take all other action necessary to
cause Parent to perform its obligations hereunder (including, but not limited
to, consummation of the Merger and all applicable covenants) and to otherwise
comply with the terms hereof. VBSA will also take all commercially reasonable
actions necessary to cause Parent to cause Surviving Corporation to perform its
obligations arising hereunder (including, but not limited to, obligations
arising under Section 8.2 of this Agreement).
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Section 6.12. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby will be paid by the
party incurring such expenses; provided, however, that all costs and expenses
relating to printing, filing and mailing the Proxy Statement and any other
filings with the SEC, and all SEC and other regulatory filing fees incurred in
connection with such filings will be borne by AGNU; provided further, that if
this Agreement is terminated pursuant to Section 10.1(a), (d), or (e) hereof,
the parties shall share equally the cost of filing fees for any filings required
under Section 6.8 of the Agreement and any fees incurred by AGNU in connection
with the fairness opinion referred to in Section 7.2(e) of the Agreement.
Section 6.13. Termination Fee. If (i) Virbac terminates this Agreement
pursuant to Section 10.1(f) or AGNU terminates this Agreement pursuant to
Section 10.1(g), then, within five Business Days of such termination, AGNU will
pay Virbac by wire transfer in immediately available funds a fee of $800,000
(the "Termination Fee"); provided that, if an AGNU Stockholders' Meeting is held
pursuant to the second sentence of Section 6.4 and the stockholders of AGNU do
not approve and adopt this Agreement and the Merger, the Termination Fee will be
payable upon the first Business Day following the AGNU Stockholders' Meeting.
Section 6.14. Tax Treatment. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement until the Effective Time or termination of this Agreement, each party
hereto will use its commercially reasonable best efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and will not, without the prior written consent of the other parties hereto,
knowingly take any actions or cause any actions to be taken which could
reasonably be expected to prevent the Merger from so qualifying. AGNU will
provide Virbac with such representations as are reasonably requested in order to
enable Virbac's counsel to render the opinions set forth in Sections 7.3(d). In
the event counsel for Virbac is unable to render the opinions set forth in
Section 7.3(d), the parties hereto agree to negotiate in good faith to
restructure the Merger in order to permit such counsel to render such opinion.
Following the Effective Time, and consistent with any such consent, neither the
Surviving Corporation nor AGNU nor any of their respective Affiliates knowingly
and voluntarily will take any action or cause any action to be taken which could
reasonably be expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code.
Section 6.15. Assumption of Certain Obligations. To the extent
necessary, AGNU will, or will cause the Surviving Corporation to, enter into
supplemental indentures or otherwise affirmatively assume in writing the
obligations of Virbac under those indentures or other financing agreements as
set forth on Item 6.15 of the Virbac Disclosure Schedule.
Section 6.16. No Action. Except as contemplated by this Agreement, no
party hereto will, nor will any such party permit any of its Subsidiaries to,
take or agree or commit to take any action that is reasonably likely to make any
of its representations or warranties hereunder inaccurate in any material
respect at the date made (to the extent so limited) or as of the Effective Time.
Section 6.17. Employment Agreements Undertaking. On the date hereof,
Virbac will enter into a letter agreement in the form attached hereto as Exhibit
F undertaking to enter into negotiations with Bruce G. Baker and Robert J.
Elfanbaum with the intent to mutually agree upon new employment agreements to be
entered into with the Surviving Corporation.
Section 6.18. Cash Infusion. Virbac will prepare and provide to AGNU
not less than five days prior to the Effective Time a schedule certified by
Arthur Andersen LLP setting forth the sum of (a) $6,700,000 plus (b) the
difference between (i) Notes Payable to Bank plus Notes Payable to VBSA,
together with accrued interest on each of the foregoing Notes Payable, plus 60%
of the Broker Fee ("Virbac Debt"), and (ii) Cash, each as accrued on the books
of Virbac as of December 31, 1998 (the "Cash Infusion"). Immediately prior to
the Effective Time, Parent will contribute cash in an amount equal to the Cash
Infusion to Virbac.
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ARTICLE VII
CLOSING CONDITIONS
Section 7.1. Conditions to Obligations of AGNU, Parent and Virbac to
Effect the Merger. The respective obligations of AGNU, Parent and Virbac to
effect the Merger and the other transactions contemplated herein will be subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) Stockholder Approval. The Board of Directors of Parent
will have approved in accordance with applicable law the Merger and
this Agreement. AGNU will have obtained the AGNU Stockholder Approval
by the requisite vote in accordance with applicable law.
(b) No Order. No Governmental Entity or Federal or state court
of competent jurisdiction enacts, issues, promulgates, enforces or
enters any statute, rule, regulation, executive order, decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent), in any case which is in effect and which prevents or
prohibits consummation of the Merger or any other transactions
contemplated in this Agreement; provided, however, that the parties
will use their commercially reasonable best efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
(c) Regulatory Approvals. All regulatory approvals necessary
to consummate the transactions contemplated hereby are obtained and
remain in full force and effect and all statutory waiting periods in
respect thereof have expired or been terminated and no such approval
contains a condition or requirement that is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
Parent, Virbac, AGNU or the Surviving Corporation.
(d) Third Party Consents. All consents or approvals of third
parties (other than the regulatory approvals referred to in the
preceding paragraph) required for consummation of the Merger are
obtained and are in full force and effect, except for any such consents
or approvals the absence of which is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
Parent, Virbac, AGNU or the Surviving Corporation.
(e) Tax Opinion of Virbac's Counsel. Virbac has received an
opinion of Jones, Day, Reavis & Pogue, counsel to Virbac, dated the
Effective Date, substantially to the effect that, for federal income
tax purposes, (i) the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, (ii) each of Virbac and AGNU
will be a party to the reorganization within the meaning of Section
368(b) of the Code, (iii) no gain or loss will be recognized by Virbac
or AGNU as a result of the Merger, (iv) no gain or loss will be
recognized by Parent upon the exchange pursuant to the Merger of Virbac
Common Stock solely for AGNU Common Stock, (v) the basis of the Merger
Shares received by the Parent pursuant to the Merger will be the same
as the basis of Virbac Common Stock exchanged therefor, and (vi) the
holding period of the Merger Shares received by Parent pursuant to the
Merger will include the holding period of Virbac Common Stock exchanged
therefor, provided those shares of Virbac Common Stock were held as
capital assets as of the Effective Time of the Merger. In rendering its
opinion, Jones, Day, Reavis & Pogue may require and rely upon
representations contained in letters from Parent, Virbac and AGNU.
(f) Non-Competition Agreement. VBSA will have entered into a
non-competition agreement with AGNU, substantially in the form attached
as Exhibit G hereto.
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Section 7.2. Additional Conditions to Obligations of AGNU. The
obligations of AGNU to effect the Merger and the other transactions contemplated
in this Agreement are also subject to the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
law:
(a) Representations and Warranties. The representations and
warranties of Parent and Virbac made in this Agreement are true and
correct in all material respects on and as of the Effective Time with
the same effect as though such representations and warranties had been
made on and as of the Effective Time, except for representations and
warranties that speak as of a specific date or time other than the
Effective Time (which need only be true and correct in all material
respects as of such date or time). AGNU will have received a
certificate of each of the Chief Executive Officer or Chief Financial
Officer of Parent and Virbac to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Parent and Virbac required to be performed on or before the Effective
Time have been performed in all material respects. AGNU will have
received a certificate of each of the Chief Executive Officer or Chief
Financial Officer of Parent and Virbac to that effect.
(c) No Material Adverse Effect. At any time on or after the
date of this Agreement there has been no Material Adverse Effect on
Virbac or any of its Subsidiaries, in the aggregate.
(d) Cash Infusion by Parent. Parent will have contributed
the Cash Infusion to Virbac.
(e) Fairness Opinion. AGNU's Board of Directors will have
received the AGNU Fairness Opinion.
(f) Supply Agreement. VBSA will have entered into a Supply
Agreement with Virbac substantially in the form attached hereto as
Exhibit H.
Section 7.3. Additional Conditions to Obligations of Parent and Virbac.
The obligations of Parent and Virbac to effect the Merger and the other
transactions contemplated in this Agreement are also subject to the following
conditions any or all of which may be waived, in whole or in part, to the extent
permitted by applicable law:
(a) Representations and Warranties. The representations and
warranties of AGNU made in this Agreement are true and correct in all
material respects on and as of the Effective Time with the same effect
as though such representations and warranties had been made on and as
of the Effective Time, except for representations and warranties that
speak as of a specific date or time other than the Effective Time
(which need only be true and correct in all material respects as of
such date or time). Virbac will have received a certificate of the
Chief Executive Officer or Chief Financial Officer of AGNU to that
effect.
(b) Agreements and Covenants. The agreements and covenants of
AGNU required to be performed on or before the Effective Time have been
performed in all material respects. Virbac will have received a
certificate of the Chief Executive Officer or Chief Financial Officer
of AGNU to that effect.
(c) No Material Adverse Effect. At any time on or after the
date of this Agreement there has been no Material Adverse Effect on
AGNU or any of its Subsidiaries, in the aggregate.
(d) Stockholders' Agreements. The individuals listed on
Schedule 7.3(d) will have entered into a stockholder's agreement in the
form attached hereto as Exhibit I.
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ARTICLE VIII
POST-CLOSING COVENANTS
Section 8.1. Stock Repurchase. Within 60 days after the Effective Time,
AGNU will make and complete a tender offer to repurchase (the "Stock
Repurchase") up to 1,000,000 shares of the issued and outstanding shares of AGNU
Common Stock, except for the Merger Shares, which the Virbac Stockholders may
not tender, at a price of $3.00 per share, which price has been determined by
the Board of Directors of AGNU.
Section 8.2. Contingent Stock Repurchase.
(a) Contingent Repurchase. If, during the period ending on the
second anniversary of the Closing Date (the "Contingent Period"), the
closing sale price as reported under the Nasdaq National Market Issues
in The Wall Street Journal of the AGNU Common Stock (or such other
exchange on which such shares are listed) does not equal or exceed
$3.00 per share (the "Contingent Price") for any period of 40
consecutive trading days, AGNU will, within 10 business days of the
termination of the Contingent Period, commence a tender offer to
repurchase (the "Contingent Repurchase"), at $3.00 per share (the
"Repurchase Price"), up to $4,185,000 of the issued and outstanding
shares of AGNU Common Stock, except for (i) shares held by the Virbac
Stockholders, which Virbac Stockholders agree not to tender in the
Contingent Repurchase, (ii) Merger Shares transferred pursuant to the
Affiliate Agreement, attached hereto as Exhibit C, as to which the
transferee has agreed not to tender in the Contingent Repurchase, and
(iii) shares issued during the Contingent Period (other than shares
issued pursuant to the exercise of options outstanding as of the
Effective Time, which will be included in the Contingent Repurchase),
if any, which Surviving Corporation agrees to issue only if the
transferee thereof agrees not to tender such shares in the Contingent
Repurchase.
(b) Contingent Capital Contribution. If, upon the termination
of the Contingent Period, AGNU is required to make the Contingent
Repurchase, Parent will, within 10 business days of the termination of
the Contingent Period, make a capital contribution (the "Contingent
Contribution") to AGNU in the amount of $4,185,000 in exchange for a
number of newly issued shares of AGNU Common Stock equal to such
contribution divided by the Repurchase Price.
(c) Adjustments. The Board of Directors of the Surviving
Corporation will make or provide for such adjustments in the Contingent
Price, and Repurchase Price as such Board, in its sole discretion
exercised in good faith, determines is equitably required to prevent
dilution or enlargement of the Contingent Price, the number of shares
subject to the Contingent Repurchase and the cost to AGNU to conduct
such Contingent Repurchase that otherwise would result from any stock
dividend, stock split, reverse stock split or other change in the
capital structure of AGNU or event having a similar effect. Any
fractional shares resulting from the foregoing adjustments will be
eliminated.
(d) Board Discretion. The Board of Directors of the Surviving
Corporation may, in its sole discretion, determine to permit Parent to
make the Contingent Repurchase as required under Section 8.2, in which
event Parent would not be required to make the Contingent Contribution.
Section 8.3. Minority Stockholder Director Nominee. Parent agrees to
cause its representatives on the Surviving Corporation's Board of Directors to
nominate, and further agrees to vote the shares of AGNU Common Stock it holds at
such time in favor of, Bruce G. Baker, if he is then serving as a director of
the Surviving Corporation, or if he is not, then Alec L. Poitevint, II, for
election to a successive three-year term commencing at the annual meeting of
stockholders in 2002. If Mr. Poitevint is not then serving as a director of the
Surviving Corporation
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and the individuals listed on Schedule 7.3 then own in the aggregate 40% of the
shares such individuals own as of the Effective Time, then Parent will cause its
representatives on the Surviving Corporation's Board of Directors to nominate,
and Parent agrees to vote its shares in favor of, Robert E. Hormann, or if he is
not then available to serve or otherwise has a conflict of interest, then Robert
W. Schlutz, or if he is not then available to serve or otherwise has a conflict
of interest, then W. M. Jones, Jr. (unless he is unavailable or has a conflict
of interest, in which event Parent will have no further obligation hereunder to
nominate and vote its shares in favor of a minority stockholder representative),
for election to a three-year term commencing at the annual meeting of
stockholders in 2002.
Section 8.4. Release of VBSA Guarantee. If, as of the Effective Time,
the Virbac Debt is not paid in full and all obligations under the promissory
notes or loan agreements relating thereto released, the Surviving Corporation
will take all actions necessary to cause the indirect guarantees issued by VBSA
of such Virbac Debt, which are described on Item 8.4 of the Virbac Disclosure
Schedule, to be released.
Section 8.5. Fiscal Year of Surviving Corporation. Within 30 days after
the Effective Time, the Surviving Corporation will change its fiscal year to be
based upon a calendar year such that the fiscal year will be from January 1
through December 31.
Section 8.6. Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation considers or is advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of Virbac acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry
out the purposes of this Agreement, AGNU and Virbac agree that the Surviving
Corporation and its proper officers and directors will execute and deliver all
such deeds, assignments and assurances in law and do all acts necessary,
desirable or proper to vest, perfect or confirm title to such property or right
in the Surviving Corporation and otherwise to carry out the purposes of this
Agreement, and that the proper officers and directors of the Surviving
Corporation are fully authorized in the name of AGNU and Virbac to take any and
all such action.
ARTICLE IX
REGISTRATION RIGHTS
Section 9.1. Demand Registration. (a) At any time and from time to time
after the third anniversary of the Effective Time, the Surviving Corporation
will, upon the written demand (the "Registration Demand") of Parent, use its
commercially reasonable best efforts to effect the registration under the
Securities Act (by means of a "shelf" registration statement pursuant to Rule
415 under the Securities Act, if so requested by the Parent and if the Surviving
Corporation is eligible therefore at such time) of such number of Registrable
Securities (as defined below) as indicated in the Registration Demand. Such
Registration Demand will specify the intended method or methods of disposition
of such Registrable Securities (subject to modification as otherwise
contemplated in this Agreement).
(b) If a Registration Demand is initiated and the Surviving
Corporation wishes to offer any of its securities in connection with
the registration, no such securities may be offered by the Surviving
Corporation without the consent of Parent (such consent not to be
unreasonably withheld).
(c) Upon receipt of the Demand Registration, the Surviving
Corporation will expeditiously effect the registration under the Act of
the Registrable Securities and use its reasonable best efforts to have
such registration become and remain effective as provided in Section
9.6.
(d) Parent has the right to select the underwriters for any
underwritten offering pursuant to this Section 9.1 as long as such
underwriters are reasonably acceptable to the Surviving Corporation and
any Registration Demand pursuant to this Section 9.1 may, at the
election of Parent, be in the form of a "firm
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commitment" underwritten offering; provided, however, that no such
offering may be in the form of a "best efforts" or similar type
offering. In this regard, if the Surviving Corporation has established
a "shelf" registration statement pursuant to Section 9.1(a), upon the
request of Parent, the Surviving Corporation will amend the shelf
registration to provide for an underwritten offering otherwise
consistent with the provisions herein, the provisions of such
underwritten offering to be in effect for at least 120 days (or such
lesser time as Parent requests) whereupon, at the request of Parent or
the election of the Surviving Corporation, such "shelf" registration
will be amended to no longer reference an underwritten offering.
(e) As used in this Agreement, "Registrable Securities" means
the Merger Shares or any securities issued or issuable with respect to
any Merger Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
Section 9.2. Indemnification by the Surviving Corporation. In the event
of any registration of any Registrable Securities under the Securities Act, the
Surviving Corporation will, and hereby does, indemnify and hold harmless Parent,
its directors, officers, each other Person who participates as an underwriter in
the offering or sale of such Registrable Securities and each other Person, if
any, who controls Parent or any such underwriter within the meaning of Section
15 and Section 20 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which Parent or any such director or officer
or underwriter or controlling Person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which the
Registrable Securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading. The Surviving Corporation will reimburse Parent, and each such
director, officer, underwriter and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding. However, the
Surviving Corporation will not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Surviving Corporation through an instrument duly executed by or on behalf
of such Parent, specifically stating that it is for use in the preparation
thereof. Such indemnity will remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any such director, officer or
controlling Person and will survive the transfer of the Registrable Securities
by Parent.
Section 9.3. Indemnification by Parent. The Surviving Corporation may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 9.1 that the Surviving
Corporation will receive an undertaking satisfactory to it from Parent to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 9.2) the Surviving Corporation, each director of the Surviving
Corporation, each officer of the Surviving Corporation signing such registration
statement, each other Person who participates as an underwriter in the offering
or sale of such Registrable Securities and each other Person, if any, who
controls the Surviving Corporation within the meaning of Section 15 and Section
20 of the Securities Act (other than Parent) with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein or any amendment or supplement thereto, if
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Surviving Corporation through an instrument duly executed by
Parent, specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or
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supplement. Such indemnity will remain in full force and effect regardless of
any investigation made by or on behalf of the Surviving Corporation or any such
director, officer or controlling Person (other than Parent) and will survive the
transfer by Parent of the securities of the Surviving Corporation being
registered.
Section 9.4. Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 9.2 or 9.3, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give notice to the latter of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as provided herein will
not relieve the indemnifying party of its obligations under Section 9.2 or 9.3,
except to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
that would make such separate representation advisable or the indemnified party
may have defenses not available to the indemnifying party in respect of such
claim, the indemnifying party will be entitled to participate in and to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party. After notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party will be liable for any
settlement of any action or proceeding effected without its written consent. No
indemnifying party will, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnification required in connection with the Registration
Demand will be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
Section 9.5. Other Indemnification. Indemnification similar to that
specified in Sections 9.2 and 9.3 (with appropriate modifications) will be given
by the Surviving Corporation and Parent with respect to any required
registration or other qualification of Registrable Securities under any federal
or state law or regulation of any governmental authority other than the
Securities Act.
Section 9.6. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Sections 9.2 and 9.3 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms in respect
of any losses, claims, damages or liabilities suffered by an indemnified party
referred to therein, each applicable indemnifying party, in lieu of indemnifying
such indemnified party, will contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the Surviving
Corporation on the one hand and of the Parent on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Surviving Corporation on the one hand and of the Parent
(including, in each case, that of their respective officers, directors,
employees, agents and controlling Persons) on the other will be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Surviving Corporation,
on the one hand, or by or on behalf of Parent, on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
Section 9.7. Registration Covenants of the Surviving Corporation. In
the event that any Registrable Securities of Parent are to be registered
pursuant to Section 9.1(e) the Surviving Corporation covenants and agrees that
it will use its reasonable best efforts to effect the registration and cooperate
in the sale of the Registrable Securities to be registered and will as
expeditiously as possible:
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(a) (i) prepare and file with the SEC a registration statement
with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto) (a "Registration Statement") and
(ii) use its reasonable best efforts to cause the Registration
Statement to become effective as promptly as practicable and in any
event within 90 days of receipt of the Registration Demand (subject,
however, to the provisions of Section 9.9;
(b) prior to the filing described above in Section 9.7(a),
furnish to Parent copies of the Registration Statement and any
amendments or supplements thereto and any prospectus forming a part
thereof with respect to which (i) Parent will be afforded a reasonable
opportunity to review and comment thereon prior to filing and (ii) the
Surviving Corporation will not unreasonably decline to make such
changes thereto required by the Act;
(c) notify Parent, promptly after the Surviving Corporation
receives notice thereof, of the time when the Registration Statement
becomes effective or when any amendment or supplement or any prospectus
forming a part of the Registration Statement has been filed;
(d) notify Parent promptly of any request by the SEC for the
amending or supplementing of the Registration Statement or prospectus
or for additional information and promptly deliver to Parent copies of
any comments received from the SEC;
(e) (i) advise Parent after the Surviving Corporation receives
notice or otherwise obtains knowledge of the issuance of any order by
the SEC suspending the effectiveness of the Registration Statement or
any amendment thereto or of the initiation or threatening of any
proceeding for that purpose and (ii) promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal
promptly if a stop order is issued;
(f) (i) subject to Section 9.9, prepare and file with the SEC
such amendments and supplements to the Registration Statement and each
prospectus forming a part thereof as may be necessary to keep the
Registration Statement continuously effective for the period of time
necessary to permit Parent to dispose of all its Registrable
Securities, provided, however, that the Surviving Corporation is not
required to keep the Registration Statement effective if all of the
Registrable Securities held by Parent could be sold without restriction
pursuant to the provision of Rule 144(k) under the Securities Act and
(ii) comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by the
Registration Statement during such period in accordance with the
intended methods of disposition by Parent set forth in the Registration
Statement;
(g) furnish to Parent such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including each
preliminary prospectus) and such other documents as Parent may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Parent;
(h) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as determined by the underwriters after
consultation with the Surviving Corporation and Parent and do any and
all other acts and things which may be reasonably necessary or
advisable to enable Parent to consummate the disposition in such
jurisdictions of the Registrable Securities (provided that the
Surviving Corporation is not required to (i) qualify generally to do
business in any jurisdiction in which it would not otherwise be
required to qualify but for this Section 9.7 (h), (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction);
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(i) notify Parent, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Registration Statement
would contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading;
(j) if the Common Stock is not then listed on a securities
exchange, use its reasonable best efforts, consistent with the
then-current corporate structure of the Surviving Corporation, to
facilitate the listing of the Common Stock on the Nasdaq Stock Market;
(k) provide a transfer agent and registrar, which may be a
single entity, for all the Registrable Securities not later than the
effective date of the Registration Statement; it being hereby agreed
that Parent will furnish to the Surviving Corporation such information
regarding Parent and the plan and method of distribution of Registrable
Securities intended by Parent as the Surviving Corporation may from
time to time reasonably request in writing and is required by law or by
the SEC in connection therewith;
(l) with respect to a firm commitment underwritten offering,
enter into such customary agreements (including, as appropriate, an
underwriting agreement in customary form) and take all such other
action, if any, as Parent or the underwriters reasonably request in
order to expedite or facilitate the disposition of the Registrable
Securities pursuant to this Agreement;
(m) (i) make available for inspection by Parent, any
underwriter participating in any disposition pursuant to the
Registration Statement and any attorney, accountant or other agent
retained by Parent or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the
Surviving Corporation and (ii) cause the Surviving Corporation's
officers, directors and employees to supply all relevant information
reasonably requested by Parent or any such underwriter, attorney,
account or agent in connection with the Registration Statement;
(n) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental authorities as may be necessary
to enable Parent to consummate the disposition of such Registrable
Securities;
(o) cause the Surviving Corporation's independent public
accountants to provide to the underwriters, if any, and Parent, if
permissible, a comfort letter in customary form and covering such
matters of the type customarily covered by comfort letters;
(p) cooperate and assist in any filings required to be made
with the NASD or Nasdaq and in the performance of any due diligence
investigation by an underwriter in an underwritten offering; and
(q) use all reasonable efforts to facilitate the distribution
and sale of any Registrable Securities to be offered pursuant to this
Agreement, including without limitation, by making road show
presentations, holding meetings with potential investors and taking
such other actions as are appropriate or as are requested by the lead
managing underwriter of an underwritten offering.
Section 9.8. Expenses. In connection with any Registration Demand
pursuant to Section 9.1, the Surviving Corporation will pay all registration,
filing and NASD or Nasdaq fees, all fees and expenses of complying with
securities or "blue sky" laws and any commissions, fees and disbursements of
underwriters customarily paid by sellers of securities (based upon offering
proceeds to be received by it). In any Registration Demand, the Surviving
Corporation will be responsible for the fees and disbursements of counsel for
the Surviving Corporation and if its independent public accountants and premiums
and other costs of policies of insurance, if any, against liabilities arising
out of the public offering of the Registrable Securities; provided, that the
Surviving Corporation will not be required
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to obtain such insurance. The Parent will pay for underwriting discounts and
commissions customarily paid by sellers of securities (based upon offering
proceeds to be received by Parent).
Section 9.9. Rule 145. So long as the Surviving Corporation is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Surviving Corporation will take all actions reasonably necessary to enable
Parent to sell the Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 145
under the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC, including filing on a
timely basis all reports required to be filed by the Exchange Act.
Section 9.10. Limitation on Requirement to File or Amend Registration
Statement. Anything in this Agreement to the contrary notwithstanding, it is
understood and agreed that the Surviving Corporation will not be required to
file a Registration Statement, amendment or post-effective amendment thereto or
prospectus supplement or to supplement or amend any Registration Statement if
the Surviving Corporation is then involved in discussions concerning, or
otherwise engaged in, an acquisition, disposition, financing or other material
transaction and the Surviving Corporation determines in good faith that the
making of such a filing, supplement or amendment at such time would materially
adversely affect or interfere with such transaction so long as the Surviving
Corporation will, as soon as practicable thereafter, make such filing,
supplement or amendment, to the extent then practicable; provided, however, that
in no event will any delay in filing pursuant to this Section 9.10 be for a
period in excess of 60 days or be exercised by the Surviving Corporation more
than twice during any 365 day period (and, at least 70 days must pass after the
end of any such delay period prior to the date the Surviving Corporation may
exercise its second delay period in any 365 day period) without a written waiver
executed and delivered by the holders of a majority of the Merger shares. The
Surviving Corporation will promptly give each Purchaser written notice of any
such postponement, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay; provided, however,
that nothing herein requires the Surviving Corporation to disclose any terms of
any such transaction or the identity of any party thereto. Upon receipt by
Parent of notice of an event of the kind described in this Section 9.10, Parent
will forthwith discontinue any disposition of Registrable Securities until
receipt of notice from the Surviving Corporation that such disposition may
continue and of any supplemented or amended prospectus indicated in such notice.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the plan of merger contained in this Agreement and the
Merger by the stockholders of AGNU:
(a) by mutual written consent of each of AGNU, Parent and
Virbac;
(b) by AGNU if VBSA, Parent or Virbac breaches, or fails to
comply with, in any material respect any of its obligations under this
Agreement or any representation or warranty made by Parent or Virbac in
this Agreement is incorrect in any material respect when made or has
since ceased to be true and correct in any material respect, such that
as a result of such breach, failure or misrepresentation of the
conditions set forth in 7.2(a) or 7.2(b) would not be satisfied (a
"Virbac Termination Breach"); provided, however, that if such Virbac
Termination Breach is curable by VBSA, Parent or Virbac within 45 days
through the exercise of its commercially reasonable best efforts and
for so long as VBSA, Parent or Virbac continues to exercise such
commercially reasonable best efforts after notice of such breach, AGNU
may not terminate this Agreement pursuant to this Section 10.1(b);
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(c) by Virbac if AGNU breaches, or fails to comply with, in
any material respect any of its obligations under this Agreement or any
representation or warranty made by AGNU is incorrect in any material
respect when made or has since ceased to be true and correct in any
material respect, such that as a result of such breach, failure or
misrepresentation of the conditions set forth in Section 7.3(a) or
7.3(b) would not be satisfied (an "AGNU Termination Breach"); provided,
however, that if such AGNU Termination Breach is curable by AGNU within
45 days through the exercise of its commercially reasonable best
efforts and for so long as AGNU continues to exercise such commercially
reasonable best efforts after notice of such breach, Virbac may not
terminate this Agreement pursuant to this Section 10.1(c);
(d) by either AGNU or Virbac if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Corporation preventing or prohibiting
consummation of the Merger (an "Order") becomes final and
nonappealable; provided, that, the party seeking to terminate this
Agreement pursuant to this Section 10.1(d) must have used all
commercially reasonable best efforts to remove such Order;
(e) by either AGNU or Virbac if the plan of merger contained
in this Agreement fails to receive the requisite vote of the
stockholders of AGNU at the AGNU Stockholders' Meeting;
(f) by Virbac if the Board of Directors of AGNU or any
committee thereof withdraws or modifies in any manner adverse to Virbac
its approval or recommendation of the Merger or this Agreement or
approves, recommends or announces an intention to approve or recommend
any Acquisition Proposal;
(g) by AGNU upon five Business Days' notice and in accordance
with Section 6.9, provided it has complied with the provisions thereof
and that it complies with the provisions of Section 6.13 related
thereto;
(h) by either Virbac or AGNU if the Merger has not been
consummated before February 28, 1999 (the "Termination Date");
provided, however, that (i) the right to terminate this Agreement under
this Section 10.1(h) will not be available to Virbac if Parent's or
Virbac's failure to use its commercially reasonable best efforts to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before
the Termination Date, and (ii) the right to terminate this Agreement
under this Section 10.1(h) is not available to AGNU if AGNU's failure,
or the failure of its stockholders who are subject to the Stockholders'
Agreements set forth as Exhibit I hereto, to use their commercially
reasonable best efforts to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date;
(i) by (A) either Virbac or AGNU on or before the date which
is 30 days from the date hereof if such party objects to any of the
matters reviewed pursuant to Section 6.1, provided, however, that any
objection rendered by such party is based on reasonable and prudent
business judgment and not made in an arbitrary and capricious manner,
or (B) Virbac if it fails to receive an opinion of AGNU's environmental
counsel in the form attached as Exhibit J hereto or assessment of an
environmental engineering firm acceptable to Virbac, as the case may
be; provided further, that if Virbac is unable to complete its
investigation as a result of AGNU's failure to afford reasonable access
to the properties and executive personnel of AGNU or promptly provide
all information requested by Virbac pursuant to Section 6.1, then
Virbac may extend the termination date under this Section 10.1(i) to a
date which is not more than 45 days from the date hereof; or
(j) by Virbac in the event (A) there is any strike or work
stoppage involving AGNU or any of its Subsidiaries or (B) AGNU enters
into collective bargaining agreements with the International
Longshoremen's Association or International Brotherhood of Electrical
Workers, including extensions of
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existing collective bargaining agreements with such unions ("Bargaining
Agreements"), on terms that differ materially or are otherwise less
favorable to AGNU from the terms in the Bargaining Agreements.
Section 10.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 10.1, this Agreement will forthwith become
void, there will be no liability on the part of AGNU, Parent or Virbac or any of
their respective officers or directors to the other parties hereto and all
rights and obligations of any party hereto will cease except as otherwise
provided in Sections 6.12, 6.13 and 10.1; provided, however, that nothing herein
will relieve any party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement; provided, further, that if Virbac has received the Termination Fee
contemplated by Section 6.13, AGNU will not assert or pursue in any manner,
directly or indirectly, any claim or cause of action against Virbac or any of
its officers or directors based upon the exercise of the right of Virbac to
terminate this Agreement under Section 10.1(f) (other than claims based on
Virbac's failure to act in good faith or based on an alleged knowing or willful
breach of this Agreement by Virbac or any of its officers, directors, employees,
agents or Affiliates).
Section 10.3. Amendment, Extension and Waiver. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver will be valid only if set forth in writing executed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Subject to applicable
law, at any time prior to the Effective Time (whether before or after approval
by the stockholders of AGNU), the parties may (a) amend this Agreement, (b)
extend the time for the performance of any of the obligations or other acts of
any other party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
waive compliance with any of the agreements or conditions contained herein;
provided, however, that following approval of this Agreement and the
transactions contemplated hereby by the stockholders of AGNU, there may not be,
without further approval of such stockholders, any waiver or amendment of this
Agreement that alters or reduces the amount of consideration to be delivered to
AGNU pursuant to Section 7.2(d) of this Agreement, modifies the obligations of
AGNU to effect tender offers pursuant to Sections 8.1 and 8.2 of this Agreement
or reduces or changes the consideration to be paid to stockholders in connection
with such tender offers.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Nonsurvival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement,
the Confidentiality Agreement, and in any certificate delivered in connection
with the Closing will be deemed to be conditions to the Merger and will not
survive the Effective Time, except for (i) Section 6.7 (Indemnification and
Insurance), which section will, to the extent contemplated, survive the
Effective Time or earlier termination of this Agreement, (ii) Section 6.2
(Confidentiality), Section 6.11 (Conduct of Business), Section 6.12 (Expenses),
Section 6.13 (Termination Fee) Article IX (Registration Rights) and Section 10.2
(Effect of Termination) of this Agreement, each section of which will, to the
extent contemplated therein, survive termination of this Agreement indefinitely,
(iii) Article VIII (Post-Closing Covenants) and (iv) the Confidentiality
Agreement, which will, to the extent contemplated therein, survive termination
of this Agreement.
Section 11.2. Notices. All notices and other communications given or
made pursuant hereto will be in writing and will be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and will be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as will be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
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(a) If to AGNU:
Agri-Nutrition Group Limited
13801 Riverport Drive, Suite 111
Maryland Heights, MO 63043
Telecopier: (314) 298-0902
Attention: Bruce Baker, CEO and President
With a copy (which will not constitute notice) to:
Dyer, Ellis & Joseph
Watergate, Suite 1100
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Telecopier: (202) 944-3068
Attention: Michael Joseph, Esq.
(b) If to VBSA or Parent:
Virbac S.A.
13 emme rue - L.I.D.
06517 Carros Cedex
France
Telecopier: 011 33 4 92 08 71 75
Attention: Pascal Boissy, President
(c) If to Virbac:
Virbac, Inc.
3200 Meachum Blvd.
Fort Worth, TX 76137
Telecopier: 817-831-8327
Attention: Brian A. Crook, D.V.M., CEO
With a copy (which will not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Telecopier: 214-969-5100
Attention: Richard K. Kneipper, Esq.
Section 11.3. Certain Definitions. For purposes of this Agreement,
the term:
(a) "Affiliate" means a Person that directly or indirectly,
through one or more intermediaries, Controls, is Controlled by, or is
under Common Control with, the first mentioned Person;
(b) "Blue Sky Laws" means state securities or "blue sky" laws;
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(c) "Business Day" means any day other than a Saturday or a
day on which banks in the State of Texas are authorized or obligated to
be closed;
(d) "Control" (including the terms "Controlled by" and "under
Common Control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management or policies of a Person, whether through the
ownership of stock or as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "Material Adverse Effect" on a party means an event,
change or occurrence which, individually or together with any other
event, change or occurrence, which is or could reasonably be expected
to be so adverse as to result in a severe and critical impairment of
(i) the business, properties, prospects, assets, financial condition or
results of operations of such party and its Subsidiaries taken as a
whole, or (ii) the ability of such party to perform its obligations
under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement; provided, however,
"Material Adverse Effect" does not include the effect of (1) changes in
the economy of the United States generally, (2) general changes in the
availability of credit, general changes in interest rates, money supply
levels or the discount rate of the Federal Reserve System or changes in
laws or regulations of general applicability or interpretations thereof
by courts or governmental authorities affecting animal health care
companies or the animal health industry generally, (3) changes in GAAP
or regulatory accounting principles generally applicable to animal
health care companies or companies engaged in a business which is the
same or similar to that of the parties hereto, (4) changes in the
condition (financial or otherwise) or results of operations of the
party and its Subsidiaries taken as a whole that are caused directly,
substantially and primarily by the general changes specified in (1)
through (3) above, (5) actions and omissions of a party or any of its
Subsidiaries taken with the prior informed consent of the other party
in contemplation of the transactions contemplated hereby, and (6) the
Merger and the reasonable expenses incurred in connection therewith and
compliance with the provisions of this Agreement on the operating
performance of such party.
(f) "Ordinary Course of Business" means the ordinary and
normal course of the conduct of the business of the party consistent
with past practices;
(g) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d) of the Exchange Act); and
(h) "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other subsidiary of such
party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any subsidiary of
such party do not have a majority of the voting interest in such
partnership), or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or Controlled by such party and/or by any
one or more of its subsidiaries.
Section 11.4. Headings. The headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
Section 11.5. Entire Agreement. This Agreement and the Confidentiality
Agreement (together with the Exhibits, the Schedules and the other documents
delivered pursuant to this Agreement) constitute the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof.
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Section 11.6. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 11.7. No Third Party Beneficiaries. Except as otherwise
provided in Section 6.7 hereof, this Agreement is binding upon and inure solely
to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or means confer upon any other Person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 11.8. Governing Law. This Agreement is governed by, and
construed in accordance with, the laws of the State of Delaware without giving
effect to applicable principles of conflicts of law.
Section 11.9. Disclosure Schedules. The disclosures made on any
disclosure schedule, including the Virbac Disclosure Schedule and the AGNU
Disclosure Schedule, with respect to any representation or warranty are deemed
to be made with respect to any other representation or warranty requiring the
same or similar disclosure to the extent that the relevance of such disclosure
to other representations and warranties is evident from the information included
in such disclosure schedule. The inclusion of any matter on any such disclosure
schedule will not be deemed an admission by any party that such listed matter is
material or that such listed matter has or would have a Material Adverse Effect
on Parent, Virbac or AGNU.
Section 11.10. Counterparts. This Agreement may be executed and
delivered in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed and delivered means be deemed
to be an original but all of which taken together constitute one and the same
agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be executed and delivered as of the date first written above.
AGRI-NUTRITION GROUP LIMITED
Bruce G. Baker
President and Chief Executive Officer
VIRBAC S.A.
By:
Name:
Title:
VIRBAC, INC.
Brian A. Crook
Chief Executive Officer
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FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made
and entered into as of November 20, 1998, by and between Agri-Nutrition Group
limited, a Delaware corporation ("AGNU"), Virbac S.A., a French corporation
("VBSA"), and Virbac, Inc., a Delaware corporation ("Virbac").
WHEREAS, AGNU, VBSA and Virbac have entered into a certain Agreement
and Plan of Merger, dated as of October 16, 1998 (the "Merger Agreement"),
pursuant to which Virbac will merge with and into AGNU with AGNU as the
surviving corporation.
WHEREAS, after further discussions, AGNU, VBSA and Virbac have
determined to amend the Merger Agreement to reflect additional agreements of the
parties on issues affected by the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
1. Defined Terms. Capitalized terms used in this Amendment will, unless
otherwise defined in this Amendment, have the meanings assigned to them
in the Merger Agreement.
2. Amendment of Article IV, Section 4.23 of the Merger Agreement. Article
IV, Section 4.23 of the Merger Agreement is hereby amended by deleting
the language thereof and substituting in lieu thereof the following:
"Section 4.23 Issuance of Shares. The Merger Shares and the
shares issued pursuant to the Share Adjustment have been duly
authorized by the AGNU Board of Directors and, when issued as
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable, free of any preemptive rights created by, and not in
violation of, any statute, the certificate of incorporation of AGNU,
the bylaws of AGNU or any agreement to which AGNU is a party or by
which AGNU is bound. The Merger Shares and the shares issued pursuant
to the Share Adjustment will be exempt from registration under the
Securities Act and under applicable Blue Sky Laws. The offering or sale
of any of the Merger Shares and the shares issued pursuant to the Share
Adjustment as contemplated by this Agreement does not give rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any securities of AGNU."
3. Amendment of Article VI of the Merger Agreement. (a) Article VI,
Section 6.14 of the Merger Agreement is hereby amended by deleting the
references therein to "Section 7.3(d)" and substituting in lieu thereof
references to "Section 7.1(e)."
(b) Article VI, Section 6.9(b) of the Merger Agreement is
hereby amended by deleting the references therein to "Section 10.1(h)"
and substituting in lieu thereof references to "Section 10.1(g)."
4. Amendment of Article VII of the Merger Agreement. (a) Article VII,
Section 7.2 of the Merger Agreement is hereby amended by adding a new
paragraph "(g)" to Section 7.2 to read in its entirety as follows:
"(g) Legal Opinions of VBSA's and Virbac's Counsel. On or
prior to the Closing Date, AGNU will have received the opinion of (i)
McGregor & Adler, LLP, counsel to Virbac, regarding the legal
representations contained in Sections 3.1, 3.2, 3.3 and 3.4 of this
Agreement and (ii) Herve Aoust, legal
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counsel to VBSA, regarding the legal representations contained in
Section 3.4, provided, however, that such opinion shall substitute VBSA
in lieu of Virbac in such legal representations."
(b) Article VII, Section 7.3 of the Merger Agreement is hereby
amended by adding a new paragraph "(e)" to Section 7.3 to read in its
entirety as follows:
"(e) Legal Opinion of AGNU's Counsel. On or prior to the
Closing Date, VBSA and Virbac will have received the opinion of Dyer,
Ellis & Joseph, counsel to AGNU, regarding the legal representations
contained in Sections 4.1, 4.2, 4.3, 4.4 and 4.23 of this Agreement."
5. Amendment of Article IX, Section 9.1(a) of the Merger Agreement.
Article IX, Section 9.1(a) of the Merger Agreement is hereby amended by
deleting the phrase "third anniversary" and substituting in lieu
thereof the phrase "second anniversary."
6. Amendment of Article X, Section 10.1(i) of the Merger Agreement.
Article X, Section 10.1(i) of the Merger Agreement is hereby amended by
deleting the language thereof and substituting in lieu thereof a new
Section 10.1(i) to read in its entirety as follows:
"(i) by (A) either Virbac or AGNU on or before November 20,
1998 if such party objects to any of the matters reviewed pursuant to
Section 6.1, provided, however, that any objection rendered by such
party is based on reasonable and prudent business judgment and not made
in an arbitrary and capricious manner, or (B) Virbac if it fails to
receive an opinion of AGNU's environmental counsel in the form attached
as Exhibit J hereto or assessment of an environmental engineering firm
acceptable to Virbac, as the case may be; provided further, that if
Virbac is unable to complete its investigation as a result of AGNU's
failure to afford reasonable access to the properties and executive
personnel of AGNU or promptly provide all material information
requested by Virbac pursuant to Section 6.1, then Virbac may extend the
termination date under this Section 10.1(i) to November 25, 1998; or".
7. Amendment of Exhibit C. Exhibit C of the Merger Agreement is hereby
amended by deleting the phrase "and, provided further, that Parent may"
in Section 6 thereof.
8. Amendment of Exhibit I. Exhibit I of the Merger Agreement is hereby
amended by deleting the language of Exhibit I in its entirety and
substituting in lieu thereof Exhibit I attached hereto.
9. Amendment of Appendix B. Items 4.11 and 4.18 of Appendix B to the
Merger Agreement are hereby amended by deleting the language of such
items in their entirety and substituting in lieu thereof Items 4.11 and
4.18 attached hereto.
10. Reaffirmation of Merger Agreement. To the extent that any provision
hereof conflicts with any provision of the Merger Agreement, the
provisions hereof will control. Except as expressly modified hereby,
the Merger Agreement remains in full force and effect in accordance
with its original terms.
11. Miscellaneous.
(a) Counterparts. This Amendment may be executed and delivered in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered means be deemed to be an
original but all of which taken together constitute one and the same agreement.
(b) Governing Law. This Amendment is governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
applicable principles of conflicts of law.
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(c) Entire Agreement. This Amendment, the Merger Agreement and the
Confidentiality Agreement (together with the Exhibits, the Schedules and the
other documents delivered pursuant to the Amendment and the Merger Agreement)
constitute the entire agreement of the parties and supersedes all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Merger to be executed and delivered as of the date
first written above.
AGRI-NUTRITION GROUP LIMITED
Bruce G. Baker
President and Chief Executive Officer
VIRBAC S.A.
By:
Name:
Title:
VIRBAC, INC.
Brian A. Crook
Chief Executive Officer
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INTERLAB S.A.S.
ADDENDUM TO MERGER AGREEMENT
Pursuant to Section 6.11 of the Agreement and Plan of Merger, dated as
of October 16, 1998 (the "Merger Agreement"), among Agri-Nutrition Group Limited
("AGNU"), Virbac S.A. ("VBSA") and Virbac, Inc. ("Virbac"), Interlab S.A.S., a
French corporation and a wholly owned subsidiary of VBSA, hereby agrees to
become a party to the Merger Agreement. All references to "Parent" in this
Addendum and the Merger Agreement mean "Interlab S.A.S."
Parent hereby represents and warrants to AGNU that Parent has the
requisite corporate power and authority to execute and deliver this Addendum to
Merger Agreement (this "Addendum"), to become a party to the Merger Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution of this Addendum and the performance of the obligations under the
Merger Agreement and of the other transactions contemplated thereby have been
duly authorized by all necessary corporate action on the part of Parent and no
other corporate proceedings on the part of Parent are necessary to authorize
this Addendum or to consummate the transactions contemplated under the Merger
Agreement. This Addendum has been duly executed and delivered by Parent and,
assuming the Merger Agreement constitutes a valid and binding obligation of
AGNU, constitutes a valid and binding obligation of Parent, enforceable against
Parent in accordance with the terms of the Merger Agreement, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed and delivered as of the _____ day of __________________ 1998.
AGRI-NUTRITION GROUP LIMITED
By:
Name:
Title:
VIRBAC S.A.
By:
Name:
Title:
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INTERLAB S.A.S.
By:
Name:
Title:
VIRBAC, INC.
By:
Name:
Title:
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APPENDIX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VIRBAC CORPORATION
VIRBAC CORPORATION (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Act") hereby certifies as follows:
1. The name of the Corporation is Virbac Corporation. The Corporation
was originally incorporated under the name PMR Holdings, Inc. pursuant to an
original Certificate of Incorporation filed pursuant to the Act on July 20,
1993.
2. Pursuant to Sections 242 and 245 of the Act, this Restated
Certificate of Incorporation restates, integrates and further amends the
Restated Certificate of Incorporation of the Corporation to read as follows:
FIRST: The name of the Corporation is Virbac Corporation.
SECOND: The Registered Office of the Corporation in the State of Delaware
is to be located at 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19801. The Registered Agent at that address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of all classes of stock which the
Corporation has authority to issue is 40,000,000 consisting of (i) 2,000,000
shares of preferred stock, par value $0.01 per share ("Preferred Stock"), and
(ii) 38,000,000 shares of common stock, par value $.01 per share ("Common
Stock").
The following are the powers, designations, preferences and rights, and the
qualifications, limitations or restrictions thereof of each class of stock of
the Corporation:
A. Preferred Stock: The Preferred Stock may be issued in one or
more series. The Board of Directors is hereby authorized to
issue the shares of Preferred Stock in such series and to fix
from time to time before issuance the number of shares to be
included in any series and the designation, relative powers,
preferences and rights and qualifications, limitations or
restrictions of all shares of such series. The authority of
the Board of Directors with respect to each series shall
include, without limiting the generality of the foregoing, the
determination of any or all of the following:
1. the number of shares of any series and the designation
to distinguish the shares of such
series from the shares of all other series;
2. the voting powers, if any, and whether such voting
powers are full or limited, in such series;
3. the redemption provisions, if any, applicable to such
series, including the redemption price or prices to
be paid;
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4. whether dividends, if any, shall be cumulative or
noncumulative, the dividend rate of such series, and
the dates and preferences of dividends on such
series;
5. the rights of such series upon the voluntary or
involuntary dissolution of, or upon any distribution
of the assets of, the Corporation;
6. the provisions, if any, pursuant to which the shares
of such series are convertible into, or exchangeable
for, shares of any other class or classes or of any
other series of the same or any other class or
classes of stock, or any other security, of the
Corporation or any other corporation, and price or
prices or the rates of exchange applicable thereto;
7. the right, if any, to subscribe for or to purchase any
securities of the Corporation or any other corporation;
8. the provisions, if any, of a sinking fund applicable
to such series; and
9. any other relative, participating, optional or other
special powers, preferences, rights, qualifications,
limitations or restrictions thereof;
all as may be determined from time to time by the Board of
Directors and shall be stated in a resolution or resolutions
providing for the issuance of such Preferred Stock (a
"Preferred Stock Designation").
B. Common Stock: The holders of Common Stock will be entitled to
one vote on each matter submitted to a vote at a meeting of
stockholders for each share of Common Stock held of record by
such holder as of the record date for such meeting.
FIFTH: No director of the corporation will be liable to the Corporation
or to the stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent of such exemption from liability is not permitted
by Section 102 of the General Corporation Law of the State of Delaware, as
amended from time to time. No amendment to or repeal of this Article will
adversely affect any right or protection of a director of the Corporation with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal. No amendment to or repeal of Section 102 of the General
Corporation Law of the State of Delaware will adversely affect any right or
protection of a director of the Corporation with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
SIXTH: The Corporation shall indemnify, to the full extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time, all persons whom a corporation may indemnify pursuant to said
Section 145 of the General Corporation Law of the State of Delaware.
SEVENTH: The power to make, alter, amend or repeal the Bylaws of the
Corporation is vested in the Board of Directors of the Corporation; provided
that this provision will not divest or limit the power of the stockholders to
adopt, amend or repeal the Bylaws. Any Bylaw adopted or ratified by the
stockholders and imposing upon future stockholder action a voting or quorum
requirement in excess of the minimum requirement for action otherwise applicable
under the General Corporation Law of the State of Delaware may be amended or
repealed only by the affirmative vote of such higher requirement.
EIGHTH: The Bylaws of the Corporation will not permit fewer than a
majority of the number of incumbent directors to constitute a quorum of the
Board of Directors for the transaction of regular business, except as otherwise
provided in the NINTH Article of this Certificate of Incorporation.
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NINTH: The Directors, other than those who may be elected by the
holders of any class or series of Preferred Stock, shall be divided, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, with the term of office of the first class
to expire at the 2000 annual meeting of stockholders, the term of office of the
second class to expire at the 2001 annual meeting of stockholders, and the term
of office of the third class to expire at the 2002 annual meeting of
stockholders, with each director to hold office until his successor is duly
elected and qualified. At each annual meeting of stockholders commencing with
the 2000 annual meeting, directors elected to succeed those directors whose
terms then expire shall be elected to the same class as the director they
succeed for a term of three years to expire at the third succeeding annual
meeting of stockholders after their election with each director to hold office
until his or her successor is duly elected and qualified.
Subject to the rights of the holders of any class or series of
Preferred Stock, any director may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of eighty percent of
the shares then entitled to vote at an election of directors.
Any vacancy on the Board resulting from death, resignation, retirement,
disqualification, removal or other cause, including any vacancy created by
reason of an increase in the number of directors or as a result of Board action,
shall be filled exclusively by the affirmative vote of a majority of the
remaining directors then in office and not by stockholders, even if such
remaining directors constitute less than a quorum of the board of directors or
by a sole remaining director. Any director so elected will hold office for the
remainder of the term of the class of directors in which the new directorship
was created or the vacancy occurred and until the next annual meeting of
stockholders relating to the election of directors of such class and until such
director's successor is duly elected and qualified. No decrease in the number of
directors will have the effect of shortening the term of any incumbent director.
3. The foregoing amendment and restatement of the Corporation's
Restated Certificate of Incorporation was duly adopted by the directors and
stockholders of the Corporation in accordance with Sections 242 and 245 of the
Act.
4. The amendment and restatement effected by the foregoing will be
effective upon filing in the office of the Secretary of State of the State of
Delaware. Notwithstanding approval by the directors and the stockholders of the
Corporation, the Board of Directors reserves the right to abandon the foregoing
amendment and restatement at any time prior to filing.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its President, ________________, this _____ day of __________, 1999.
Virbac Corporation
By:
Name:
President
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Appendix C
Opinion of Duff & Phelps, LLC
December 7, 1998
Board of Directors
Agri-Nutrition Group Limited
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
Gentlemen:
You have retained Duff & Phelps, LLC ("Duff & Phelps") to serve as independent
financial advisor to Agri-Nutrition Group Limited ("AGNU" or the "Company") to
provide an opinion (the "Opinion") as to whether the Proposed Transaction
(defined below) involving a merger of Virbac, Inc. ("Virbac"), a wholly owned
subsidiary of Virbac, S.A. ("VBSA"), with and into the Company is fair from a
financial point of view to the shareholders of AGNU. Previously, Duff & Phelps
has not provided financial advisory services to the Company, Virbac or VBSA.
Description of the Proposed Transaction
According to the Agreement and Plan of Merger, Virbac shall be merged with and
into either AGNU or, at Virbac's sole discretion, a newly formed subsidiary of
AGNU, with AGNU as the surviving corporation. Following the consummation of the
merger, the surviving corporation (the "Surviving Corporation") will change its
name to "Virbac Corporation."
Summary Financial Terms of the Proposed Transaction
Prior to the merger, VBSA will contribute an amount that will enable Virbac to
pay off its bank and VBSA debt, fund a $3.0 million Stock Repurchase (defined
below), and provide $3.7 million for working capital after the merger.
VBSA will receive newly issued shares of AGNU Common Stock that will represent
60% of the fully diluted shares of the Surviving Corporation.
Within 60 days after the merger, AGNU will complete a tender offer to repurchase
up to $3,000,000 of AGNU Common Stock, other than that held by VBSA, at a price
of $3.00 per share.
If, during the period ending on the second anniversary of the closing date of
the merger (the "Contingent Period"), the exchange traded closing sale price of
AGNU as reported in the Wall Street Journal does not equal or exceed $3.00 per
share for any period of 40 consecutive trading days, AGNU will, within 10
business days of the termination of the Contingent Period, commence a tender
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offer (the "Contingent Repurchase"), at $3.00 per share, for up to $4,185,000 of
the issued and outstanding shares of AGNU Common Stock from all shareholders
other than VBSA.
Scope of Analysis
In conducting our analysis and arriving at our Opinion, we reviewed and
analyzed, among other things:
The Agreement and Plan of Merger among Agri-Nutrition Group Limited, Virbac
S.A., and Virbac, Inc. dated as of October 16, 1998;
The public financial statements of AGNU, including the Annual Reports and Form
10-K for the fiscal years ended October 31, 1995 through 1997, and the quarterly
report on Form 10-Q for the nine months ended July 31, 1998;
The audited financial statements for Virbac for the fiscal years ended December
31, 1994 through 1997 and unaudited financial statements for the nine months
ended September 30, 1997 and 1998;
Annual reports for VBSA for the fiscal year ended through December 31, 1997;
Internal financial analyses and forecasts for the Company on a stand-alone
basis;
Internal financial analyses and forecasts for the Company and Virbac on a
combined basis;
Internal financial and operating information pertaining to Virbac;
Current conditions and trends with respect to the pet healthcare industry in
general and general business and economic conditions in the United States;
The historical stock prices and trading volume of the common stock of AGNU for
recent periods;
Transactions involving companies similar to AGNU that we deemed appropriate to
consider;
Financial information and market valuations of other publicly traded companies
that we deemed to be reasonably comparable to AGNU; and
Other financial studies, analyses, and investigations as we deemed appropriate.
Duff & Phelps held discussions with members of senior management of both the
Company and Virbac regarding the history, current business operations, financial
condition, future prospects and strategic objectives of the Company and Virbac
in both their present form and on a combined basis. Duff & Phelps visited the
principal operating facilities of the Company and Virbac, located in St. Louis,
Missouri and Dallas, Texas, respectively. Duff & Phelps also took into account
its assessment of general economic, market and financial conditions as well as
its experience in securities and business valuation, in general, and with
respect to similar transactions, in particular. Duff & Phelps did not make any
independent appraisals of the assets or liabilities of the Company.
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In performing its analysis and rendering its Opinion with respect to the
Proposed Transaction, Duff & Phelps relied upon the accuracy and completeness of
all information provided to it, whether obtained from public or private sources,
including Company management, and did not attempt to independently verify such
information. We note that nothing has come to our attention in the course of our
analysis to make us believe that it is not reasonable to rely on the information
described above, including the reports of the management of the Company. Our
Opinion further assumes that information supplied and representations made by
the Company's management are substantially accurate regarding the Company and
the background and terms of the Proposed Transaction.
We delivered our findings to the Company on October 30, 1998. Our conclusion was
that the Proposed Transaction, as contemplated, was fair from a financial point
of view to the shareholders of the Company. Duff & Phelps has prepared this
Opinion effective as of October 30, 1998, and the Opinion is necessarily based
upon market, economic, financial and other conditions as they exist and can be
evaluated as of such date.
It is understood that this letter is only for the information of the Company,
the Board of Directors and its shareholders. Except as required under the
disclosure requirements of the securities laws and applicable law or legal
process, without our prior consent, this letter may not be quoted or referred
to, in whole or in part, in any written document or used for any other purpose.
Conclusion
Based upon and subject to the foregoing, Duff & Phelps is of the opinion that
the Proposed Transaction is fair to the shareholders of the Company from a
financial point of view.
Respectfully submitted,
/S/ DUFF & PHELPS, LLC
DUFF & PHELPS, LLC
C-3
