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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
Commission File Number 0-24312
AGRI-NUTRITION GROUP LIMITED
(Exact name of registrant as specified in its charter)
Delaware 43-1648680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Riverport Executive Center II
13801 Riverport Drive, Suite 111
Maryland Heights, Missouri 63043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 298-7330
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of January 23, 1998 (computed by reference
to the closing price of such stock on the NASDAQ/National Market) was
$8,150,177.
As of January 23, 1996, there were 9,304,280 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Portions of the Registrant's definitive Proxy Statement
regarding the 1998 Annual Meeting of Stockholders Part III
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<PAGE>
Agri-Nutrition Group Limited
FORM 10-K
Cross Reference Sheet
Item Page
Part I
1 Business......................................................... 2
2 Properties....................................................... 7
3 Legal Proceedings................................................ 7
4 Submission of Matters to a Vote of Security Holders.............. 7
4A Executive Officers of the Registrant............................. 8
Part II
5 Market for Registrant's Common Equity and
Related Stockholder Matters...................................... 8
6 Selected Financial Data.......................................... 10
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 11
8 Financial Statements............................................. 18
9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure........................... 18
Part III
10 Directors and Executive Officers of the Registrant............... 18
11 Executive Compensation........................................... 18
12 Security Ownership of Certain Beneficial Owners and Management... 18
13 Certain Relationships and Related Transactions................... 18
Part IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................. 19
Signatures ...................................................... 22
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Part I
Item 1. Business.
General
The Company 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. The Company's Pet
Health Care Division represents the consolidation of four businesses acquired
between 1995 and 1997 -- Zema Corporation based in Raleigh, NC (Zema), St. JON
Laboratories, Inc. in Los Angeles, CA (St. JON), St. JON VRx Products in London,
UK, and Mardel Laboratories, Inc. of Glendale Heights, IL (Mardel). Its PM
Resources division, based in St. Louis, MO (Resources), formulates private-label
products for the animal health and specialty chemical industries.
Products
The Company's products are generally ingested by or used on animals or
in animal husbandry to promote health and production efficiency, or, in the case
of companion animals, to promote health and hygiene. The Company also
manufactures several products, including home, lawn, and garden products, and
other specialty compounds unrelated to animal health and pet care. The products
manufactured by the Company include:
o medicated treatments to prevent 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;
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o home, lawn, and garden products to prevent insect infestation
in turf and shrubs; and
o specialty compounds used by manufacturers in the formulation
of plastics and related products.
In June 1997, the Company discontinued the distribution of ingredients
to Purina Mills Inc. (Purina). 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 in the Company's consolidated financial statements included
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 other operations.
Customers
The Company sells its products to approximately 850 customers,
comprised of national or dominant regional companies serving the animal health
and specialty compound markets, pet product distributors, specialty pet retail
stores and superstores, mass merchandisers, warehouse clubs, grocery, drug,
discount, and feed stores, and veterinary clinics. The Company's employees and
independent sales representatives attend all major industry trade shows to
market the Company's products.
Purina is the Company's largest single customer. During the year ended
October 31, 1997, approximately 14% of net sales from continuing operations was
attributable to Purina. In connection with the acquisition of HIB, the Company
entered into a manufacturing and supply agreement with Purina whereby Purina
agreed to purchase sufficient volume and mix of products to generate income (net
of ingredient, direct manufacturing and other direct costs) of approximately
$2.9 million annually for the Company through October 31, 1996. Under the terms
of the agreement, Purina was required to pay the Company for its products upon
delivery. Although Purina continues to be a customer of the Company, there can
be no assurance as to the future level of sales to Purina.
The Company'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. The Company's animal health products
other than pet care products are sold primarily on a private-label basis under
its customers' brand names. During the year ended October 31, 1997, branded
products accounted for approximately 48% of the Company's net sales.
The Company does business with most of its customers exclusively on a
purchase-order basis. Payment generally is made by the Company's customers
either upon delivery or within 45 days, and the Company generally has been able
to deliver products to its customers on a timely basis. The Company generally
does not provide its customers with extended payment terms or the right to
return products purchased from the Company.
Services
The Company offers its customers a wide range of services in connection
with the products it provides, including laboratory formulation and services,
technical support, registration services, and business and marketing consulting
services. Laboratory formulation and services and technical support
3
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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 the
Company's Environmental Protection Agency and Food and Drug Administration and
assisting customers in maintaining their registrations. See "Registrations,
Trademarks, and Patents." Business and marketing consulting services consist of
assisting customers in determining new products they might successfully market,
as well as assisting them with the distribution of new and existing products.
The Company also provides distribution and warehousing services to
numerous customers, including Purina. In connection with the acquisition of
Purina's Health Industries Business (HIB) in September 1993, the Company and
Purina entered into a warehousing and distribution agreement which was
subsequently extended through April 30, 1998, under which Purina pays the
Company approximately $350,000 annually for certain warehousing, distribution,
inventory management, and inventory-reporting services. There can be no
assurance that the Company will continue to perform such services at such rates
subsequent to April 30, 1998.
Registrations, Trademarks, and Patents
The Company has numerous EPA and FDA registrations, trademarks, and
patents. The Company's EPA product registrations and subregistrations permit it
to sell pesticide and rodenticide products, as well as ectoparasite products for
the treatment of fleas and ticks on dogs and cats. While EPA registrations do
not expire, the Company is required periodically to reregister certain products
with the EPA. Certain of its facilities are qualified as EPA Registered
Manufacturing Sites, which permits the Company to manufacture products not only
under its own EPA product registrations, but also under the registrations of
other companies.
The Company's FDA New Animal Drug Applications (NADAs) permit the
Company to sell medicated treatments, anthelmetics, feed additives, and other
animal drug products. NADAs do not expire, but are subject to modification or
withdrawal by the FDA based upon the related drugs' performance in the market.
The Company also has FDA Manufacturing Site Approvals enabling the Company to
manufacture animal drugs covered by NADAs held by other companies.
The Company's trademarks relate primarily to its pet care products
which are marketed under the St. JON Pet Care, Mardel, VRx, Zema and Pulvex
labels. The Company's trademarks also include Petromalt, a hairball remedy for
cats originally introduced in 1923; Petrodex and C.E.T., lines of dental
products for dogs and cats; Petrelief, a line of dermatological products for
cats and dogs; Doggydent, a line of oral hygiene products for dogs; and Maracyn,
a leading fish antibiotic introduced in 1969. The trademarks must be renewed
between 2000 and 2009. In addition, the Company has trademark registrations
pending for various pet care products.
The Company also has several patents covering pet toothbrushes, tartar
remover, pet shampoo, and flea traps, which expire between 2004 and 2009, and
the exclusive right to use several patents relating to enzyme generation
formulae for use in animal toothpaste and on rawhide chews. In December 1997,
the Company obtained exclusive rights to patents supporting a bioadhesive patch
technology, including exclusive distribution rights to Stomadhex(TM), a
chlorhexidine based antibacterial patch which can be placed in the pet's mouth
following dental procedures to maintain oral health.
In addition, the Company owns the worldwide patents for Bromethalin, a
highly effective and proprietary rodenticide serving agricultural and Pest
Control Operator (PCO) markets. Certain Bromethalin patents expired in 1997 with
remaining patents expiring in 1999, and the trademarks
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"Trounce" and "Farmgard," used to market insecticides and supplements and
rodenticides, respectively, must be renewed in 1998.
The Company intends to aggressively protect its trademarks, patents,
and licensing rights, to reregister products with the EPA, and to renew most of
its trademarks.
Procurement of Raw Materials
The active ingredients in the Company's products are not manufactured
by the Company, but are generally purchased from major raw materials
manufacturers. The Company generally purchases materials on an as-needed basis,
as it is generally unnecessary for the Company to maintain large inventories of
such materials in order to meet rapid delivery requirements or assure itself of
adequate supply. The Company purchases certain raw materials from multiple
suppliers; some materials, however, are proprietary, and the Company's ability
to procure such materials is limited to suppliers with proprietary rights. The
Company considers its relationships with its suppliers to be good. The Company
also purchases certain raw materials the availability of which is subject to
EPA, FDA, or other regulatory approvals. Some of the Company's customers provide
the Company with the raw materials used in the production of their products.
Competition
The Company's competitors fall into roughly four categories: animal
health distributors; manufacturers, formulators, and blenders of animal health
products; pet care product producers and suppliers; and specialty chemical and
pest control manufacturers. Each of these groups, with the exception of pet care
product producers and suppliers, are comprised primarily of privately owned
regional and local companies, although each also includes national companies
that produce or distribute certain animal health and other products. The pet
care product producer and supplier group is comprised of national and regional
companies.
Many of the Company's competitors in specific market niches are larger
and have greater financial resources than the Company. In addition, regulatory
surveillance and enforcement are accelerating, which is likely to result in
fewer competitors that have even greater resources. Much of the competition in
the industries served by the Company centers around price. The Company is
focusing on the production of high-performance, valued-added and branded
products designed to be marketed on the basis of quality as well as price.
Regulatory and Environmental Matters
The Company's operations subject it to federal, state, and local laws
and regulations relating to environmental affairs, health, and safety. These
laws and regulations are administered by the EPA, the FDA, the Occupational
Safety and Health Administration, the Department of Transportation, and various
state and local regulatory agencies.
Governmental authorities, and in some cases third parties, have the
power to enforce compliance with health and safety laws and regulations, and
violators may be subject to sanctions, including civil and criminal penalties
and injunctions. While the Company believes that the procedures currently in
effect at its facilities are consistent with industry standards and that it is
in material compliance with applicable health and safety laws and regulations,
failure to comply with such laws and regulations could have a material adverse
effect on the Company.
5
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The Company's operations subject it to numerous environmental laws and
regulations administered by the EPA, including the Resource Conservation and
Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Water Pollution Control Act, the Federal Clean Air
Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Toxic
Substances Control Act, as well as various state and municipal environmental
laws and regulations. See "Legal Proceedings" for a description of a Notice of
Order to Abate Violations and a Notice of Violations issued to Resources by the
Missouri Department of Natural Resources (MDNR) relating to alleged violations
of Missouri's hazardous waste laws and regulations. Resources has discontinued
the use of underground storage tanks subject to RCRA and has submitted a closure
plan to the MDNR relating to closure of its permitted hazardous waste
operations.
Although the Company believes it is in material compliance with
applicable environmental laws, regulations, and permits and has a policy
designed to ensure that it continues to operate in material compliance
therewith, there can be no assurance that the Company will not be exposed to
significant environmental liability. The Company could be held liable for
property damage or personal injury caused by the release, spill, or other
discharge of hazardous substances or materials and could be held responsible for
cleanup of any affected sites. In connection with the acquisitions of HIB, Zema,
St. JON and Mardel, the Company entered into agreements pursuant to which the
former owners of such companies have agreed to indemnify the Company against
liabilities, including certain environmental liabilities, relating to the use,
condition, ownership, or operation of the Company's facilities prior to the
acquisitions.
The Company has environmental compliance programs addressing
environmental and other regulatory compliance issues. Future developments, such
as stricter environmental laws, regulations or enforcement policies, could
increase the Company's environmental compliance costs. While the Company is not
aware of any pending legislation or proposed regulations that, if enacted, would
have a material adverse effect on the Company, there can be no assurance that
future legislation or regulation will not have such effect.
Employees
The Company has 229 full-time employees and four part-time employees.
Fifty-seven of the full-time employees located at the Bridgeton, Missouri
facility are represented by the International Longshoremen's Association, and
eight are represented by the International Brotherhood of Electrical Workers.
Such employees' wages and benefits are governed by bargaining agreements
negotiated with the unions, which expire on October 31, 1998. The Company also
employs an average of approximately 26 persons on a temporary basis. The number
of temporary employees fluctuates on an annual basis because demand for the
Company's products is seasonal. The Company considers its employee and union
relations to be good.
Insurance
The Company believes that it maintains adequate liability and property
insurance coverage. There can be no assurance that the coverage will be
sufficient for all future claims or that insurance will continue to be available
in adequate amounts at reasonable rates.
Year 2000
The Company utilizes computer information systems to internally record
and track information, as well as interact with customers, suppliers, financial
institutions and other organizations. Management has preliminarily assessed
risks and costs related to addressing Year 2000 issues as they pertain to the
6
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Company and its information systems. Based on this assessment, management does
not believe that the modification of the Company's systems to address such
issues will have a material impact on the Company's financial position or
results of operations. However, there are numerous uncertainties relating to
addressing Year 2000 issues, including actual implementation of measures to
address these issues, impact of outside parties appropriately addressing these
issues, and other factors, some of which may be out of the Company's control,
and all of which may cause results to be different than currently anticipated by
Management.
Item 2. Properties.
The Company owns the Bridgeton, Missouri facility at which Resources'
operations are conducted and most of the equipment located on the site. The
facility consists of a 176,600-square-foot manufacturing and warehousing
building and three buildings for administration, retained sample storage,
equipment, and maintenance.
The Company leases its corporate headquarters in Maryland Heights,
Missouri, and manufacturing, office, warehouse, and distribution facilities
located near Raleigh, North Carolina, Los Angeles, California, Glendale Heights,
IL and Yeovil, UK, under non-cancelable leases expiring in June 1999, April
2000, August 2000, February 1999 and December 2002, respectively. The Company
also leases other warehouse and distribution space and certain equipment under
non-cancelable operating leases. Management believes that the Company's
facilities are adequate and suitable for its current operations.
Item 3. Legal Proceedings.
On November 27, 1994, the MDNR issued a Notice of Order to Abate
Violations to the Company relating to alleged violations of Missouri's laws and
regulations relating to the storage of hazardous waste at the Bridgeton
facility. The order alleges that the Company had not remedied certain
deficiencies relating to the storage of hazardous waste cited in inspections by
the MDNR in May 1993 and March 1994, and directs remedial action.
On December 21, 1995, the MDNR issued a Notice of Violations to the
Company relating to contamination in the vicinity of an underground collection
system that was removed from the Bridgeton facility in 1994. The notice alleges
that the collection system should have been included in the Company's hazardous
waste storage permit, states that the collection system was classified by the
MDNR as a leaking underground storage tank, and directs remedial action.
The Company is currently in negotiations with the MDNR related to
certain issues raised in the November 1994 Notice of Order to Abate Violations
and the December 1995 Notice of Violations issued by the MDNR. Management does
not believe that either of the matters pose a significant risk to human health
or the environment, or that the resolution of either of the claims made by the
MDNR will have a material adverse effect on the Company's financial position or
results of operations.
Although the Company is not currently a party to any legal proceedings,
it anticipates that from time to time it may be subject to claims that arise in
the ordinary course of its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year covered by this Report.
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Item 4A. Executive Officers of the Registrant.
The following table sets forth certain information regarding the
Company's executive officers:
Name Age Position
- ------------------- --- -----------------------
Bruce G. Baker 54 President and Chief Executive Officer
Robert J. Elfanbaum 34 Vice President and Chief Financial Officer
Bruce G. Baker has been President and Chief Executive Officer of the
Company since November 1, 1996. From March 1994 through October 1996, he was
Vice President and Deputy Chief Executive Officer of the Company, 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 the Company since August 23, 1996. From November 1994
through August 22, 1996, he served the Company as Assistant Corporate Controller
and Corporate Controller. He was Manager of Internal Auditing for Brown Group,
Inc., an international footwear company from February 1993 until he joined the
Company. From August 1985 through February 1993, he was employed by Price
Waterhouse in St. Louis, MO, most recently as a manager in their Middle Market
Group. Mr. Elfanbaum is currently the president of the St. Louis Chapter of the
Institute of Management Accountants and has been a board member of this
organization since 1990.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock traded on the NASDAQ National Market under
the symbol AGNU. The following tables sets forth the quarterly range of high and
low closing sale prices per share for the Common Stock during the period
indicated.
High Low
Fiscal year ended October 31, 1996
First Quarter 2.81 1.75
Second Quarter 2.56 2.00
Third Quarter 2.41 1.59
Fourth Quarter 2.06 1.38
Fiscal 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 1998
Through January 23, 1998 1.50 1.19
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The Company has not paid any dividends on its Common Stock since its
formation. It presently intends to retain its earnings for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
Further, the Company is prohibited from paying dividends without the consent of
the Company's lender. As of January 12, 1997, the Company had a total of 2,210
stockholders, including 260 stockholders of record and approximately 1,950
persons or entities holding Common Stock in nominee name.
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Item 6. Selected Financial Data.
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 and the four years in the period ended October
31, 1997 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 Price Waterhouse 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,"Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other financial information included
herein.
<TABLE>
<CAPTION>
HIB (Predecessor) Company
----------------- ----------------------------------------------------------------------------
July 20, 1993
Jan.1, 1993 (inception)
through through Oct. 31, Fiscal Year Ended October 31,
Sept. 8, 1993 1993 (1) 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (2):
Net sales (3).......................$ 10,301,685 $ 2,381,777 $ 13,671,588 $ 20,062,942 $ 28,661,307 $ 31,051,537
Operating income (loss) from
continuing operations............ 190,709 (136,099) (484,272) (484,315) 47,399 978,481
Income (loss) from continuing
operations....................... 131,415 (116,189) (482,817) (108,333) (241,320) 118,671
Income from discontinued
operations....................... 105,489 18,616 147,206 139,766 113,900 14,659
Net income (loss)................... 236,904 (97,573) (335,611) 31,433 (127,420) 133,330
Primary net income (loss) per
common and and common equivalent
share:
Continuing operations........... (4) (.02) (.07) (.01) (.03) .02
Discontinued operations......... (4) -- .02 .01 .01 --
Net income ..................... (4) (.02) (.05) -- (.02) .02
Weighted average number of primary
common and common equivalent
shares outstanding............... 6,572,872 6,636,811 8,112,851 8,397,686 8,699,914
BALANCE SHEET DATA:
Total assets........................$ 8,688,193 $ 8,935,071 $ 21,141,513 $ 23,473,103 $ 25,850,052 $26,596,150
Long term obligations .............. -- -- 3,066,667 4,914,614 7,824,012 7,236,204
</TABLE>
(1) Includes the operating activities of the Company's subsidiary, PM
Resources, Inc., from September 9, 1993, the effective date of the
acquisition.
(2) 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:
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
(4) Given the historical organization and capital structure of HIB, earnings
per share information is not considered meaningful or relevant.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, the Company, through its PM
Resources, Inc. subsidiary ( Resources), acquired the Health Industries Business
of Purina Mills, Inc. which formulates, manufacturers and distributes animal
health products and to a lesser extent, home, lawn and garden, and other
products. In July 1994, the Company completed its initial public offering of
Common Stock (IPO), the net proceeds of which were approximately $12.1 million.
Effective March 31, 1995, the Company purchased substantially all of the net
assets and business of Zema Corporation (Zema), a formulator, manufacturer and
supplier of health care and grooming products to the pet industry. Effective
August 31, 1995, the Company purchased substantially all of the net assets and
business of St. JON Laboratories, Inc. (St. JON), a developer, manufacturer and
marketer of oral hygiene, dermatological and gastrointestinal products for dogs
and cats. In September 1997, the Company purchased substantially all of the net
assets and business of Mardel Laboratories, Inc. 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.
The Company's results of operations presented and discussed herein only
include the results of Mardel's operations subsequent to its acquisition by the
Company in September 1997.
The Company historically reported certain financial information for two
segments - ingredients and specialty products. Ingredients consist of feed
products that are purchased or blended by the Company and distributed for Purina
(see Note 15 to the Company's Consolidated Financial Statements included in the
1997 Annual Report). Specialty products consist of all other products
formulated, manufactured, and distributed by the Company to various customers,
including Purina. Included in the specialty products segment are sales of
private label and branded products for which the Company manufactures goods
using registrations and/or formulas owned by the Company, and sales of products
manufactured under contract for which the Company manufactures products using
the customers' registrations and/or formulas.
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. As discussed in prior reports, management expected this trend to continue
in the future. In June 1997, the Company discontinued the distribution of
ingredients to Purina. In July 1997, the Company 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, the Company 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. The Company's consolidated operating results for years ended
October 31, 1995, 1996 and 1997 have been restated to reflect the Company's
continuing operations related to its specialty products business. Net assets for
the ingredients segment no longer meets the requirements for segment disclosure
under generally accepted accounting principles.
In the fourth quarter of 1997, the Company formed the Pet Health Care
Division, which is comprised of St. JON, St. JON VRx, Zema and Mardel. The
integration of these companies is expected
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to produce certain operating synergies, creating a platform for continued
expansion. Costs associated with the integration are not expected to be material
to the Company's consolidated results of operations. The Company continues to
pursue selective complementary acquisitions, alignments and/or licenses in
support of its core businesses.
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1997 (in 000's except percentages)
<TABLE>
<CAPTION>
Fiscal year ended October 31, 1996 Fiscal year ended October 31, 1997
% of % of
Dollar Net Dollar Net
Amount Sales Amount Sales
<S> <C> <C> <C> <C>
Continuing operations:
Net sales............................ $ 28,661 100.0 $ 31,052 100.0
Cost of sales........................ 20,784 72.5 22,851 73.6
Gross profit......................... 7,877 27.5 8,201 26.4
Selling, general and administrative
expenses........................... 7,447 26.0 7,130 23.0
Research and development............. 143 .5 92 .3
Nonrecurring severance costs......... 240 .8
Operating income .................... 47 .2 979 3.2
</TABLE>
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 it 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 the Company's sales and distribution operation in
the United Kingdom which was acquired in July 1996.
The Company's manufacturing and supply agreement with Purina pursuant
to which Purina had guaranteed the Company sufficient sales to generate annual
income, net of ingredient, direct manufacturing, and other direct costs of
approximately $2.9 million for the three-year period ended October 31, 1996
expired as of that date. Although the Company continues to have a supply
relationship with Purina, there can be no assurance what level of sales or
income will be obtained 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 the Company in
December 1996.
12
<PAGE>
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 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 $.6 million in both 1996 and 1997,
with a small increase that reflects increased debt balances that resulted from
the Company's investment in Mardel and increased sales volume in fiscal 1997.
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 fiscal 1997. Such
amount was included in other income (expense) in the Company's consolidated
statement of operations.
The effective income tax rate of the Company was approximately 38% for
1996 and 1997. The aggregate amount of the deferred tax asset valuation
allowance at October 31, 1997 was approximately $.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, the Company 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.
13
<PAGE>
Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended October 31,
1996 (in 000's except percentages)
<TABLE>
<CAPTION>
Fiscal year ended October 31, 1995 Fiscal year ended October 31, 1996
% of % of
Dollar Net Dollar Net
Amount Sales Amount Sales
<S> <C> <C> <C> <C>
Continuing operations:
Net sales............................ $ 20,063 100.0 $ 28,661 100.0
Cost of sales........................ 15,979 79.6 20,784 72.5
Gross profit......................... 4,084 20.4 7,877 27.5
Selling, general and administrative
expenses........................... 4,382 21.8 7,447 26.0
Research and development............. 186 .9 143 .5
Nonrecurring severance costs......... 240 .8
Operating income (loss).............. (484) (2.4) 47 .2
</TABLE>
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 one of its principal
customers to substantially reduce product offerings in all categories including
companion animals. However, partially offsetting these factors was the
introduction by Zema of several new product lines developed in association with
St. JON and Resources.
The Company was a party to a manufacturing and supply agreement with
Purina which provided, among other things, that for the three-year term of the
agreement, Purina would guarantee the Company sufficient annual sales to
generate income, net of ingredient, direct manufacturing, and other direct costs
of approximately $2.9 million (which represents a historically consistent margin
level). Fiscal 1996 income from Purina was approximately $1.2 million less than
that required under the agreement. The entire amount of the shortfall under the
agreement was billed to Purina and included in net sales of specialty products
during October 1996; such billing was collected by the Company in December 1996.
The manufacturing and supply agreement expired on October 31, 1996. Although
Purina continues to be a customer of the company, there can be no assurance as
to future level of sales to Purina.
14
<PAGE>
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 the Company 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 the Company'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 at Zema and St. JON incurred subsequent to their
acquisition by the Company. As a percent of each of their respective sales, Zema
and St. JON selling, general and administrative expenses have been approximately
33% of net sales during the periods subsequent to their acquisition reflecting
higher selling costs associated with these subsidiaries' sales of branded
products into consumer markets, thereby resulting in the overall increase of
selling, general and administrative expenses as a percent of sales.
Research and development expenses incurred in 1996 were generally
consistent with those incurred by the Company in the prior year.
In August 1996, the Company announced a management restructuring
reflecting the shift in the Company'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 .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 $.3 million or 1% of net
sales.
Interest expense in 1996 increased to approximately $.6 million from
approximately $.35 million in 1995 reflecting a full year of the increased debt
incurred in conjunction with the 1995 acquisitions, as well as the impact of
increased investments in working capital during the year. Other income,
consisting primarily of interest income, totaled approximately $.15 million in
1996 compared to approximately $.5 million during 1995, primarily reflecting the
usage of funds in the acquisitions of Zema and St. JON during 1995.
The effective income tax rate of the Company was 142% and 38% for 1995
and 1996, respectively. The effective rate in 1995 is based on the Company's net
loss before taxes during the period and also reflects the reversal of
approximately $.1 million of valuation allowance recorded in prior periods
related to deferred tax assets, pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). The valuation
allowance at October 31, 1995 and the related effective tax rate were adjusted
to reflect future tax benefits related to certain previously unrecognized
temporary differences and net operating loss carryforwards. The effective rate
in 1996 more closely reflects the Company's ongoing effective tax rate based on
current operations. The aggregate amount of the deferred tax asset valuation
allowance at October 31, 1996 is approximately $.1 million.
15
<PAGE>
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, the Company shipped its remaining ingredients
inventory and discontinued operations related to this segment.
Liquidity and Capital Resources
The Company's existing capital requirements are primarily to fund
equipment purchases and working capital needs. During April 1995, the Company
completed the acquisition of Zema, which required utilization of approximately
$3.2 million of net proceeds from its July 1994 initial public offering for the
acquisition and related expenses in 1995 and will require additional payments 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 August 1995, the Company 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 million plus interest to be
paid in annual installments over six years commencing March 31, 1997. During
fiscal 1997, the Company utilized approximately $1 million of cash related to
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. Effective May 1996, the Company acquired the
worldwide patents and other assets and rights to Bromethalin, which required
payments of $1 million including related expenses at closing, and will require
additional consideration based on shipments of Bromethalin to Purina over a
five-year period. In September 1997, the Company acquired Mardel Laboratories,
Inc. for cash of approximately $1 million and stock valued at approximately $1.1
million. 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. With the
acquisition of Mardel, the Company utilized its remaining proceeds from its
initial public offering.
During the fiscal year ended October 31, 1995, cash used by operations
approximated $.1 million. The Company's operating subsidiaries generated
sufficient cash flows to fund operating requirements and capital expenditures,
as well as to fully service the Company's existing debt and related interest
charges. Corporate administrative and acquisition-related costs, including
payment in 1995 of accrued executive bonuses related to fiscal 1994, were funded
through interest income earned on proceeds from the IPO, excess funds generated
by the Company's operating subsidiaries, and through utilization of
approximately $.7 million, or 6%, of the proceeds from the IPO.
During fiscal 1996, cash used by operations approximated $2.3 million,
primarily related to increased working capital requirements. Inventories
increased by approximately $1.7 million reflecting investments in adding new
products to the Company's lines and moving existing products and product-lines
from one operating company's distribution channel into distribution channels of
other operating companies. Increases in accounts receivable of approximately $.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. The Company's inventories from
continuing operations decreased $.7 million during 1997
16
<PAGE>
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
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.
The Company has revolving credit facilities which aggregated $8.0
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
agreements, as amended, was 8.50% which is the bank's prime rate. Approximately
$2.8 million was available under these facilities at October 31, 1997. The
Company and its subsidiaries are in compliance with all covenants related to its
various financing arrangements. The agreements allow the Company to sweep all
cash balances against outstanding borrowings, thus reducing the Company's
overall interest expense.
In December 1995, the Company's board of directors authorized the
repurchase of up to 500,000 shares of the Company's Common Stock. The amount of
funds required will depend upon the actual number of shares repurchased and the
market price paid by the Company for those shares. The Company will utilize
available funds to implement this stock repurchase. As of October 31, 1997,
46,850 shares had been repurchased under this program at an aggregate cost of
$79,542.
Management believes that the Company will generally have sufficient
cash to meet the needs of the current operations for the foreseeable future from
cash flows from current operations, available funds, and existing financing
facilities.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the year ended
October 31, 1997 were approximately $1 million. Future capital expenditures for
the Company's operating subsidiaries are not expected to significantly exceed
historical amounts, which in prior periods approximated current depreciation
expense.
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 the
Company'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 Standard
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128), which requires public entities to present both basic and diluted earnings
per share amounts on the face of their financial statements, replacing the
17
<PAGE>
former calculations of primary and fully diluted earnings per share. The Company
will adopt FAS 128 effective with its fiscal 1998 first quarter, and anticipates
that, when adopted, FAS 128 will not have a material effect on its reported
earnings per common share.
Item 8. Financial Statements.
The Consolidated Financial Statements of the Company, together with the
report thereon of Price Waterhouse LLP dated December 12, 1997 are listed in
Item 14(a)(1) and are included at the end of this Report on Form 10-K, beginning
on page F-1, and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 is contained in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the captions
"Directors and Nominees" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934," and in Item 4A of this Report on Form 10-K, and is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the caption
"Executive Compensation," and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the caption "Common
Stock Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the caption
"Compensation Committee Interlocks and Insider Participation and Certain
Transactions," and is incorporated herein by reference.
18
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) List of Financial Statements. The following is a list of the
financial statements included at pages F-1 through F-22 in this Report on Form
10-K:
Report of Independent Accountants
Consolidated Balance Sheet as of October 31, 1996 and 1997
Consolidated Statement of Operations for the Years Ended October 31,
1995, 1996 and 1997 Consolidated Statement of Cash Flows for the Years
Ended October 31, 1995, 1996 and 1997 Consolidated Statement of
Shareholders' Equity for Years Ended October 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules. Schedule VIII -
Valuation of Qualifying Accounts and Reserves is furnished. All other schedules
have been omitted because they are either not applicable or not required, or the
required information is provided in the financial statements or notes thereto.
(b) Reports on Form 8-K.
The following report on Form 8-K was filed during the fiscal quarter
ended October 31, 1997:
1. On October 8, 1997, a Current Report on Form 8-K was filed to report,
pursuant to Item 2 thereof, the acquisition of Mardel Laboratories,
Inc.
(c) List of Exhibits. The following is a list of exhibits furnished.
Copies of exhibits will be furnished upon written request of any stockholder at
a charge of $.25 per page plus postage.
2.2(a) Amended and Restated Revolving Credit Agreement between PM Resources,
Inc., Zema Corporation and First Bank, along with accompanying
Guaranty by Agri- Nutrition Group Limited in favor of First Bank,
both dated as of July 14, 1995
2.3(b) Manufacturing and Supply Agreement between Purina Mills, Inc. and PM
Resources, Inc. dated September 9, 1993, along with list of schedules
2.4(b) Warehousing and Distribution Agreement between Purina Mills, Inc. and
PM Resources, Inc. dated September 9, 1993
2.5(b) Indemnity Agreement between Purina Mills, Inc. and PM Resources, Inc.
dated September 9, 1993
2.6(j) Asset Purchase Agreement among Agri-Nutrition Group Limited, Zema
Acquisition Corporation, and Zema Corporation dated April 28, 1995
2.7(c) Asset Purchase Agreement among Agri-Nutrition Group Limited, St. JON
Acquisition Corporation, St. JON Laboratories, Inc., and John Nelson
dated August 30, 1995
19
<PAGE>
2.8(k) Agreement and Plan of Merger among Agri-Nutrition Group Limited,
Mardel Acquisition Corporation, and Mardel Laboratories, Inc.
2.9(k) Indemnity Agreement
2.10(k) Share Transfer and Registration Rights Agreement
3.1(d) Restated Certificate of Incorporation
3.2(d) Amended and Restated By-laws
4(b) Specimen stock certificate
10.1(j) Third Restated Employment Agreement between Agri-Nutrition Group
Limited and W.M. Jones, Jr. dated as of November 1, 1996
10.2(j) Fourth Restated Employment Agreement between Agri-Nutrition Group
Limited and Bruce G. Baker dated as of November 1, 1996
10.3(j) Agreement between Agri-Nutrition Group Limited and George W.
Daignault dated as of August 23, 1996
10.4(j) Amended and Restated Stock Option Agreement between Agri-Nutrition
Group Limited and George W. Daignault dated as of August 23, 1996
10.9(e) Revolving Credit Agreement between St. JON Laboratories, Inc. and
First Bank, along with accompanying Guaranty by Agri-Nutrition Group
Limited in favor of First Bank both dated as of January 19, 1996
10.10(b) Form of Indemnification Agreement
10.11(b) 1994 Incentive Stock Plan
10.13(f) Reload Option and Exchange Exercise Plan
10.14(g) 1995 Incentive Stock Plan
10.15(h) 1996 Incentive Stock Plan
10.16(d) Consulting Agreement between Agri-Nutrition Group Limited and Brakke
and Associates, Inc. dated October 11, 1995
10.17(i) Amendment to Amended and Restated Revolving Credit Agreement between
PM Resources, Inc., Zema Corporation and First Bank dated as of May
31, 1996
10.18(i) Amendment to Revolving Credit Agreement between St. JON Laboratories,
Inc. and First Bank dated as of May 31, 1996
20
<PAGE>
10.19(l) Second amendment to amended and restated revolving credit agreement
by and between PM Resources, Inc., Zema Corporation and First Bank
10.20(l) Second amendment to revolving credit agreement by and between St.
JON Laboratories, Inc. and First Bank
10.21(m) Amended and Restated Revolving Credit Agreement between St. JON
Laboratories, Inc. and First Bank
10.22(m) Second Amended and Restated Revolving Credit Agreement between PM
Resources, Inc., Zema Corporation and First Bank
10.23+ Amendment to Second Amended and Restated Revolving Credit Agreement
between PM Resources, Inc., Zema Corporation, Mardel Acquisition
Corporation and First Bank
21+ List of subsidiaries
23+ Consents of Price Waterhouse LLP
27+ Financial data schedule
+ Filed herewith.
(a) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended July 31, 1995, and incorporated herein by
reference.
(b) Filed as exhibit of same number to the Registrant's Registration
Statement on Form S-1, File No. 33-78646, and incorporated herein by
reference.
(c) Filed as exhibit of the same number to the Registrant's Current Report
on Form 8-K, filed September 13, 1995, and incorporated herein by
reference.
(d) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended January 31, 1996, and incorporated herein by
reference.
(e) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1995, and incorporated herein by
reference.
(f) Filed as exhibit 4.2 to the Registrant's Registration Statement on Form
S-8, File No. 33-86892, and incorporated herein by reference.
(g) Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form
S-8, File No. 33-93340, and incorporated herein by reference.
(h) Filed as exhibit of the same number to the Registrant's
Registration Statement on Form S-8, File No. 33-3192, and incorporated
herein by reference.
(i) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended April 30, 1996, and incorporated herein by
reference.
(j) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1996, and incorporated herein by
reference.
(k) Filed as exhibit of same number to the Registrant's Current Report on
Form 8-K, filed October 8, 1997, and incorporated herein by reference.
(l) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended January 31, 1997, and incorporated herein by
reference.
(m) Filed as exhibit of same number to the Registrant's Form 10-Q for
the Quarterly Period ended July 31, 1997, and incorporated herein
by reference.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AGRI-NUTRITION GROUP LIMITED
By: /s/ Bruce G. Baker
Bruce G. Baker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Bruce G. Baker President, Chief Executive January 28, 1998
- ----------------------------------
Bruce G. Baker Officer, and Director
/s/ Robert J. Elfanbaum Vice President and Chief January 28, 1998
- ----------------------------------
Robert J. Elfanbaum Financial Officer
(Principal Accounting Officer)
/s/ Alec L. Poitevint, II Chairman of the Board January 28, 1998
- ----------------------------------
Alec L. Poitevint, II
/s/ Robert E. Hormann Vice Chairman of the Board January 28, 1998
- ----------------------------------
Robert E. Hormann
/s/ W.M. Jones, Jr. Director January 28, 1998
- ----------------------------------
W.M. Jones, Jr.
/s/ Robert W. Schlutz Director January 28, 1998
- ----------------------------------
Robert W. Schlutz
</TABLE>
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Agri-Nutrition Group Limited Page
Report of Independent Accountants......................................... F-1
Consolidated Balance Sheet as of October 31, 1996 and 1997 ............... F-2
Consolidated Statement of Operations for the Three Years
Ended October 31, 1997.................................................. F-3
Consolidated Statement of Cash Flows for the Three Years
Ended October 31, 1997.................................................. F-4
Consolidated Statement of Shareholders' Equity for the
Three Years Ended October 31, 1997...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the consolidated financial position of
Agri-Nutrition Group Limited and its subsidiaries at October 31, 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.
PRICE WATERHOUSE LLP
St. Louis, Missouri
December 12, 1997
F-1
<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 Shareholders' 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)
Shareholders' 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-2
<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) (638,599)
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
============== ============== ==============
Primary net (loss) income per common and
common equivalent share from continuing operations $ (.01) $ (.03) $ .02
Primary net income per common and common
equivalent share from discontinued operations .01 .01 --
-------------- -------------- --------------
Primary net income (loss) per common and
common equivalent share $ -- $ (.02) $ .02
============== ============== ==============
Fully diluted net (loss) income per common and
common equivalent share from continuing operations $ (.01) $ (.03) $ .02
Fully diluted net income per common and common
equivalent share from discontinued operations .01 .01 --
-------------- -------------- --------------
Fully diluted net income (loss) per common
and common equivalent share $ -- $ (.02) $ .02
============== ============== ==============
Weighted average number of primary common and
common equivalent shares outstanding (Note 6) 8,112,85 8,397,686 8,699,914
============= ============== ==============
Weighted average number of fully diluted common and
common equivalent shares outstanding (Note 6) 8,751,327 8,397,686 8,750,743
============= ============== ==============
</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
<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 (Notes 2 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-4
<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-5
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 1,
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-6
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
1. Organization
Agri-Nutrition Group Limited (the Company), a Delaware corporation, was
organized on July 20, 1993, to acquire and operate businesses in the domestic
and international food, agriculture and pet industries. In September 1993,
through its wholly-owned subsidiary, PM Resources, Inc. (Resources), the Company
acquired certain assets and assumed certain liabilities of the Health Industries
Business (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.
F-7
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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 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 $2,000,000 was recorded as goodwill and is being
amortized on a straight-line basis over 30 years. The results of Mardel's
operations are included in the Company's consolidated financial statements from
the date of the acquisition.
F-8
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
The following table sets forth pro forma information for Agri-Nutrition Group
Limited as if the acquisition of Mardel had taken place on November 1, 1995. The
information is unaudited and does not purport to represent actual revenue, net
income or earnings per share had the acquisitions actually occurred on November
1, 1995 and is not necessarily indicative of results that may be obtained in the
future ($ in 000's except per share amounts):
Pro Forma Information
(Unaudited)
Year Ended October 31,
1996 1997
Net sales $ 35,456 $ 35,967
Income (loss) from continuing operations (450) 158
Primary earnings (loss) per share (.05) .02
Fully diluted earnings (loss) per share (.05) .02
Primary weighted average shares outstanding 9,250,462 9,552,689
Fully diluted weighted average shares outstanding 9,250,462 9,603,518
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
F-9
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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.
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-10
<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-11
<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.
Net income (loss) per common and common equivalent share
Net income (loss) per common and common equivalent share is calculated based on
the weighted average number of common and common equivalent shares outstanding
during the periods presented, using the treasury stock method. Common share
equivalents consist of common stock which may be issuable upon exercise of
outstanding stock warrants and options. The Company's outstanding options were
excluded from primary and fully diluted per share computations for the year
ended October 31, 1996, due to their anti-dilutive effect. The fully diluted per
share computation for the year ended October 31, 1995 includes warrants and
options exercised during the year ended October 31, 1995 on the assumption that
the exercises took place at the beginning of the fiscal year.
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-12
<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.
Recently issued accounting pronouncements
Beginning in 1998, the Company will be 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,
which is effective for financial statements issued for periods ending after
December 15, 1997, simplifies the standards for computing earnings per share and
makes them comparable to international earnings per share standards. Management
does not expect the adoption of FAS 128 to have a material impact on the
Company's financial statements.
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 net income (loss) per share for the years ended October
31, 1996 and 1997.
F-13
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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>
8. Property, plant and equipment
Property, plant and equipment consists of the following:
October 31,
1996 1997
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
============= ==============
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
===============
F-14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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 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.
F-15
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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.
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.
F-16
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
11. Income taxes
The components of the net income tax expense (benefit) are as follows:
For the Year Ended October 31,
1995 1996 1997
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
====================================================
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 statuatory U.S. federal income tax rate to pretax
loss as a result of the following:
For the Year Ended October 31,
1995 1996 1997
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
===============================
F-17
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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,)63 (441,670)
Other (4,823) (21,4)3 (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-18
<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
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 shareholders of the Company approved the Reload Option and
Exchange Exercise Plan (the Reload Plan) which permits employees holding options
to elect, in accordance with terms of the Reload Plan, to pay the exercise price
of such options by surrendering the shares of the Company's common stock. The
shares surrendered are valued at the reported closing market price of the
Company's common stock on the date that the employee provides the notice of
intent to exercise the option and surrenders the shares in payment of the
exercise price. The Reload Plan also provides for the issuance to the employee
of a new option to acquire the number of shares of the Company's common stock
surrendered in the option exercise with an exercise price per share equal to the
per-share valuation applicable to the shares surrendered. There are
F-19
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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 shareholders approved the 1996 Incentive
Stock Option Plan (1996 ISP). An aggregate of 1,000,000 shares of the Company's
common stock are reserved for issuance to eligible Directors, officers and other
employees, and consultants to the Company under the 1996 ISP. Options to
purchase 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 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.
Incentive Stock Weighted Average
Option Plan Exercise Price
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
==================
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.
F-20
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
For the Year Ended October 31,
1996 1997
Net income (loss) as reported $(127,420) $ 133,330
Pro forma net loss (232,858) (75,278)
Net income (loss) per share as reported (.02) .02
Pro forma loss per share (.03) (.01)
Weighted average fair value of options granted $ 1.14 $ 1.10
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.
F-21
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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 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
shareholder of the Company. An officer of such corporation is also a shareholder
of the Company and the Vice Chairman of the Company's Board of Directors. The
Company's management considers sales to said corporation to be arms length
transactions.
As discussed in Note 9, the Company entered into acquisition note payable
agreements with the former owners of Zema, St. JON and Mardel.
F-22
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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 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>
F-23
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
The net assets of the discontinued operations are summarized as follows:
October 31,
1996 1997
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 $ --
============== ========
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 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.
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-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited
Our audits of the consolidated financial statements referred to in our report
dated December 12, 1997, appearing on page F-1 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
December 12, 1997
S-1
<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.
S-2
Exhibit 10.23
AMENDMENT TO SECOND AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT, made and entered into as of the _____ day of September, 1997, by and
between PM RESOURCES, INC., a Missouri corporation ("PM"), ZEMA CORPORATION, a
Delaware corporation ("Zema"), and MARDEL ACQUISITION CORPORATION, a Delaware
corporation (which after the date hereof shall change its name to Mardel
Laboratories, Inc., and referred to herein as "Mardel," and collectively with PM
and Zema referred to herein as "Borrowers") and FIRST BANK, a Missouri state
banking corporation ("Bank").
WITNESSETH:
WHEREAS, PM and Zema heretofore jointly and severally executed
and delivered to Bank a Revolving Credit Note dated June 18, 1997, in the
principal amount of up to Six Million Three Hundred Fifty Thousand Dollars
($6,350,000.00), payable to the order of Bank as therein set forth (the "Note"),
which Note has a present outstanding principal balance of Six Million Two
Hundred Twenty-Five Thousand Dollars ($6,225,000.00); and
WHEREAS, the Note is described in a certain Second Amended and
Restated Revolving Credit Agreement dated June 18, 1997 made by and among PM,
Zema and Bank (as amended, the "Loan Agreement"); and
WHEREAS, Borrowers and Bank desire to amend the Loan Agreement
and the Note to add Mardel as a party thereto and a Borrower thereunder and to
make certain other amendments thereto on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the
mutual provisions and agreements hereinafter set forth, the parties hereto do
hereby mutually promise and agree as follows:
1. The Note shall be amended and restated in the form of that
certain Revolving Credit Note attached hereto as Exhibit C, to add Mardel as a
comaker thereof and to make certain amendments as set forth therein. All
references in the Loan Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall hereafter be amended and deemed to
refer to the Note in the form of the Revolving Credit Note, as amended and
restated in the form attached hereto as Exhibit C.
2. The Loan Agreement is hereby amended to add Mardel as a
party thereto and a Borrower thereunder. All references in the Loan Agreement to
the "Borrowers" and other references of similar import shall hereafter be
amended and deemed to refer to PM, Zema and Mardel collectively, and all
references in the Loan Agreement to a "Borrower," to "either of the Borrowers,"
to "each of the Borrowers" and other references of similar import shall
hereafter be amended and deemed to refer to and include Mardel as well as PM
and/or Zema.
<PAGE>
3. A new definition of "Eligible Mardel Inventory" shall be
added to Section 2 of the Loan Agreement in proper alphabetical order as
follows:
Eligible Mardel Inventory shall mean all Inventory of
Mardel, valued at the lower of cost or current market value on an
average cost basis, which consists of unprocessed raw materials,
packaging materials and finished goods with respect to which no further
processing is necessary for the sale thereof, other than (a) any such
Inventory which is obsolete, (b) Inventory which is not in good
condition or does not comply with all standards imposed by any
governmental authority having regulatory authority over such goods or
their manufacture, use or sale, or Inventory which Bank has in good
faith determined, in accordance with Bank's customary business
practices, is otherwise unacceptable due to age, type, category and/or
quantity, (c) Inventory which is held on consignment or consists of
experimental products or products not yet proven commercially viable by
reason of a significant number of purchase orders, or Inventory held
for promotional purposes and as samples, or Inventory returned due to
defects or product warranty problems, (d) Inventory which is not
maintained at one of the places of business and/or locations provided
in the Security Agreement executed by Mardel, (e) Inventory not either
useable or saleable, at prices not less than the standard cost, in the
ordinary course of Mardel's business, or (f) Inventory which is not
subject to a first priority perfected security interest in favor of
Bank.
4. The definition of "Security Agreements" in Section 2 of the
Loan Agreement shall be deleted in its entirety and in its place shall be
substituted the following:
Security Agreements shall mean the Security Agreement
executed by PM Resources, the Security Agreement executed by Zema and
the Security Agreement executed by Mardel, each delivered to Bank
pursuant to Section 5.1, as the same may from time to time be amended,
and Security Agreement shall mean any of them.
All references in the Loan Agreement to a "Security Agreement," to "either of
the Security Agreements," to "each of the Security Agreements" and other
references of similar import shall hereafter be amended and deemed to refer to
and include the Security Agreement executed by Mardel on the date hereof as well
as those Security Agreements previously executed by PM and Zema.
5. Section 3.1(c) of the Loan Agreement shall be deleted in
its entirety and in its place shall be substituted the following:
(c) Borrowing Base. For purposes of computing the amount
of the Bank's Facility A Commitment, the "Borrowing Base" shall mean
the sum of:
- 2 -
<PAGE>
(i) Seventy-Five Percent (75%) of the face amount
of Eligible Accounts of each of the Borrowers, plus
(ii) Fifty Percent (50%) of the Eligible Non-Chow
Inventory of PM Resources, plus
(iii) Sixty Percent (60%) of the Eligible Chow
Inventory of PM Resources, plus
(iv) Thirty-Five Percent (35%) of the Eligible Zema
Inventory, plus
(v) Thirty-Five Percent (35%) of the Eligible
Mardel Inventory.
The Borrowing Base Certificate shall be amended and restated in the form of that
certain Borrowing Base Certificate attached hereto as Exhibit A to incorporate
the above changes and to add Mardel as a party thereto. All references in the
Loan Agreement to the "Borrowing Base Certificate" and other references of
similar import shall hereafter be amended and deemed to refer to the Borrowing
Base certificate in the form attached hereto as Exhibit A.
6. The last four sentences of Section 3.2 of the Loan
Agreement shall be deleted in their entirety and in their place shall be
substituted the following:
Borrowers further request and authorize Bank, in Bank's sole and
absolute discretion, to make a Prime Loan to Borrowers hereunder at the
end of each day in which Borrowers shall have an overdraft (negative
ledger balance) in either or both of (1) PM Resources' operating
account (Account No. 9800802535) with Bank or Mardel's operating
account (Account No. ____________) with Bank, after crediting all
deposits received in immediately available funds and debiting all
withdrawals made and checks presented against such accounts and honored
by Bank as of such date, which Prime Loan shall be in the amount of
such overdraft (or if overdrafts exist in both such accounts then the
sum of such overdrafts) without any other request or authorization
therefor from Borrowers and without notice to Borrowers. Similarly,
Borrowers request that Bank apply any collected balances in excess of a
mutually predetermined amount remaining at the end of any day in either
of PM Resources' operating account and/or in Mardel's operating account
to the repayment of the principal balance of Borrowers' Obligations
outstanding as Prime Loans under the Note. Borrowers also hereby agree
jointly and severally to indemnify Bank and hold Bank harmless from and
against any and all claims, demands, damages, liabilities, losses,
costs and expenses (including, without limitation, Attorneys' Fees)
relating to or arising out of or in connection with the acceptance of
instructions for making Loans or repayments hereunder.
Contemporaneously with the execution of this Agreement, Borrowers shall
execute and deliver to Bank a Note of Borrowers dated the date of its
execution and payable jointly and severally to the order of Bank in the
- 3 -
<PAGE>
original principal amount of Six Million Two Hundred Twenty-Five
Thousand Dollars ($6,225,000.00) in the form attached hereto as Exhibit
C and incorporated herein by reference (as the same may from time to
time be amended, modified, extended or renewed, the "Note").
7. The agreements of Bank contained herein are expressly
conditioned upon deliver by Borrowers of the following:
(a) the executed original of this Amendment to
Second Amended and Restated Revolving Credit Agreement;
(b) the executed original of the amended and
restated Note;
(c) the executed original Security Agreement of
Mardel, together with such UCC-1 financing statements and other documents
required by Bank pursuant thereto;
(d) a copy of resolutions of the Board of
Directors of each of the Borrowers, duly adopted, which authorize the execution,
delivery and performance of this Amendment to Second Amended and Restated
Revolving Credit Agreement and the amended and restated Note, the Security
Agreement of Mardel and the other Transaction Documents, certified by the
Secretary of each such Borrower;
(e) certificates of corporate good standing of Mardel issued by the
Secretary of State of the State of Delaware and by the Secretary of State of the
State of Illinois;
(f) the original of the new Guaranty of Agri-Nutrition Group Limited
guarantying all of the indebtedness of each of the Borrowers to Bank, duly
executed by Agri- Nutrition Group Limited;
(g) a copy of resolutions of Agri-Nutrition Group Limited, duly adopted,
which authorize the execution, delivery and performance of the Guaranty,
certified by the Secretary of Agri-Nutrition Group Limited;
(h) the Consent of Agri-Nutrition Group Limited in the form attached
hereto, acknowledging the amendments contained herein and the continuing
effectiveness of the Pledge Agreement and the Subordination Agreement, duly
executed by Agri-Nutrition Group Limited;
(i) a Subordination and Standby Agreement duly executed by Ramon A.
Mulholland in favor of Bank subordinating all indebtedness of Borrowers to Ramon
A. Mulholland to Borrowers' Obligations to Bank under the Agreement and the
Note;
(j) an opinion of counsel of Dyer, Ellis & Joseph, independent counsel to
Borrowers and Guarantor, in form and substance acceptable to Bank concerning the
due authorization, execution and validity of the above-referenced agreements and
transactions and such other matters as Bank may reasonably require; and
- 4 -
<PAGE>
(k) such other documents as Bank may reasonably
request.
8. Borrowers hereby represent and warrant to Bank that:
(a) The execution, delivery and performance by Borrowers of this
Amendment to Second Amended and Restated Revolving Credit Agreement and the
amended and restated Revolving Credit Note are within the corporate powers of
Borrowers, have been duly authorized by all necessary corporate action and
require no action by or in respect of, or filing with, any governmental or
regulatory body, agency or official. The execution, delivery and performance by
Borrowers of this Amendment to Second Amended and Restated Revolving Credit
Agreement and the amended and restated Revolving Credit Note do not conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under or result in any violation of, and none of the
Borrowers is now in default under or in violation of, the terms of the Articles
of Incorporation or Bylaws of such Borrower, any applicable law, any rule,
regulation, order, writ, judgment or decree of any court or governmental or
regulatory agency or instrumentality, or any agreement or instrument to which
any of the Borrowers is a party or by which any of them is bound or to which any
of them is subject;
(b) This Amendment to Second Amended and Restated Revolving
Credit Agreement and the amended and restated Revolving Credit Note have been
duly executed and delivered and constitute the legal, valid and binding
obligations of Borrowers enforceable in accordance with their terms; and
(c) As of the date hereof, all of the covenants, representations and
warranties of Borrowers set forth in the Loan Agreement are true and correct and
no "Event of Default" (as defined therein) under or within the meaning of the
Loan Agreement has occurred and is continuing.
9. All references in the Loan Agreement to "this Loan
Agreement" and any other references of similar import shall henceforth mean the
Loan Agreement as amended by this Amendment to Second Amended and Restated
Revolving Credit Agreement.
10. This Amendment to Second Amended and Restated Revolving
Credit Agreement and the amended and restated Revolving Credit Note shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrowers may not assign, transfer or
delegate any of their rights or obligations hereunder.
11. This Amendment to Second Amended and Restated Revolving
Credit Agreement shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
12. In the event of any inconsistency or conflict between this
Amendment to Second Amended and Restated Revolving Credit Agreement and the Loan
Agreement, the terms, provisions and conditions of this Amendment to Second
Amended and Restated Revolving Credit Agreement shall govern and control.
- 5 -
<PAGE>
13. The Loan Agreement, as hereby amended and modified, and
the amended and restated Revolving Credit Note, as hereby amended and restated,
are and shall remain the binding obligations of Borrowers and all of the
provisions, terms, stipulations, conditions, covenants and powers contained
therein shall stand and remain in full force and effect, except only as the same
are herein and hereby specifically varied or amended, and the same are hereby
ratified and confirmed. If any installment of principal or interest on the
amended and restated Revolving Credit Note shall not be paid when due as
provided in the amended and restated Revolving Credit Note, the holder of the
amended and restated Revolving Credit Note shall be entitled to and may exercise
all rights and remedies under the amended and restated Revolving Credit Note and
the Loan Agreement, as amended.
14. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND BANK
FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWERS
AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED
BY THIS AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWERS AND BANK EXCEPT AS BORROWERS AND BANK MAY LATER
AGREE IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT,
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first written above on this _____ day of September,
1997.
PM RESOURCES, INC.
By:
Robert J. Elfanbaum, Vice President
and Treasurer
ZEMA CORPORATION
By:
Robert J. Elfanbaum, Secretary
MARDEL ACQUISITION CORPORATION
By:
Robert J. Elfanbaum, Vice President,
Secretary and Treasurer
FIRST BANK
By:
Brenda J. Laux, Vice President
- 7 -
<PAGE>
CONSENT TO AMENDMENT TO SECOND AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
The undersigned hereby consents to the terms of the foregoing
Amendment to Second Amended and Restated Revolving Credit Agreement and the
amended and restated Revolving Credit Note and other amendments being executed
in connection therewith as referenced therein (collectively, the "Amendments"),
and the undersigned acknowledges that the execution and delivery by PM
Resources, Inc., Zema Corporation and Mardel Acquisition Corporation of said
Amendments will not affect or impair the undersigned's obligations to and
agreements with Bank under (i) the Guaranty dated of even date herewith being
executed by the undersigned in favor of Bank (the "Guaranty"), (ii) that certain
Agreement of Pledge (Third Party) dated July 14, 1995 made by the undersigned in
favor of Bank (the "Pledge Agreement"), or (iii) that certain Subordination and
Standby Agreement dated July 14, 1995 made by the undersigned in favor of Bank
(the "Subordination Agreement"), which obligations and agreements are hereby
ratified and confirmed. The undersigned further acknowledges and agrees that all
references in the Guaranty, the Pledge Agreement and in the Subordination
Agreement to the "Revolving Credit Agreement" and other references of similar
import shall henceforth mean the foregoing Second Amended and Restated Revolving
Credit Agreement, amended on the date hereof and as the same may from time to
time be further amended; all references in the Guaranty, the Pledge Agreement
and the Subordination Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall henceforth mean the Revolving Credit
Note, as amended and restated, and as the same may from time to time be further
amended; and all references in the Guaranty, the Pledge Agreement and the
Subordination Agreement to any of the other transaction documents shall
henceforth mean such documents as the same may have been amended by the other
Amendments and as the same may from time to time be further amended.
Dated: as of September ___, 1997.
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum, Vice President
and Chief Financial Officer
- 8 -
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
This Borrowing Base Certificate is delivered pursuant to
Section 3.1(d) of that certain Second Amended and Restated Revolving Credit
Agreement dated June 18, 1997 made by and between PM Resources, Inc., Zema
Corporation, Mardel Acquisition Corporation and First Bank (the "Loan
Agreement"). All capitalized terms used and not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan Agreement.
Borrowers hereby represent and warrant to Bank that the
following information is true and correct as of , 19__:
1. 75% of face amount of Eligible Accounts of PM Resources $
2. 60% of Eligible Chow Inventory of PM Resources, valued
at the lower of cost or market $
3. 50% of Eligible Non-Chow Inventory of PM Resources, valued
at the lower of cost or market $
4. 75% of the face amount of Eligible Accounts of Zema $
5. 35% of Eligible Zema Inventory, valued at the lower
of cost or market $
6. 75% of the face amount of Eligible Accounts of Mardel $
7. 35% of Eligible Mardel Inventory, valued at the lower
of cost or market $
8. Total Borrowing Base $
(sum of 1 through 7 above not to exceed $3,000,000.00)
Borrowers hereby further represent and warrant to Bank that
the following information is true and correct as of , 19__:
9. Aggregate principal amount of outstanding Facility A Loans $
10. Borrowing Base Excess (Deficit) (Item 8 minus Item 9)
(Negative amount represents mandatory repayment) $
If Item 10 above is negative, this Borrowing Base Certificate
is accompanied by the mandatory repayment required by Section 3.1(e) of the Loan
Agreement.
- 9 -
<PAGE>
11. Maximum Available principal amount of Facility B Loans $
12. Aggregate principal amount of outstanding Facility B Loans $
This Borrowing Base Certificate is dated the _____ day of
, 19__.
PM RESOURCES, INC.
By:
Title:
ZEMA CORPORATION
By:
Title:
MARDEL ACQUISITION CORPORATION
By:
Title:
- 10 -
<PAGE>
EXHIBIT C
Revolving Credit Note
$6,225,000.00 St. Louis, Missouri
September ___, 1997
FOR VALUE RECEIVED, on March 31, 1999 (or such subsequent
anniversary thereof as determined pursuant to Section 3.9 of the Loan Agreement
(hereinafter identified)), the undersigned, PM RESOURCES, INC., a Missouri
corporation, ZEMA CORPORATION, a Delaware corporation and MARDEL ACQUISITION
CORPORATION, a Delaware corporation (which subsequent to the date hereof shall
change its name to Mardel Laboratories, Inc.) (collectively, the "Borrowers"),
hereby jointly and severally promise to pay to the order of FIRST BANK, a
Missouri state banking corporation ("Bank"), the principal sum of Six Million
Two Hundred Twenty-Five Thousand Dollars ($6,225,000.00), or such lesser sum as
may then be outstanding hereunder. The aggregate principal amount which Bank
shall be committed to have outstanding under Facility A hereunder at any one
time shall not exceed the lesser of (i) Three Million Dollars ($3,000,000.00),
or (ii) the "Borrowing Base" (as defined in the Loan Agreement (as hereinafter
defined)), which amount may be borrowed, paid, reborrowed and repaid, in whole
or in part, subject to the terms and conditions hereof and of the Loan Agreement
hereinafter identified. The aggregate principal amount which Bank shall be
committed to have outstanding under Facility B hereunder at any one time shall
not exceed the lesser of (i) Three Million Two Hundred Twenty-Five Thousand
Dollars ($3,225,000.00) as reduced from time to time pursuant to Section 3.1(b)
of the Loan Agreement hereinafter identified, which amount may be borrowed,
paid, reborrowed and repaid, in whole or in part, subject to the terms and
conditions hereof and of the Loan Agreement hereinafter identified.
Borrowers further jointly and severally promise to pay to the
order of Bank interest on the principal amount from time to time outstanding
hereunder prior to maturity from the date disbursed until paid at the rate or
rates per annum required by the Loan Agreement or otherwise selected by either
of the Borrowers as set forth in the Loan Agreement. All accrued and unpaid
interest with respect to each principal disbursement made hereunder shall be
payable (a) monthly on the fifteenth (15th) day of the month following the month
in which such interest accrued, commencing with the fifteenth (15th) day of the
month following the month in which any such disbursement was made, and on the
fifteenth (15th) day of each month thereafter, (b) if such disbursement is a
Treasury Rate Loan, such accrued interest shall also be payable on the last day
of the Interest Period with respect thereto, and (c) at the maturity of this
Note, whether by reason of acceleration or otherwise. After the maturity of this
Note, whether by reason of acceleration or otherwise, interest shall accrue and
be payable on demand on the entire outstanding principal balance hereunder until
paid at a rate per annum equal to Three and One-Half Percent (3.50%) over and
above the Prime Rate, fluctuating as and when said Prime Rate shall change. All
payments hereunder (other than prepayments) shall be applied first to the
payment of all accrued and unpaid interest, with the balance, if any, to be
applied to the
- 11 -
<PAGE>
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
All payments of principal and interest hereunder shall be made
in lawful currency of the United States in Federal or other immediately
available funds at the office of Bank situated at 1281 Graham Road, Florissant,
Missouri 63031, or at such other place as the holder hereof shall designate in
writing. Interest shall be computed on an actual day, 360-day year basis.
Bank may record the date and amount of all loans and all
payments of principal and interest hereunder in the records it maintains with
respect thereto. Bank's books and records showing the account between Bank and
Borrowers shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is the Note referred to in that certain Amended and
Restated Revolving Credit Agreement dated as of the date hereof made by and
between Borrowers and Bank (as the same may from time to time be amended, the
"Loan Agreement"), to which Loan Agreement reference is hereby made for a
statement of the terms and conditions upon which the maturity of this Note may
be accelerated, and for other terms and conditions, including prepayment, which
may affect this Note. All capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Loan Agreement.
This Note is secured by that certain Security Agreement dated
as of July 14, 1995 and executed by PM Resources, Inc. in favor of Bank, by that
certain Security Agreement dated as of July 14, 1995 executed by Zema
Corporation in favor of Bank and by that certain Security Agreement dated as of
September ___, 1997 executed by Mardel Acquisition Corporation in favor of Bank
(as the same may from time to time be amended, the "Security Agreements, to
which Security Agreements reference is hereby made for a description of the
security and a statement of the terms and conditions upon which this Note is
secured.
This Note is also secured by that certain Deed of Trust and
Security Agreement dated September 9, 1993 and executed by PM Resources, Inc. in
favor of Katherine D. Knocke, as trustee for Bank (as the same may from time to
time be amended, the "Deed of Trust"), to which Deed of Trust reference is
hereby made for a description of the security and a statement of the terms and
conditions upon which this Note is secured.
This Note is also secured by that certain Agreement of Pledge
(Third Party) dated as of July 14, 1995 and executed by Agri-Nutrition Group
Limited in favor of Bank (as the same may from time to time be amended, the
"Pledge Agreement"), to which Pledge Agreement reference is hereby made for a
description of the additional security and a statement of the terms and
conditions upon which this Note is further secured.
If either of the Borrowers shall fail to make any payment of
any principal of or interest on this Note as and when the same shall become due
and payable, or if an "Event of Default" (as defined therein) shall occur under
or within the meaning of the Loan Agreement, either of the Security Agreements,
the Deed of Trust or the Pledge Agreement, Bank may, at
- 12 -
<PAGE>
its option, terminate its obligation to make any additional loans under this
Note and Bank may further declare the entire outstanding principal balance of
this Note and all accrued and unpaid interest thereon to be immediately due and
payable.
In the event that any payment of any principal of or interest
on this Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of either of the Security
Agreements, the Deed of Trust or the Pledge Agreement securing payment hereof or
for representation of Bank in connection with bankruptcy or insolvency
proceedings relating hereto, Borrowers jointly and severally promise to pay, in
addition to all other amounts otherwise due hereon, the reasonable costs and
expenses of such collection, foreclosure and representation, including, without
limitation, reasonable attorneys' fees and expenses (whether or not litigation
shall be commenced in aid thereof). All parties hereto severally waive
presentment for payment, demand, protest, notice of protest and notice of
dishonor.
This Note shall be governed by and construed in accordance
with the internal laws of the State of Missouri.
PM RESOURCES, INC.
By:
Robert J. Elfanbaum,
Vice President
ZEMA CORPORATION
By:
Robert J. Elfanbaum, Secretary
MARDEL ACQUISITION CORPORATION
By:
Robert J. Elfanbaum, Vice President.
Secretary and Treasurer
- 13 -
Exhibit 21
List of Subsidiaries
PM Resources, Inc., a Missouri corporation
Zema Corporation, a Delaware corporation
St. JON Laboratories, Inc., a California corporation
Mardel Laboratories, Inc., a Delaware corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 33-86880) of
Agri-Nutrition Group Limited of our report dated December 12, 1997 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No.33-86892) of
Agri-Nutrition Group Limited of our report dated December 12, 1997 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 33-93340) of
Agri-Nutrition Group Limited of our report dated December 12, 1997 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-94622) of
Agri-Nutrition Group Limited of our report dated December 12, 1997 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 29, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 333-3192) of
Agri-Nutrition Group Limited of our report dated December 12, 1997 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
January 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 145,505
<SECURITIES> 0
<RECEIVABLES> 3,817,417
<ALLOWANCES> 0
<INVENTORY> 6,355,310
<CURRENT-ASSETS> 11,578,904
<PP&E> 5,788,688
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,596,150
<CURRENT-LIABILITIES> 3,806,586
<BONDS> 0
0
0
<COMMON> 93,043
<OTHER-SE> 15,935,700
<TOTAL-LIABILITY-AND-EQUITY> 26,596,150
<SALES> 31,051,537
<TOTAL-REVENUES> 31,051,537
<CGS> 22,850,923
<TOTAL-COSTS> 22,850,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 638,599
<INCOME-PRETAX> 192,999
<INCOME-TAX> (74,328)
<INCOME-CONTINUING> 118,671
<DISCONTINUED> 14,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,330
<EPS-PRIMARY> 0.02
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