SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended April 30, 1998
Commission File Number: 0-24312
AGRI-NUTRITION GROUP LIMITED
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
(314) 298-7330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at June 13, 1998 is 9,266,230
shares.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Index
- --------------------------------------------------------------------------------
Page
Financial information
Financial Statements
Consolidated Balance Sheet -
October 31, 1997 and
April 30, 1998 (Unaudited) 1
Consolidated Statement of Operations -
three and six months ended April 30, 1997
and 1998 (Unaudited) 2
Consolidated Statement of Cash Flows -
six months ended April 30, 1997
and 1998 (Unaudited) 3
Consolidated Statement of Shareholders' Equity -
six months ended April 30, 1998 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Other information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Balance Sheet
Page 1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, April 30,
1997 1998
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 145,505 $ 79,548
Accounts receivable 3,817,417 4,219,357
Inventories 6,355,310 6,806,213
Prepaid expenses and other assets 1,260,672 1,501,345
---------------- -----------------
11,578,904 12,606,463
Property, plant and equipment, net 5,788,688 5,679,265
Goodwill 8,095,049 8,057,843
Other assets 1,133,509 1,074,386
---------------- -----------------
$ 26,596,150 $ 27,417,957
================ =================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable $ 201,636 $ 186,714
Current portion of acquisition notes payable 719,716 437,371
Accounts payable 1,417,286 2,034,831
Accrued expenses 1,467,948 645,807
---------------- -----------------
3,806,586 3,304,723
Long-term debt and notes payable 5,665,955 7,621,198
Acquisition notes payable 1,570,249 1,347,005
Commitments and contingencies (Notes 2 and 9)
Shareholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 9,304,280 and 9,333,580 shares issued
and outstanding, respectively) 93,043 93,336
Additional paid-in capital 15,935,700 15,975,157
Accumulated deficit (395,841) (843,920)
---------------- -----------------
15,632,902 15,224,573
Cost of common stock held in Treasury
(46,850 in both 1997 and 1998) (79,542) (79,542)
---------------- -----------------
15,553,360 15,145,031
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 26,596,150 $ 27,417,957
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Operations (unaudited)
Page 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three and six months ended April 30,
1997 1998
Three Six Three Six
months months months months
<S> <C> <C> <C> <C>
Net sales $ 7,901,271 $ 15,329,858 $ 8,609,244 $ 16,245,373
Cost of sales 5,764,944 11,482,308 6,300,023 11,986,969
---------------- --------------- --------------- ---------------
Gross profit 2,136,327 3,847,550 2,309,221 4,258,404
Selling, general and
administrative expenses 1,852,779 3,454,575 2,416,503 4,505,638
Research and development 35,948 83,694 55,202 101,008
---------------- --------------- --------------- ---------------
Operating income (loss) 247,600 309,281 (162,484) (348,242)
Interest expense (157,574) (324,224) (198,852) (382,326)
Other (expense) income
(Note 10) (183,943) (154,420) (485) 1,983
---------------- --------------- --------------- ---------------
Loss before income tax benefit (93,917) (169,363) (361,821) (728,585)
Income tax benefit 34,901 65,089 139,302 280,506
---------------- --------------- --------------- ---------------
Loss from continuing operations (59,016) (104,274) (222,519) (448,079)
Income from discontinued
operations, net (Note 8) 9,700 24,974 -- --
---------------- --------------- --------------- ---------------
Net loss $ (49,316) $ (79,300) $ (222,519) $ (448,079)
---------------- --------------- --------------- ---------------
Basic net loss per common and
common equivalent share
(Note 3):
Loss from continuing operations $ (.01) $ (.01) $ (.02) $ (.05)
Income from discontinued
operations -- -- -- --
---------------- --------------- --------------- ---------------
Net loss $ (.01) $ (.01) $ (.02) $ (.05)
---------------- --------------- --------------- ---------------
Diluted net loss per common and
common equivalent share (Note 3):
Loss from continuing operations $ (.01) $ (.01) $ (.02) $ (.05)
Income from discontinued operations -- -- -- --
---------------- --------------- --------------- ---------------
Net loss $ (.01) $ (.01) $ (.02) $ (.05)
---------------- --------------- --------------- ---------------
Basic common and common
equivalent shares outstanding
(Note 3) 8,360,094 8,364,158 9,280,339 9,275,221
---------------- --------------- --------------- ---------------
Diluted common and common
equivalent shares outstanding
(Note 3) 8,360,094 8,364,158 9,280,339 9,275,221
---------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Cash Flows (unaudited)
Page 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months
ended April 30,
1997 1998
<S> <C> <C>
Operating activities
Loss from continuing operations $ (104,274) $ (448,079)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:-
Depreciation and amortization 423,598 567,973
Income from discontinued operations, net of taxes (Note 8) 24,974
Change in net assets from discontinued operations (Note 8) 1,007,953
Changes in operating assets and liabilities:
Increase in accounts receivable (1,437,097) (401,940)
(Increase) decrease in inventories 597,215 (450,903)
(Increase) decrease in prepaid expenses and other 14,677 (318,446)
Increase (decrease) in accounts payable (282,221) 617,545
Decrease in accrued expenses (542,760) (822,141)
---------------- -----------------
Net cash used in operating activities (297,935) (1,255,991)
---------------- -----------------
Investing activities
Purchase of property, plant and equipment (269,645) (284,448)
---------------- -----------------
Net cash used in investing activities (269,645) (284,448)
---------------- -----------------
Financing activities
Borrowings (repayment) of long-term debt and notes payable, net (517,871) 1,734,732
Repayment of acquisition notes payable (300,000)
Issuance of common stock to directors and officers 7,000 39,750
Purchase of Treasury Stock (29,556)
---------------- -----------------
Net cash provided by (used in) financing activities (540,427) 1,474,482
---------------- -----------------
Decrease in cash and cash equivalents (1,108,007) (65,957)
Cash and cash equivalents, beginning of period 2,186,877 145,505
---------------- -----------------
Cash and cash equivalents, end of period $ 1,078,870 $ 79,548
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Shareholders' Equity (unaudited)
Page 4
- --------------------------------------------------------------------------------
<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,
1997 9,304,280 $ 93,043 $ 15,935,700 (46,850) $ (79,542) $ (395,841) $ 15,553,360
Issuance of stock to
directors and officers 29,300 293 39,457 39,750
Net loss (448,079) (448,079)
-------------------------------------------------------------------------------------------
Balance, April 30,
1998 9,333,580 $ 93,336 $ 15,975,157 (46,850) $ (79,542) $ (843,920) $ 15,145,031
==========================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 5
- --------------------------------------------------------------------------------
1. Unaudited consolidated financial statements
The consolidated balance sheet as of April 30, 1998, the
consolidated statements of operations for the three and six-month periods
ended April 30, 1997 and 1998, the consolidated statements of cash flows
for the six-month periods ended April 30, 1997 and 1998 and the
consolidated statement of shareholders' equity for the six-month period
ended April 30, 1998 have been prepared by Agri-Nutrition Group Limited
(the Company) without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at and for the periods ended April 30, 1997 and 1998 have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended April 30, 1997 and 1998,
respectively, are not necessarily indicative of the operating results for
the full year.
The consolidated financial statements have been restated to
reflect the Company's ingredients segment as a discontinued operation in
accordance with Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations" (APB 30) (see Note 8).
2. Organization
Agri-Nutrition Group Limited, a Delaware corporation, was
organized on July 20, 1993, to acquire and operate businesses in the
domestic and international food, agriculture and pet industries. In
September 1993, through its wholly-owned subsidiary, PM Resources, Inc.
(Resources), the Company acquired certain assets and assumed certain
liabilities of the Health Industries Business (the Business) of Purina
Mills, Inc. (Purina). See Note 14 to the Company's Consolidated Financial
Statements included in the Company's annual report to shareholders for
the year ended October 31, 1997 (1997 Annual Report) for further
discussion of related matters involving Purina. Resources commenced
operations on September 9, 1993, the effective date of the acquisition of
the Business. Resources formulates, manufactures and distributes feed
additives, medicated treatments, anthelmetics, nutritional supplements,
cleaners and disinfectants, pest control products, home, lawn and garden
products, and specialty compounds.
Effective March 31, 1995, the Company purchased substantially all
of the net assets and business of Zema Corporation (Zema). The Company
also purchased substantially all of the net assets and business of St.
JON Laboratories, Inc. (St. JON) effective August 31, 1995. In
September 1997, the Company acquired Mardel Laboratories, Inc. (Mardel).
Zema, St. JON and Mardel formulate, package, market and distribute pet
health care, veterinary and grooming products domestically and abroad.
See Notes 2 and 4 to the Company's Consolidated Financial
Statements included in the 1997 Annual Report for additional information
related to the acquisitions of Zema, St. JON and Mardel, including
information regarding the additional purchase price which must be paid to
the former owner of Zema if Zema achieves certain financial goals. In
addition, see Note 3 to the Company's Consolidated Financial Statements
included in the 1997 Annual Report for information about the Company's
acquisition of the worldwide patents, active ingredient inventory,
registrations and
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 6
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rights to Bromethalin (the Bromethalin Assets), a highly effective and
proprietary rodenticide serving agricultural and Pest Control Operator
(PCO) markets, including information regarding additional consideration
to be paid based on shipments of Bromethalin to Purina over a five-year
period.
As stated in the 1997 Annual Report, the Pet Health Care Division,
which is comprised of St. JON, St. JON VRx, Zema and Mardel, had planned
to integrate operations in fiscal year 1998 to benefit from expected
operating synergies. During the first six months of fiscal 1998 the
production shifted from Raleigh, North Carolina to the Company's other
manufacturing locations. The distribution functions within the Pet
Health Care Division are anticipated to be consolidated by the end of
the third quarter resulting in shutting down the Company's Raleigh
facility. Consolidation of the sales and administration functions of
the Pet Health Care Division also will be completed by the end of the
third quarter of fiscal 1998.
3. Summary of significant accounting policies
The accounting policies followed by the Company are set forth in
Note 6 to the Consolidated Financial Statements included in the 1997
Annual Report. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
Net loss per common and common equivalent share
Commencing with its fiscal 1998 first quarter, the Company is
subject to the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" (FAS 128) that was adopted by the Financial
Accounting Standards Board in February 1997. FAS 128 simplifies the
standards for computing earnings per share and makes them comparable to
international earnings per share standards. The adoption of FAS 128 does
not affect the Company's fiscal 1998 second quarter financial statements
and management does not expect it to have a material impact on the
Company's future financial statements. The adoption of FAS 128 had no
impact on fiscal 1997 financial statements.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
1997 1998
<S> <C> <C>
Raw materials $ 4,049,028 $ 4,572,669
Work-in-process 501,801 357,995
Finished goods 2,081,771 2,143,901
---------------- -----------------
6,632,600 7,074,565
Less: reserve for excess and obsolete inventories (277,290) (268,352)
---------------- -----------------
$ 6,355,310 $ 6,806,213
================ =================
</TABLE>
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 7
- --------------------------------------------------------------------------------
5. Financing
The Company had revolving credit facilities which aggregated $7.8
million at April 30, 1998. In May 1998, the Company consolidated its
existing credit agreements increasing the line to $9.2 million with a
maturity date of March 31, 2001. The new bank agreement also increased
borrowing availability for working capital demand and modified the bank
covenants. The new facility consists of $4.5 million in revolving credit
lines, the available amount being based upon specified percentages of
qualified accounts receivable and inventory, and a $4.7 million revolving
credit line with available amounts being reduced $150,000 per quarter
with the first such reduction on November 30, 1998. 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 new agreement. At
April 30, 1998, the interest rate charged on borrowings outstanding under
the new agreement would have been 8.75% which is the bank's prime rate
plus .25%. At April 30, 1998, approximately $1 million would have been
available under this new agreement, after repayment of amounts due to the
seller of St. JON, as discussed under "Liquidity and Capital Resources."
At April 30, 1998, the Company and its subsidiaries were in
compliance with all covenants related to its various financing
arrangements.
6. Related party transactions
See Note 13 to the Company's Consolidated Financial Statements in
the 1997 Annual Report for a discussion regarding related party
transactions.
7. Employee benefit plans
During the six months ended April 30, 1998, 29,300 shares and
options to purchase 65,000 shares of the Company's common stock were
granted to employees in connection with the Company's 1996 Incentive
Stock Plan. The exercise price of the options was $1.375 per share, which
approximated the fair value on the dates of grant. These options vest
ratably over two years from the date of grant and will expire ten years
from the grant date. No shares or options were issued in connection with
the Company's 1995 Incentive Stock Plan or the Company's 1994 Incentive
Stock Plan. See Note 12 to the Company's financial statements in the 1997
Annual Report for a discussion of the Company's incentive stock plans.
8. Discontinued operations
In June 1997, the Company discontinued the distribution of
ingredients to Purina. Consequently, in July 1997, the Company
distributed all of its remaining ingredients inventories to Purina and
discontinued its operations in this area. This segment of the Company's
business has been accounted for and presented as a discontinued operation
in accordance with APB 30 for all periods reflected herein. At October
31, 1997, substantially all of the net assets relating to the ingredients
segment had either been disposed or had been deployed into the Company's
existing operations.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 8
- --------------------------------------------------------------------------------
Management does not anticipate that the ingredients segment will
have any significant operations in the future. Furthermore, management
does not believe that there are any separately identifiable fixed assets
related to the ingredients segment and proceeds, if any, related to
disposition of such net assets subsequent to the June 1997 measurement
date have not to date and are not expected to result in a material net
gain or loss in future periods. However, the ultimate financial impact of
the discontinuation of the segment could differ from management's current
estimates.
There were no net assets from discontinued operations at October
31, 1997 and April 30, 1998. The operating results of the discontinued
operations are summarized as follows:
For the six months ended
April 30,
1997 1998
Net sales $ 4,490,500 $ --
================ =================
Income before tax provision $ 40,563 $ --
Income tax provision (15,589) --
---------------- -----------------
Net income $ 24,974 $ --
================ =================
9. Commitments and contingencies
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position or results of
operations.
10. Termination of Anthony Products Letter of Intent
In March 1997, the Company terminated its letter of intent
related to its proposed acquisition of Anthony Products Company. In
conjunction with this action, the Company recorded a $202,000 pre-tax
charge in the second quarter of fiscal 1997. Such amount is included in
other income (expense) in the accompanying consolidated statement of
operations. Net income excluding the impact of this charge for the three
and six month periods ended April 30, 1997 would have been $78,000 and
$48,000, respectively.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 9
- --------------------------------------------------------------------------------
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). 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 year ended
October 31, 1997 has been restated to reflect the Company's continuing
operations related to its specialty products business. There were no activities
from discontinued operation in fiscal year 1998. Net assets for the ingredients
segment no longer meet 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 to produce certain operating
synergies, creating a platform for continued expansion. Management expects
benefits from such integration to begin to be reflected in the Company's
operating results in the third quarter of fiscal 1998. During the first six
months of fiscal 1998 the production shifted from Raleigh, North Carolina to the
Company's
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 10
- --------------------------------------------------------------------------------
other manufacturing locations. The distribution functions within the Pet Health
Care Division are anticipated to be consolidated by the end of the third quarter
resulting in shutting down the Company's Raleigh facility. Consolidation of the
sales and administration functions of the Pet Health Care Division will be
completed by the end of the third quarter of fiscal 1998. The Company has
incurred certain costs associated with the integration, but such costs, in the
aggregate, have not been nor 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.
<TABLE>
<CAPTION>
(Excludes discontinued operations)
(Dollars in 000's)
Three months ended April 30, Six months ended April 30,
1997 1998 1997 1998
Dollar % of Dollar % of Dollar % of Dollar % of
amount net sales amount net sales amount net sales amount net sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................... 7,901 100.0 8,609 100.0 15,330 100.0 16,245 100.0
Cost of sales................ 5,765 73.0 6,300 73.2 11,482 74.9 11,987 73.8
Gross profit................. 2,136 27.0 2,309 26.8 3,848 25.1 4,258 26.2
Selling, general and
administrative expense..... 1,853 23.5 2,416 28.1 3,455 22.5 4,505 27.7
Research and development..... 36 .4 55 .6 84 .6 101 .6
Operating income (loss)...... 247 3.1 (162) (1.9) 309 2.0 (348) (2.1)
</TABLE>
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Total net sales increased 9% from $7.9 million in fiscal 1997 to $8.6
million for 1998. This increase reflects a 24% increase in sales of the Pet
Health Care Division due primarily to the acquisition of Mardel Laboratories in
September 1997 and continued strong growth in the pet oral hygiene product
category. The increase was partially offset by anticipated weakness in the
agricultural portion of PM Resources' business and the impact of unanticipated
production shortfalls during the period in which certain manufacturing
operations were consolidated within the Pet Health Care Division.
Gross profit increased from $2.1 million in 1997 (27.0% of net sales) to
$2.3 million in 1998 (26.8% of net sales), primarily due to changes in the
Company's sales mix, which consisted of an increased proportion of sales of the
Pet Health Care Division, which generally has higher margins as compared to
sales of the Company's private label/contract manufacturing business. Gross
profit during the period was negatively impacted by certain redundant costs
incurred during the consolidation of manufacturing operations within the Pet
Health Care Division.
Selling, general and administrative expenses increased from $1.9 million
in 1997 to $2.4 million in 1998 primarily due to the increased costs related to
Mardel Laboratories business, which was acquired in September 1997. The increase
in expenses includes certain redundant expenses that are being incurred during
the consolidation of certain manufacturing, marketing and overhead expenses
among the operating
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 11
- --------------------------------------------------------------------------------
companies that comprise the Pet Health Care Division. Such consolidation is
anticipated to be completed by the end of the third quarter of the Company's
1998 fiscal year.
The factors discussed above resulted in an operating loss of
approximately $.16 million during the three months ended April 30, 1998,
compared to operating income of approximately $.25 million for the three months
ended April 30, 1997.
Interest expense was approximately $.16 million in 1997 and $.20 million
in 1998, reflecting increased debt balances that resulted from the Company's
investment in Mardel Laboratories and seasonal working capital.
The effective income tax rate of the Company was 37% and 38.5% for 1997
and 1998, respectively. The aggregate amount of the deferred tax asset valuation
allowance at April 30, 1998 was approximately $.1 million.
Six Months Ended April 30, 1998 Compared to Six Months Ended April 30, 1997
Total net sales increased 6% from $15.3 million in fiscal 1997 to $16.2
million for 1998. This increase reflects a 36% increase in sales of the Pet
Health Care Division due primarily to the acquisition of Mardel Laboratories in
September 1997 and continued strong growth in the pet oral hygiene product
category. The increase was partially offset by anticipated weakness in the
agricultural portion of PM Resources' business and the impact of unanticipated
production shortfalls during the period in which certain manufacturing
operations were consolidated within the Pet Health Care Division.
Gross profit increased from $3.8 million in 1997 (25.1% of net sales) to
$4.3 million in 1998 (26.2% of net sales), primarily due to changes in the
Company's sales mix, which consisted of an increased proportion of sales of the
Pet Health Care Division, which generally has higher margins as compared to
sales of the Company's private label/contract manufacturing business. Gross
profit during the period was negatively impacted by certain incremental costs
incurred during the consolidation of manufacturing operations within the Pet
Health Care Division.
Selling, general and administrative expenses increased from $3.5 million
in 1997 to $4.5 million in 1998 primarily due to the increased costs related to
Mardel Laboratories business, which was acquired in September 1997. The increase
in expenses includes certain redundant expenses that are being incurred during
the consolidation of certain manufacturing, marketing and overhead expenses
among the operating companies that comprise the Pet Health Care Division. Such
consolidation is anticipated to be completed by the end of the third quarter of
the Company's 1998 fiscal year.
The factors discussed above resulted in an operating loss of
approximately $.35 million during the six months ended April 30, 1998, compared
to operating income of approximately $.31 million for the six months ended April
30, 1997.
Interest expense was approximately $.32 million in 1997 and $.38 million
in 1998, reflecting increased debt balances that resulted from the Company's
investment in Mardel Laboratories and seasonal working capital.
The effective income tax rate of the Company was 38.5% for both 1997 and
1998. The aggregate amount of the deferred tax asset valuation allowance at
April 30, 1998 was approximately $.1 million.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
- --------------------------------------------------------------------------------
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 which required an additional
payment of $300,000 plus interest prior to April 1998, and potentially
additional payments conditioned upon the achievement of certain operating
criteria by Zema which would be due in April 2000. In April 1998 the $300,000
note plus interest was paid. In August 1995, 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 $2.0 million plus interest to
be paid in annual installments over six years commencing March 31, 1997. During
fiscal 1997, the Company utilized approximately $1.0 million of cash for payment
of this obligation and related accrued interest, and restructured the agreement,
with annual payments of $325,000 being required over the five years commencing
March 31, 1998. In May 1998, the Company paid approximately $1.1 million, the
remaining amounts outstanding under this note, to the former owner of St. JON in
conjunction with the Company's refinancing of its debt as discussed below.
Effective May 1996, the Company acquired the worldwide patents and other assets
and rights to Bromethalin, which required payments of $1.0 million including
related expenses at closing, and will require additional consideration based on
shipments of Bromethalin to Purina over a five-year period. In September 1997,
the Company acquired Mardel Laboratories, Inc. for cash of approximately $1.0
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 six months ended April 30, 1997 and 1998, cash used by
operations approximated $.3 million and $1.3 million, respectively, which was
primarily related to funding seasonal working capital requirements. These
seasonal cash requirements were primarily funded with available cash in 1997 and
through utilization of available credit facilities in 1998.
The Company had revolving credit facilities which aggregated $7.8 million
at April 30, 1998. In May 1998, the Company consolidated its existing credit
agreements increasing the line to $9.2 million with a maturity date of March 31,
2001. The new bank agreement also increased borrowing availability for working
capital demand. Additionally, bank covenants changed to more accurately reflect
the Company as an operating business rather than an acquisition business. The
new facility consists of $4.5 million in revolving credit lines, the available
amount being based upon specified percentages of qualified accounts receivable
and inventory, and a $4.7 million revolving credit line with available amounts
being reduced $150,000 per quarter with the first such reduction commencing on
November 30, 1998. 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 April 30, 1998, the interest rate charged on borrowings
outstanding under the agreements, as amended, would have been 8.75%, which is
the bank's prime rate plus .25%. At April 30, 1998, approximately $1 million
would have been available under this new agreement, after repayment of amounts
due to the seller of St. JON, as discussed above. 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.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Part II - Other Information
Page 13
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The Company's board of directors has 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. No shares were repurchased under this program
during the first half of fiscal 1998. As of April 30, 1998, 46,850 shares had
been repurchased under this program at an aggregate cost of $79,542. In May
1998, the Company purchased 20,500 shares at an aggregate cost of $24,118.
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 its new credit facility.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the six months
ended April 30, 1998 were approximately $.3 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 third quarter of fiscal 1998.
New Accounting Standards
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting and display of comprehensive income and
components in a financial statement that is displayed with the same prominence
as other financial statements. The Company continues to analyze FAS 130 and does
not currently expect it to have a significant impact on its financial statement
presentation.
In June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting of Segments
of a Business Enterprise." FAS 131 establishes standards for the way public
business enterprises report financial and descriptive information about the
reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company continues to evaluate the provisions of FAS
131 and determine the impact of the revised disclosure requirements on its
fiscal 1998 and 1999 financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
The information required by this item was reported in the Company's 10-Q
for the quarterly period ended January 31, 1998.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Part II - Other Information
Page 14
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.24 Credit Agreement by and between Agri-Nutrition Group Limited,
PM Resources, Inc., St. Jon Laboratories, Inc., and FirstBank,
dated May 14, 1998.
27 Financial Data Schedule
b. Reports of Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Report.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGRI-NUTRITION GROUP LIMITED
/s/ Robert J. Elfanbaum
- -----------------------------------------------------
Robert J. Elfanbaum
Vice President and Chief Financial Officer
June 15, 1998
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered
into this 14th day of May, 1998, by and between AGRI-NUTRITION GROUP LIMITED, a
Delaware corporation ("Agri-Nutrition"), PM RESOURCES, INC., a Missouri
corporation ("PM Resources") and ST. JON LABORATORIES, INC., a California
corporation ("St. JON," and collectively with Agri-Nutrition and PM Resources
referred to herein as the "Borrowers"), and FIRST BANK, a Missouri state banking
corporation ("Bank").
WITNESSETH:
WHEREAS, PM Resources, together with other entities being
merged into St. JON, presently has a joint and several revolving credit loan
from Bank in a present aggregate maximum principal amount of up to Six Million
Two Hundred Twenty-Five Thousand Dollars ($6,225,000.00), for a period of time
up to and including March 31, 1999, as extended thereafter in Bank's discretion
for subsequent one year periods, Three Million Dollars ($3,000,000.00) of which
is subject to a Borrowing Base and the remaining Three Million Two Hundred
Twenty-Five Thousand Dollars ($3,225,000.00) of which is a reducing revolving
credit line from Bank; and
WHEREAS, St. JON presently has a revolving credit loan from
Bank in a present aggregate maximum principal amount of up to One Million Eight
Hundred Thousand Dollars ($1,800,000.00), for a period of time up to and
including March 31, 1999, as extended thereafter in Bank's discretion for
subsequent one year periods; and
WHEREAS, Agri-Nutrition has guaranteed both of the
above-described credit facilities of PM Resources and of St. JON to Bank
pursuant to its unlimited continuing guaranties; and
WHEREAS, Borrowers have requested the consolidation of the
above described credit facilities under one borrowing base for Agri-Nutrition
and its Subsidiaries on a joint and several basis and an extension of such joint
and several loan facility from Bank in an aggregate principal amount of up to
Nine Million Two Hundred Thousand Dollars ($9,200,000.00) for a period of time
up to and including March 31, 2001, Four Million Five Hundred Thousand Dollars
($4,500,000.00) of which shall be subject to a Borrowing Base (as set forth
herein) ("Facility A"), and the remaining Four Million Seven Hundred Thousand
Dollars ($4,700,000.00) of which shall be a reducing revolving credit line from
Bank ("Facility B"); and
WHEREAS, Bank is willing to make said revolving credit loans
to Borrowers upon, and subject to, the terms, provisions and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby mutually promise and agree as follows:
<PAGE>
SECTION 1. TERM.
The "Term" of this Agreement shall commence on the date hereof
and shall end on March 31, 2001, unless earlier terminated upon the occurrence
of an Event of Default under this Agreement, or unless subsequently extended by
Bank, in its sole discretion and without obligation to do so, pursuant to the
terms of Section 3.10 herein.
SECTION 2. DEFINITIONS.
In addition to the terms defined elsewhere in this Agreement
or in any Exhibit or Schedule hereto, when used in this Agreement, the following
terms shall have the following meanings (such meanings shall be equally
applicable to the singular and plural forms of the terms used, as the context
requires):
Account Debtor shall mean any Person who is and/or may become
obligated to any of the Borrowers under or on account of Accounts.
Accounts shall mean all trade accounts receivable of any of
the Borrowers which have been invoiced by such Borrower.
Amendment shall mean that certain Amendment to Deed of Trust
and Security Agreement dated as of the date hereof executed by PM Resources and
delivered to Bank pursuant to Section 4.1(c), as the same may be from time to
time amended.
Attorneys' Fees shall mean the reasonable value of the
services (and costs, charges and expenses related thereto) of the attorneys (and
all paralegals, secretaries, accountants and other staff employed by such
attorneys) employed by Bank (including, without limitation, attorneys and
paralegals who are employees of Bank) from time to time (i) in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of this Agreement and/or any of the other Transaction Documents,
(ii) to represent Bank in any litigation, contest, dispute, suit or proceeding,
or to commence, defend or intervene in any litigation, contest, dispute, suit or
proceeding, or to file any petition, complaint, answer, motion or other pleading
or to take any other action in or with respect to any litigation, contest,
dispute, suit or proceeding (whether instituted by Bank, any of the Borrowers or
any other Person and whether in bankruptcy or otherwise) in any way or respect
relating to any of the Collateral, any Third Party Collateral, this Agreement or
any of the other Transaction Documents, any of the Borrowers, any Subsidiary of
any of the Borrowers or any other Obligor, (iii) to protect, collect, lease,
sell, take possession of or liquidate any of the Collateral or any Third Party
Collateral, (iv) to attempt to enforce any security interest in or other Lien
upon any of the Collateral or any Third Party Collateral or to give any advice
with respect to such enforcement and (v) to enforce any of Bank's rights to
collect any of Borrowers' Obligations.
Bank's Commitment shall mean the sum of Bank's Facility A
Commitment plus Bank's Facility B Commitment.
<PAGE>
Bank's Facility A Commitment shall have the meaning ascribed
thereto in Section 3.1(a).
Bank's Facility B Commitment shall have the meaning ascribed
thereto in Section 3.1(b).
Borrowers' Obligations shall mean any and all indebtedness
(principal, interest, fees and other amounts), liabilities and obligations of
any of the Borrowers to Bank evidenced by or arising under the Note, this
Agreement, the Security Agreements, the Letter of Credit Applications, any of
the other Transaction Documents or any other agreement, document or instrument
heretofore, now or hereafter executed and delivered by any of the Borrowers to
Bank, in each case whether now existing or hereafter arising, absolute or
contingent, joint and/or several, secured or unsecured, direct or indirect,
expressed or implied in law, contractual or tortious, liquidated or
unliquidated, at law or in equity, or otherwise, and whether created directly or
acquired by Bank by assignment or otherwise, and any and all costs of collection
and/or Attorneys' Fees incurred or to be incurred in connection therewith.
Borrowing Base shall have the meaning ascribed thereto in
Section 3.1(c).
Borrowing Base Certificate shall have the meaning ascribed
thereto in Section 3.1(d).
Borrowing Notice shall have the meaning ascribed thereto in
Section 3.2.
Business Day shall mean any day except a Saturday, Sunday or
legal holiday observed by Bank.
Capital Expenditure shall mean any expenditure which, in
accordance with Generally Accepted Accounting Principles consistently applied,
is or should be capitalized on the balance sheet of the Person making the same.
Capitalized Lease shall mean any lease which, in accordance
with Generally Accepted Accounting Principles consistently applied, is or should
be capitalized on the balance sheet of the lessee.
Code shall mean the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed to also refer to any successor sections.
Collateral shall mean any Property or assets of any of the
Borrowers which now or at any time hereafter secure the payment or performance
of any of Borrowers' Obligations.
Commitment Fee shall have the meaning ascribed thereto in
Section 3.9.
<PAGE>
Consolidated EBITDA shall mean the sum of Agri-Nutrition's and
its Consolidated Subsidiaries net income (excluding any gains or losses from
asset sales or other extraordinary gains or losses), plus Consolidated Interest
Expense, plus Consolidated Tax Expense, plus depreciation and amortization of
Agri-Nutrition and its Consolidated Subsidiaries, all determined in accordance
with Generally Accepted Accounting Principles consistently applied for the
twelve-month period ending on the date of any such calculation.
Consolidated Interest Expense shall mean Agri-Nutrition's and
its Consolidated Subsidiaries' interest expense, determined based upon the
actual amount of interest expense incurred by Agri-Nutrition and its
Consolidated Subsidiaries during the twelve-month period ending on the date of
any such calculation, as determined in accordance with Generally Accepted
Accounting Principles consistently applied.
Consolidated Subsidiary shall mean with respect to any Person
at any date, any Subsidiary or other entity the assets and liabilities of which
are or should be consolidated with those of such Person in its consolidated
financial statements as of such date in accordance with Generally Accepted
Accounting Principles consistently applied.
Consolidated Tangible Net Worth shall mean, at any date, the
sum of the consolidated stockholders' equities of Agri-Nutrition and its
Consolidated Subsidiaries plus all Subordinated Debt then outstanding,
determined in accordance with Generally Accepted Accounting Principles
consistently applied, less Agri-Nutrition's and such Subsidiaries' Intangible
Assets as of such date. For purposes of this definition, "Intangible Assets"
shall mean the amount (to the extent reflected in determining such stockholders'
equity) of (i) all write-ups in the book value of any asset owned by
Agri-Nutrition or a Consolidated Subsidiary of Agri-Nutrition resulting from a
revaluation thereof subsequent to the date of this Agreement and (ii) goodwill,
unamortized debt discount and expense, unamortized deferred charges, patents,
trademarks, service marks, trade names, copyrights, organizational and
developmental expenses and other similar intangible items and assets, all
determined in accordance with Generally Accepted Accounting Principles
consistently applied.
Consolidated Tax Expense shall mean Agri-Nutrition's and its
Consolidated Subsidiaries' expenses for federal, state, local and foreign income
taxes, determined based upon the actual amount of tax expense incurred by
Agri-Nutrition and its Consolidated Subsidiaries during the twelve-month period
ending on the date of any such calculation, as determined in accordance with
Generally Accepted Accounting Principles consistently applied.
Deed of Trust shall mean that certain Deed of Trust and
Security Agreement dated September 9, 1993 made by PM Resources in favor of
Katherine D. Knocke as trustee for Bank pursuant to Section 6, as amended by a
First Amendment to Deed of Trust and Security Agreement dated as of December 21,
1994, by a Second Amendment to Deed of Trust and Security Agreement dated as of
July 14, 1995, by a Third Amendment to Deed of Trust and Security Agreement
dated as of June 18, 1997, by a Fourth Amendment to Deed of Trust and
<PAGE>
Security Agreement dated as of September 25, 1997 and by the Amendment, and as
the same may from time to time be further amended.
Default shall mean any event or condition the occurrence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default as defined in Section 8 hereof.
Distribution in respect of any corporation shall mean:
(a) dividends or other distributions on capital
stock of the corporation; and
(b) the redemption, repurchase or other
acquisition of such stock or of warrants, rights or other options to purchase
such stock (except when solely in exchange for such stock).
Eligible Accounts shall mean all Accounts other than: (a)
Accounts which remain unpaid for more than ninety (90) days after their invoice
dates and Accounts which are not due and payable within ninety (90) days after
their invoice dates; (b) Accounts owing by a single Account Debtor, including a
currently scheduled Account, if ten percent (10%) or more of the balance owing
by said Account Debtor upon said Accounts is ineligible pursuant to clause (a)
above; (c) Accounts with respect to which the Account Debtor is a shareholder or
partner of any of the Borrowers or a Related Party of any of the Borrowers; (d)
Accounts with respect to which payment by the Account Debtor is or may be
conditional; (e) Accounts with respect to which the Account Debtor is not a
resident or citizen of or otherwise located in the continental United States of
America; (f) Accounts with respect to which the Account Debtor is the United
States of America or any department, agency or instrumentality thereof unless
such Accounts are duly assigned to Bank in accordance with all applicable
governmental and regulatory rules and regulations (including, without
limitation, the Federal Assignment of Claims Act of 1940, as amended, if
applicable) so that Bank is recognized by the Account Debtor to have all of the
rights of an assignee of such Accounts; (g) Accounts with respect to which any
of the Borrowers is or may become liable to the Account Debtor for goods sold or
services rendered by such Account Debtor to any such Borrower; (h) Accounts with
respect to which the goods giving rise thereto have not been shipped and
delivered to and accepted as satisfactory by the Account Debtor thereof or with
respect to which the services performed giving rise thereto have not been
completed and accepted as satisfactory by the Account Debtor thereof; (i)
Accounts which are not invoiced (and dated as of such date) and sent to the
Account Debtor thereof concurrently with or not later than five (5) days after
the shipment and delivery to and acceptance by said Account Debtor of the goods
giving rise thereto or the performance of the services giving rise thereto; (j)
Accounts arising from a "sale on approval" or a "sale or return;" (k) Accounts
as to which Bank, at any time or times hereafter, determines, in good faith,
that the prospects of payment or performance by the Account Debtor is or will be
impaired; (l) Accounts of an Account Debtor to the extent, but only to the
extent, that the same exceed a credit limit determined by Bank in its
discretion, at any time or times hereafter; (m) Accounts with respect to which
the Account Debtor is located in the State of New Jersey or the State of
Minnesota; provided, however, that
<PAGE>
such restriction shall not apply if such Borrower (i) has filed and has
effective (A) in respect of Account Debtors located in the State of New Jersey,
a Notice of Business Activities Report with the New Jersey Division of Taxation
for the then current year or (B) in respect of Account Debtors located in the
State of Minnesota, a Minnesota Business Activity Report with the Minnesota
Department of Revenue for the then current year, as applicable, or (ii) is
otherwise exempt from such reporting requirements under the laws of such
State(s); and (n) Accounts which are not subject to a first priority perfected
security interest in favor of Bank.
Eligible Inventory shall mean all Inventory of any of the
Borrowers, valued at the lower of cost or current market value, 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,
consigned to third parties, 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 Agreements executed by Borrowers, (e) Inventory not either usable or
saleable, at prices not less than the standard cost, in the ordinary course of
Borrowers' businesses, or (f) Inventory which is not subject to a first priority
perfected security interest in favor of Bank.
Environmental Laws shall mean the Resource Conservation and
Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act and any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Materials or
any other hazardous, toxic or dangerous waste, substance or constituent or other
substance, whether solid, liquid or gas, as now or at any time hereafter in
effect.
Environmental Lien shall have the meaning ascribed thereto in
Section 7.1(k)(vii).
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
ERISA Affiliate shall mean any corporation, trade or business
that is, along with any of the Borrowers, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described in
Sections 414(b) and 414(c), respectively, of the Code.
Event of Default shall have the meaning ascribed thereto in
Section 8.
<PAGE>
Facility A shall have the meaning ascribed thereto in the
recitals to this Agreement.
Facility A Loan shall have the meaning ascribed thereto in
Section 3.1(a).
Facility B shall have the meaning ascribed thereto in the
recitals to this Agreement.
Facility B Loan shall have the meaning ascribed thereto in
Section 3.1(b).
Floating Rate Margin shall mean One Fourth of One Percent
(0.25%) up to and including May 31, 1998, and thereafter, commencing on the
first day of the second month following each fiscal quarter-end or fiscal
year-end, the "Floating Rate Margin" shall (based upon Agri-Nutrition's ratio of
consolidated Indebtedness to Consolidated Tangible Net Worth as of the end of
the immediately preceding quarter (or fiscal year) determined by reference to
Agri-Nutrition's quarter-end (or fiscal year-end) financial statements for such
preceding fiscal quarter-end (or fiscal year-end)), (i.e., for the period
beginning June 1, 1998 by referencing Agri-Nutrition's April 30, 1998 fiscal
quarter-end financial statements), mean the following:
(i) One-Half of One Percent (0.50%), if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be greater than or equal to 2.0 to 1.0 as
determined pursuant to Section 7.1(i)(i) by reference to
Agri-Nutrition's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) One-Fourth of One Percent (0.25%), if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 2.0 to 1.0 but greater than or
equal to 1.5 to 1.0 as determined pursuant to Section 7.1(i)(i) by
reference to Agri-Nutrition's most recent quarter-end (or fiscal
year-end) financial statements,
(iii) Zero Percent (0.00%), if Agri-Nutrition's ratio
of consolidated Indebtedness to Consolidated Tangible Net Worth shall
be less than 1.5 to 1.0 but greater than or equal to 1.0 to 1.0 as
determined pursuant to Section 7.1(i)(i) by reference to
Agri-Nutrition's most recent quarter-end (or fiscal year-end) financial
statements, and
(iv) Negative One-Fourth of One Percent (-0.25%), if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 1.0 to 1.0 as determined pursuant
to Section 7.1(i)(i) by reference to Agri-Nutrition's most recent
quarter-end (or fiscal year-end) financial statements,
<PAGE>
The interest rate on any Prime Loan shall be adjusted automatically on and as of
the effective date of any change in the Floating Rate Margin pursuant to this
definition.
Generally Accepted Accounting Principles shall mean such
accounting principles as, in the opinion of the national accounting firm
regularly retained by Borrowers, conform at the time to generally accepted
accounting principles consistently applied, except that with respect to the
financial statements and reports of each of the Borrowers, such financial
statements and reports shall not be required to separately report the accrual of
income taxes on each such Borrower's financial statements, and with respect to
the interim financial statements of any Borrower, such interim financial
statements need not include footnotes.
Guarantee by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by agreement to keep-well, to purchase assets, goods, securities or
services, or to take-or-pay or otherwise); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "guarantee" used as a verb shall have a correlative
meaning.
Hazardous Materials shall mean any hazardous substance or
pollutant or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, without limitation, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including, without limitation, any source,
special nuclear or byproduct material as defined in 42 U.S.C. Section 2011 et
seq., as amended or hereafter amended, and asbestos in any form or condition.
Indebtedness of any Person shall mean and include, without
duplication, any and all indebtedness, liabilities and obligations of such
Person which in accordance with Generally Accepted Accounting Principles
consistently applied are or should be classified upon a balance sheet of such
Person as liabilities of such Person, and in any event shall include all (i)
obligations of such Person for borrowed money or which have been incurred in
connection with the acquisition of Property, (ii) obligations secured by any
Lien or other charge upon any Property owned by such Person, provided that if
such Person has not assumed or become liable for the payment of such
obligations, such obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such obligations shall
be limited to the book value of such Property, (iii) obligations created or
arising under any conditional sale or other title retention agreement with
respect to any Property acquired by such Person, provided that if the rights and
remedies of the seller, lender or lessor in the event of default under such
agreement are limited solely to repossession or sale of such Property, such
obligations shall still be included in Indebtedness but the determination of the
amount of Indebtedness evidenced by such obligations shall be limited to the
book value of such Property, (iv) all Guarantees and other contingent
indebtedness, liabilities and obligations of such Person, but only to the extent
any such contingent indebtedness, liabilities and obligations are, in accordance
with Generally Accepted Accounting Principles consistently applied, required to
be accrued as a liability on the balance sheet of such Person and (v) all
obligations of such Person as lessee under any Capitalized Lease.
<PAGE>
For the purpose of computing the "Indebtedness" of any Person,
there shall be excluded any particular Indebtedness to the extent that, upon or
prior to the maturity thereof, there shall have been deposited with the proper
depositary in trust the necessary funds (or evidences of such Indebtedness) for
the payment, redemption or satisfaction of such Indebtedness; and thereafter
such funds and evidences of Indebtedness so deposited shall not be included in
any computation of the assets of such Person.
Interest Period shall mean with respect to each Treasury Rate
Loan:
(i) Initially, the period commencing on the date of
such Treasury Rate Loan and ending 1 or 2 years thereafter as Borrowers
may elect in the applicable Borrowing Notice (or for such other period
as requested by Borrowers to which Bank may agree); and
(ii) Thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such Treasury
Rate Loan and ending 1 or 2 years thereafter as Borrowers may elect
pursuant to Section 3.2(iv) (or for such other period as requested by
Borrowers to which Bank may agree);
provided that:
(iii) Subject to clause (iv) below, if any Interest
Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the immediately succeeding Business Day;
(iv) No Interest Period with respect to any Treasury
Rate Loan shall extend beyond the last day of the Term hereof.
Inventory shall mean all inventory of each of the Borrowers
valued at the lower of cost or market.
Letter of Credit and Letters of Credit shall have the
meanings ascribed thereto in Section 3.3(a).
Letter of Credit Application shall mean an application and
agreement for irrevocable standby letter of credit in the form of Exhibit F
attached hereto and incorporated herein by reference, executed by Borrower, as
account party, and delivered to Bank pursuant to Section 3.3(a) as the same may
from time to time be amended, modified, extended or renewed.
Letter of Credit Commitment Fee Rate shall mean One and
One-Fourth Percent (1.25%) per annum up to and including May 31, 1998, and
thereafter, commencing on the first day of the second month following each
fiscal quarter-end or fiscal year-end, the "Letter of Credit
<PAGE>
Commitment Fee Rate" shall (based upon Agri-Nutrition's ratio of consolidated
Indebtedness to Consolidated Tangible Net Worth as of the end of the immediately
preceding quarter (or fiscal year) determined by reference to Agri-Nutrition's
quarter-end (or fiscal year-end) financial statements for such preceding fiscal
quarter-end (or fiscal year-end)), (i.e., for the period beginning June 1, 1998
by referencing Agri-Nutrition's April 30, 1998 fiscal quarter-end financial
statements), mean the following:
(i) One and One-Half Percent (1.50%) per annum, if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be greater than or equal to 2.0 to 1.0 as
determined pursuant to Section 7.1(i)(i) by reference to
Agri-Nutrition's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) One and One-Fourth Percent (1.25%) per annum, if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 2.0 to 1.0 but greater than or
equal to 1.5 to 1.0 as determined pursuant to Section 7.1(i)(i) by
reference to Agri-Nutrition's most recent quarter-end (or fiscal
year-end) financial statements, and
(iii) One Percent (1.00%) per annum, if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 1.5 to 1.0 as determined pursuant
to Section 7.1(i)(i) by reference to Agri-Nutrition's most recent
quarter-end (or fiscal year-end) financial statements.
Lien shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law, statute or contract,
including, without limitation, any security interest, mortgage, deed of trust,
pledge, hypothecation, judgment lien or other lien or encumbrance of any kind or
nature whatsoever, any conditional sale or trust receipt and any lease,
consignment or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property.
Loan shall mean each Facility A Loan and Facility B Loan, and
Loans shall mean any or all of the foregoing, whether made as a Prime Loan or a
Treasury Rate Loan.
Multiemployer Plan shall mean a "multi-employer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for employees of any
of the Borrowers, any ERISA Affiliate or any Subsidiary of any of the Borrowers.
Note shall mean the Revolving Credit Note of Borrowers to be
executed and delivered to Bank pursuant to Section 3.2, as the same may from
time to time be amended, modified, extended or renewed.
<PAGE>
Obligor shall mean each of the Borrowers and each other Person
who is or shall at any time hereafter become primarily or secondarily liable on
any of Borrowers' Obligations or who grants Bank a Lien upon any of the Property
or assets of such Person as security for any of Borrowers' Obligations.
Occupational Safety and Health Laws shall mean the
Occupational Safety and Health Act of 1970, as amended, and any other Federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct concerning
employee health and/or safety, as now or at any time hereafter in effect.
PBGC shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
Pension Plan shall mean a "pension plan," as such term is
defined in Section 3(2) of ERISA, which is established or maintained by any of
the Borrowers, any ERISA Affiliate or any Subsidiary of any of the Borrowers,
other than a Multiemployer Plan.
Person shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity or government (whether national, Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
Pledge Agreements shall mean (i) that certain Agreement of
Pledge executed by Agri-Nutrition pursuant to which Agri-Nutrition has pledged
to Bank all of the issued and outstanding shares of capital stock in PM
Resources and St. JON, and (ii) that certain Agreement of Pledge executed by St.
JON pursuant to which St. JON has pledged to Bank all of the issued and
outstanding shares of capital stock in St. JON VRX Products Limited, its
Subsidiary organized under the laws of the United Kingdom, each delivered to
Bank pursuant to Section 5.3, as the same may from time to time be amended.
Prime Loan shall mean any Loan bearing interest at the Prime
Rate plus Floating Rate Margin in effect on any day.
Prime Rate shall mean the interest rate announced from time to
time by Bank as its "prime rate" on commercial loans (which rate shall fluctuate
as and when said prime rate shall change).
Property shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible. Properties
shall mean the plural of Property. For purposes of this Agreement, each of the
Borrowers and each Subsidiary of any of the Borrowers shall be deemed to be the
owner of any Property which it has acquired or holds subject to a conditional
sale agreement, financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person for security
purposes.
<PAGE>
Related Party shall mean any Person (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by or
is under common control with, any of the Borrowers or any Subsidiary of any of
the Borrowers, (ii) which beneficially owns or holds ten percent (10%) or more
of the equity interest of any of the Borrowers, (iii) ten percent (10%) or more
of the equity interest of which is beneficially owned or held by any of the
Borrowers or a Subsidiary of any of the Borrowers, or (iv) who is a director,
officer or employee of any of the Borrowers or a Subsidiary of any of the
Borrowers, but the term "Related Party" shall specifically exclude Durvet/PMR,
L.P. and its general partner, Durvet, Inc. The term "control" shall mean the
possession, directly or indirectly, of the power to vote ten percent (10%) or
more of the capital stock of any Person or the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Reportable Event shall have the meaning given to such term in
ERISA.
Security Agreements shall mean the Security Agreement executed
by Agri-Nutrition, the Security Agreement executed by PM Resources and the
Security Agreement executed by St. JON, each delivered to Bank pursuant to
Section 5.1, as the same may from time to time be amended, and Security
Agreement shall mean either of them.
Subordinated Debt shall mean all borrowed money Indebtedness
of any of the Borrowers which has been duly subordinated by the lender thereof
to Borrowers' Indebtedness and obligations to Bank hereunder and under the other
Transaction Documents pursuant to a subordination agreement acceptable to Bank.
Subsidiary shall mean, with respect to any Person, any
corporation of which fifty percent (50%) or more of the issued and outstanding
capital stock entitled to vote for the election of directors (other than by
reason of default in the payment of dividends) is at the time owned directly or
indirectly by such Person.
Term shall have the meaning ascribed thereto in Section 1.
Third Party Collateral shall mean any Property or assets of
any Obligor other than a Borrower which now or at any time hereafter secure the
payment or performance of any of Borrowers' Obligations.
Transaction Documents shall mean this Agreement, the Note, the
Security Agreements, the Deed of Trust, the Pledge Agreements, any Letter of
Credit Application and all other agreements, documents and instruments
heretofore, now or hereafter delivered to Bank with respect to or in connection
with or pursuant to this Agreement, any Loans made hereunder or any other of
Borrowers' Obligations, and executed by or on behalf of any of the Borrowers,
all as the same may from time to time be amended, modified, extended or renewed.
Treasury Margin shall mean Two and One-Half Percent (2.50%) up
to and including May 31, 1998, and thereafter, commencing on the first day of
the second month
<PAGE>
following each fiscal quarter-end or fiscal year-end, the "Treasury Margin"
shall, based upon Agri-Nutrition's ratio of consolidated Indebtedness to
Consolidated Tangible Net Worth as of the end of the immediately preceding
quarter (or fiscal year) determined by reference to Agri-Nutrition's quarter-end
(or fiscal year-end) financial statements for such preceding fiscal quarter-end
or fiscal year-end, (i.e., for the period beginning June 1, 1998 by referencing
Agri-Nutrition's April 30, 1998 fiscal quarter-end financial statements), mean
the following:
(i) Two and Three-Fourths Percent (2.75%) if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be greater than or equal to 2.0 to 1.0 as
determined pursuant to Section 7.1(i)(i) by reference to
Agri-Nutrition's most recent quarter-end (or fiscal year-end) financial
statements,
(ii) Two and One-Half Percent (2.50%), if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 2.0 to 1.0 but greater than or
equal to 1.5 to 1.0 as determined pursuant to Section 7.1(i)(i) by
reference to Agri-Nutrition's most recent quarter-end (or fiscal
year-end) financial statements,
(iii) Two and One-Fourth Percent (2.25%), if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated
Tangible Net Worth shall be less than 1.5 to 1.0 but greater than or
equal to 1.0 to 1.0 as determined pursuant to Section 7.1(i)(i) by
reference to Agri-Nutrition's most recent quarter-end (or fiscal
year-end) financial statements, and
(iv) Two Percent (2.00%), if Agri-Nutrition's ratio
of consolidated Indebtedness to Consolidated Tangible Net Worth shall
be less than 1.0 to 1.0 as determined pursuant to Section 7.1(i)(i) by
reference to Agri-Nutrition's most recent quarter-end (or fiscal
year-end) financial statements,
The Treasury Margin shall be determined for each Treasury Rate Loan for its
Interest Period as of the date two (2) Business Days after the receipt by Bank
of the Borrowing Notice required by Section 3.2. All changes in the Treasury
Margin shall be effective from the date of determination pursuant to this
definition for any new Treasury Rate Loan or new Interest Period commencing on
or after such date and shall not be retroactively applied.
Treasury Rate shall mean the interest rate per annum equal to
the Treasury Yield for an Interest Period selected by Borrowers in the
applicable Borrowing Notice, plus the Treasury Margin applicable from time to
time during such Interest Period.
Treasury Rate Loan shall mean a Facility B Loan in an original
principal amount of not less than $500,000.00 which bears interest at the
applicable Treasury Rate for an Interest Period applicable to such Facility B
Loan as selected by Borrowers in a Borrowing Notice.
<PAGE>
Treasury Yield shall mean the prevailing U.S. Treasury Note
yield-to-maturity for actively traded U.S. Treasury Notes having maturities most
closely equal to the Interest Period selected by Borrowers in the applicable
Borrowing Notice for a Treasury Rate Loan, determined by Bank, in its sole
discretion, by reference to the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available prior to such date of
determination (or if such Release is unavailable, by any other publicly
available source of similar market data selected by Bank in its sole
discretion). The Treasury Yield shall be computed to the fifth decimal place
(one one-thousandth of a percentage point) and then rounded to the fourth
decimal place (one one-hundredth of a percentage point).
SECTION 3. THE LOANS.
3.1 Commitment of Bank.
(a) Facility A. Subject to the terms and conditions hereof,
during the Term of this Agreement, Bank hereby agrees to make such loans
(individually, a "Facility A Loan" and collectively, the "Facility A Loans") to
Borrowers, jointly and severally, as any of the Borrowers may from time to time
request pursuant to Section 3.2 and in Bank's discretion, to issue Letters of
Credit for the account of the Borrowers, or any of them, upon any Borrower's
execution of a Letter of Credit Application therefor pursuant to Section 3.3
(subject to Bank's approval of the form of the Letters of Credit requested to be
issued). The maximum aggregate principal amount of Loans plus the face amount of
issued and outstanding Letters of Credit which Bank, cumulatively, may be
required to have outstanding under this Facility A at any one time shall not
exceed the lesser of (i) Four Million Five Hundred Thousand Dollars
($4,500,000.00), or (ii) the Borrowing Base (as hereinafter defined). This
commitment of Bank is herein sometimes referred to as the "Bank's Facility A
Commitment." Subject to the terms and conditions hereof, Borrowers may jointly
and severally borrow, repay and reborrow such sums from Bank, provided, however,
that the aggregate principal amount of all Facility A Loans outstanding
hereunder plus the face amount of Letters of Credit issued and outstanding
hereunder at any one time shall not exceed Bank's Facility A Commitment.
(b) Facility B. Subject to the terms and conditions hereof,
during the Term of this Agreement, Bank hereby agrees to make such loans
(individually, a "Facility B Loan" and collectively, the "Facility B Loans") to
Borrowers, jointly and severally, as any of the Borrowers may from time to time
request pursuant to Section 3.2. The aggregate principal amount of Facility B
Loans which Bank, cumulatively, shall be required to have outstanding hereunder
at any one time shall not exceed Four Million Seven Hundred Thousand Dollars
($4,700,000.00) from the date hereof until November 29, 1998, which amount shall
thereafter be reduced by One Hundred Fifty Thousand Dollars ($150,000.00) on
each February 28, May 31, August 31 and November 30, with the first such
reduction on November 30, 1998. This commitment of Bank is herein sometimes
referred to as the "Bank's Facility B Commitment." Subject to the terms and
conditions hereof, Borrowers may jointly and severally borrow, repay and
reborrow such sums from Bank, provided, however, that the aggregate principal
amount of all Facility B Loans outstanding under Bank's Facility B Commitment at
any one time shall not exceed Bank's Facility B Commitment then available
hereunder. Bank and Borrowers agree that
<PAGE>
all Loans (but not including Letters of Credit which in all cases shall be
issued under Facility A) outstanding under this Agreement shall first be made
under Facility B up to the Bank's Facility B Commitment, and then shall be made
under Facility A, and all principal payments shall be applied, first to the
outstanding principal under Facility A until paid in full, and then to the
outstanding principal under Facility B.
(c) Borrowing Base. For purposes of computing the
amount of the Bank's Facility A Commitment, the "Borrowing Base" shall mean the
sum of:
(i) Seventy-Five Percent (75%) of the face
amount of Eligible Accounts of each of the Borrowers, plus
(ii) Forty-Five Percent (45%) of the Eligible
Inventory of each of the Borrowers.
(d) Borrowing Base Certificate. Borrowers shall
deliver to Bank on the date of execution hereof (with respect to the month ended
April 30, 1998) and on the twenty-eighth (28th) day of each month thereafter,
commencing in the month of May, 1998, a borrowing base certificate in the form
of Exhibit A attached hereto and incorporated herein by reference (a "Borrowing
Base Certificate") setting forth:
(i) the Borrowing Base and its components
as of the end of the immediately preceding month;
(ii) the aggregate principal amount of all
outstanding Facility A Loans and the aggregate face amount of all
issued and outstanding Letters of Credit;
(iii) the difference, if any, between the Borrowing
Base and the aggregate principal amount of all outstanding Facility A
Loans plus the aggregate face amount of all issued and outstanding
Letters of Credit; and
(iv) the maximum available principal amount and the
aggregate principal amount of all outstanding Facility B Loans.
The Borrowing Base shown in such Borrowing Base Certificate shall be and remain
the Borrowing Base hereunder until the next Borrowing Base Certificate is
delivered to Bank, at which time the Borrowing Base shall be the amount shown in
such subsequent Borrowing Base Certificate. Each Borrowing Base Certificate
shall be certified (subject to normal year-end adjustments) as to truth and
accuracy by the President, principal financial officer or controller of each of
the Borrowers.
(e) Mandatory Repayments - Facility A. If at any time
the Borrowing Base as shown on the most recent Borrowing Base Certificate should
be less than the aggregate principal amount of all outstanding Facility A Loans
plus the aggregate face amount of all issued
<PAGE>
and outstanding Letters of Credit, Borrowers shall be automatically required
(without demand or notice of any kind by Bank, all of which are hereby expressly
waived by Borrowers) jointly and severally to immediately repay the Facility A
Loans in an amount sufficient to reduce such aggregate principal amount of
outstanding Facility A Loans plus the outstanding face amount of Letters of
Credit to the amount of the Borrowing Base.
(f) Mandatory Repayments - Facility B. Commencing
with the first such principal reduction on November 30, 1998, on each February
28, May 31, August 31 and November 30 during the Term of this Agreement,
Borrowers shall jointly and severally pay to Bank in immediately available funds
an amount equal to the difference between Bank's Facility B Commitment (as
reduced on such date pursuant to the terms of Section 3.1(b) above) and the
aggregate principal amount of all Facility B Loans then outstanding. In the
event any such mandatory repayment shall be due on a day which is not a Business
Day, then such payment shall be due on the immediately preceding Business Day.
Such mandatory payments shall be applied first to the outstanding Facility B
Loans which are Prime Loans, and second to Facility B Loans which are Treasury
Rate Loans, provided, however, that any such repayment of Treasury Rate Loans
made on any date other than the last day of the applicable Interest Period for
such Treasury Rate Loan shall be subject to payment jointly and severally by
Borrowers of the amounts due under Section 3.8 below.
3.2 Procedure for Borrowing. Subject to the terms and
conditions hereof, Bank shall cause the Loans to be made to Borrowers, and shall
convert outstanding Prime Loans under Facility B to Treasury Rate Loans or vice
versa, at any time and from time to time during the Term of this Agreement upon
timely prior oral or written notice ("Borrowing Notice") from any of the
Borrowers to Bank specifying:
(i) the desired amount of the Facility A Loan or
Facility B Loan, which in the case of a Treasury Rate Loan under
Facility B shall be in a principal amount of at least Five Hundred
Thousand Dollars ($500,000.00);
(ii) whether such Loan shall be a new Loan under
Facility A or Facility B, or a conversion of all or a portion of any
presently outstanding Facility B Loan from the Prime Rate to the
Treasury Rate, or vice versa;
(iii) if a new Loan under Facility B, whether such
Loan is to be a Prime Loan or a Treasury Rate Loan;
(iv) in the case of a Treasury Rate Loan, the
duration of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period;
(v) the date on which the proceeds of any new Loan
are to be made available to any of the Borrowers or the date on which
the new interest rate is to take effect for any outstanding Facility B
Loan being converted by Borrowers, which shall be a Business Day;
<PAGE>
(vi) that on the date of, and after giving effect to,
such Loan, no Default or Event of Default under this Agreement has
occurred and is continuing; and
(vii) that on the date of, and after giving effect
to, such Loan, all of the representations and warranties of Borrowers
contained in this Agreement are true and correct in all material
respects as if made on the date of such Loan.
A Borrowing Notice shall not be required in connection with a Prime Loan made to
cover any overdraft in Agri-Nutrition's operating account on a day-to-day basis
as set forth herein. A Borrowing Notice, if in writing, shall be in the form of
the notice attached hereto as Exhibit B. Each Borrowing Notice must be received
by Bank not later than 10:00 a.m. (St. Louis time) on the Business Day on which
a Prime Loan is to be established, or not later than 10:00 a.m. (St. Louis time)
on the third (3rd) Business Day prior to the Business Day on which a Treasury
Rate Loan is to be established. A Borrowing Notice shall not be revocable by
Borrowers. Subject to the terms and conditions hereof, provided that Bank has
received the Borrowing Notice, Bank shall (unless Bank determines that any
applicable condition specified in Section 4 has not been satisfied) pay to
Borrowers, or either of them, the Loan proceeds of any new Loan in immediately
available funds not later than 2:00 p.m. (St. Louis time) on the Business Day
specified in said Borrowing Notice. In the event Borrowers shall fail to provide
a new Borrowing Notice with respect to any Treasury Rate Loan on or before the
third (3rd) Business Day prior to the end of any Interest Period pertaining
thereto, then Borrowers shall have deemed to elect to convert such Treasury Rate
Loan on the last day of its Interest Period then expiring to a Prime Loan. Each
of the Borrowers hereby authorizes Bank to reasonably rely on telephonic,
telegraphic, telecopy, telex or written instructions of any person identifying
himself as a person authorized to request a Loan or make a repayment hereunder,
and on any signature which Bank believes to be genuine, and Borrowers shall be
bound thereby in the same manner as if such person were actually authorized or
such signature were genuine. 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 Agri-Nutrition's operating account (Account No. 9800801785)
with Bank after crediting all deposits received in immediately available funds
and debiting all withdrawals made and checks presented against such account and
honored by Bank as of such date and after funding any advances to or receiving
any collected balances on such day from the "zero balance" operating accounts of
PM Resources (Account No. 9800802535) and St. JON (Account No. 9800805419) with
Bank to cover withdrawals made and checks presented on such date and after
crediting all deposits received in immediately available funds on such date,
which Prime Loan shall be in the amount of such overdraft without any other
request or authorization therefor from Borrowers and without notice to
Borrowers. Similarly, Borrowers request that Bank apply any collected balances
(after funding advances to or receiving collections from the "zero balance"
accounts of PM Resources and St. JON) in excess of a mutually predetermined
amount remaining at the end of any day in Agri-Nutrition'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 hereof and payable
jointly and severally to the order of Bank in the original principal amount of
Nine Million Two Hundred Thousand Dollars ($9,200,000.00) 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").
<PAGE>
3.3 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
during the Term of this Agreement, and so long as no Default or Event of Default
under this Agreement has occurred and is continuing, Bank hereby agrees to issue
irrevocable standby letters of credit for the account of any of the Borrowers
(individually, a "Letter of Credit" and collectively, the "Letters of Credit")
in an amount and for the term specifically requested by any of the Borrowers by
application in writing to Bank in the form of Exhibit F attached hereto and
incorporated herein by reference (a "Letter of Credit Application") at least
three (3) Business Days prior to the requested issuance thereof; provided,
however, that:
(i) Borrowers, or any of them, shall have executed
and delivered to Bank a Letter of Credit Application with respect to
such Letter of Credit;
(ii) the term of any such Letter of Credit shall not
extend beyond the last day of the Term hereof; and
(iii) the aggregate undrawn face amount of all
outstanding Letters of Credit plus the outstanding principal amount of
all Facility A Loans shall not at any one time exceed the lesser of (a)
the Borrowing Base or (b) the Bank's Facility A Commitment; and
(iv) the text of any such Letter of Credit is
provided to Bank no less than three (3) Business Days prior to the
requested issuance date, which text must be acceptable to Bank in its
sole and absolute discretion.
(b) The payment of drafts under each Letter of Credit
shall be made in accordance with the terms thereof and, in that connection, Bank
shall be entitled to honor any drafts and accept any documents presented to it
by the beneficiary of such Letter of Credit in accordance with the terms of such
Letter of Credit and reasonably believed by Bank to be genuine. Bank shall not
have any duty to inquire as to the accuracy or authenticity of any draft or
other drawing document that may be presented to it other than the duties
contemplated by the applicable Letter of Credit Application. If Bank shall have
received documents that in its judgment constitute all of the documents that are
required to be presented before payment or
<PAGE>
acceptance of a draft under a Letter of Credit, it shall be entitled to pay such
draft provided such documents conform on their face to the requirements of such
Letter of Credit.
(c) In the event of any payment by Bank of a draft
presented or accepted under a Letter of Credit, Borrowers jointly and severally
agree to pay to Bank in immediately available funds at the time of such drawing
an amount equal to the sum of such drawing plus Bank's customary negotiation,
processing and other fees related thereto. Borrowers hereby authorize Bank to
charge or cause to be charged to Borrowers' bank accounts at Bank to the extent
there are balances of immediately available funds therein, in an amount equal to
the sum of such drawing plus Bank's customary negotiation, processing and other
fees related thereto, and Borrowers jointly and severally agree to pay the
amount of any such drawing (and/or Bank's customary negotiation, processing and
other fees related thereto) not so charged prior to the close of business of
Bank on the day of such drawing. In the event any payment under a Letter of
Credit is made by Bank prior to receipt of payment from Borrowers, such payment
by Bank shall constitute a request by Borrowers for a Facility A Loan as a Prime
Loan under Section 3.1(a) above.
(d)(i) Borrowers shall also pay to Bank, with respect
to each standby Letter of Credit, all wire transfer fees, courier
charges and other out of pocket expenses incurred by Bank from time to
time, which amounts shall be due and payable on demand by Bank; and
(ii) Borrowers shall pay to Bank with respect to each
Letter of Credit for the period during which such Letter of Credit is
outstanding, a nonrefundable Letter of Credit commitment fee in an
amount per annum equal to the greater of (A) One Hundred Dollars
($100.00) or (B) the applicable Letter of Credit Commitment Fee Rate in
effect for the fiscal quarter in which such Letter of Credit is issued
(calculated on an actual day, 360-day year basis) times the face amount
(taking into account any scheduled increases or decreases therein
during the fiscal quarter in question) of the Letter of Credit then
being issued hereunder ("Letter of Credit Commitment Fee"), which
Letter of Credit Commitment Fee shall be due and payable in advance on
the date of issuance of each such Letter of Credit and on each renewal
date of any such Letter of Credit.
(e) Notwithstanding any provision contained in this
Agreement or any of the Letter of Credit Applications to the contrary, upon the
occurrence of any Event of Default under this Agreement, at Bank's option and
without demand or further notice to Borrowers, an amount equal to the aggregate
undrawn face amount of all Letter(s) of Credit then outstanding shall be deemed
(as between Bank and Borrowers) to have been paid or disbursed by Bank
(notwithstanding that such amounts may not in fact have been so paid or
disbursed by Bank), and which amount shall be immediately due and payable. In
lieu of the foregoing, at the election of Bank upon the occurrence of any Event
of Default under this Agreement, Borrowers shall, upon Bank's demand, deliver to
Bank cash, or other collateral acceptable to Bank in its sole and absolute
discretion, having a value, as determined by Bank, at least equal to the
aggregate undrawn face amount of all outstanding Letters of Credit. Any such
collateral and/or any
<PAGE>
amounts received by Bank for such Letters of Credit shall be held by Bank in a
separate account at Bank appropriately designated as a cash collateral account
in relation to this Agreement and the Letters of Credit and retained by Bank as
collateral security for the payment of Borrowers' Obligations hereunder. Cash
amounts delivered to Bank pursuant to the foregoing requirements of this Section
shall be invested, at the request and for the account of any of the Borrowers,
in investments of a type and nature and with a term acceptable to Bank. Such
amounts, including in the case of cash amounts invested in the manner set forth
above, any interest realized thereon, may be applied to reimburse Bank for
drawings or payments under or pursuant to the Letters of Credit which Bank has
paid, or if no such reimbursement is required to the payment of such other of
Borrowers' Obligations as Bank shall determine. Any amounts remaining in any
cash collateral account established pursuant to this Section after the payment
in full of all of Borrowers' Obligations and the expiration or cancellation of
all of the Letters of Credit shall be returned to Borrowers, or any of them
(after deduction of Bank's expenses, if any).
3.4 Interest Rates.
(a) Each Facility A Loan shall bear interest prior
to maturity at a rate per annum equal to the Prime Rate plus Floating Rate
Margin, each in effect from time to time during the period when such Loan is
outstanding, with changes in the interest rate taking effect on the date a
change in the Floating Rate Margin occurs pursuant to the definition thereof or
the date a change in the Prime Rate is made effective generally by Bank.
(b) Each Facility B Loan shall bear interest prior to
maturity at a rate per annum equal to such of the following as any of the
Borrowers shall select in the applicable Borrowing Notice to Bank:
(i) the Prime Rate plus Floating Rate Margin, each in
effect from time to time during the period when such Facility B Loan is
outstanding, with changes in the interest rate taking effect on the
date a change in the Floating Rate Margin occurs pursuant to the
definition thereof or the date a change in the Prime Rate is made
effective generally by Bank; or
(ii) the Treasury Rate applicable for an Interest
Period selected by any Borrower for such Facility B Loan in the
Borrowing Notice applicable for such Facility B Loan.
(c) From and after the maturity of the Note, whether
by reason of acceleration or otherwise, the entire unpaid principal balance of
each Loan shall bear interest, payable upon demand, until paid at a rate per
annum equal to Three and One-Half Percent (3.50%) over and above the Prime Rate,
fluctuating as aforesaid.
(d) Interest shall be computed with respect to all
Loans on an actual day, 360-day
year.
<PAGE>
3.5 Prepayment. Borrowers shall be privileged to prepay all at
any time or any portion from time to time of the unpaid principal of any Prime
Loan prior to maturity, without penalty or premium, provided that such repayment
is made on a Business Day. Borrowers shall be privileged to repay, without
penalty or premium, the principal of any Treasury Rate Loan, in whole or in
part, on the last day of the Interest Period applicable thereto, provided that
such repayment is made on a Business Day. Borrowers shall not make any optional
prepayment of the principal of any Treasury Rate Loan before the last day of its
applicable Interest Period, and any payments of principal of any Treasury Rate
Loan on any date other than the last day of the applicable Interest Period shall
be subject to payment of the amounts required under Section 3.8 below. All
prepayments shall be applied solely to the payment of principal.
3.6 Interest Payments. Borrowers shall jointly and severally
pay Bank all interest which accrued on all Prime Loans during any month 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 Prime Loan is made. Borrowers shall jointly and severally pay
Bank with respect to each Treasury Rate Loan (a) on the fifteenth (15th) day of
the month following the month in which such interest accrued during the Interest
Period applicable to each such Treasury Rate Loan, all interest which accrued on
such Treasury Rate Loan during such month or portion thereof, and (b) on the
last day of each such Interest Period applicable to a Treasury Rate Loan, all
then accrued and unpaid interest on such Treasury Rate Loan. Notwithstanding any
provision contained herein to the contrary, all accrued and unpaid interest
shall also be paid at the maturity of each of the Note, whether by reason of
acceleration or otherwise, and any interest accruing after any such maturity
shall be payable upon demand. In case any installment of interest shall become
due on a day which is not a Business Day, interest shall be computed to, and
payable on, the next succeeding Business Day.
3.7 Place and Manner of Payment. Both principal and interest
on the Loans are payable to Bank in lawful currency of the United States in
Federal or other immediately available funds at Bank's banking office at 1281
Graham Road, Florissant, Missouri 63031, or at such other place as Bank shall
designate in writing to Borrowers.
3.8 Funding Losses. Notwithstanding any provision contained
herein to the contrary, if any of the Borrowers makes any payment of principal
with respect to any Treasury Rate Loan (pursuant to this Section 3, Section 8 or
otherwise) on any day other than the last day of an Interest Period applicable
thereto, or if any of the Borrowers fails to borrow or pay any Treasury Rate
Loan after notice has been given by Borrowers in accordance with Section 3.1(f),
3.2 or 3.6, Borrowers shall jointly and severally reimburse Bank on demand for
any resulting losses and expenses incurred by Bank, including, without
limitation, any losses incurred in obtaining, liquidating or employing deposits
from third parties, and including loss of margin for the period after any such
payment is made. A certificate of Bank demanding compensation under this
paragraph and setting forth the amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error.
3.9 Commitment Fee. Borrowers shall jointly and severally pay
to Bank on the fifteenth (15th) day following the end of each January, April,
July and October during the
<PAGE>
Term of this Agreement and on the last day of the Term hereof, a commitment fee
(the "Commitment Fee") in an amount equal to:
(a) Five-Sixteenths of One Percent (0.3125%) per annum, if Agri-Nutrition's
ratio of consolidated Indebtedness to Consolidated Tangible Net Worth shall be
greater than or equal to 2.0 to 1.0 as determined pursuant to Section 7.1(i)(i)
by reference to Agri-Nutrition's most recent quarter-end (or fiscal year-end)
financial statements,
(b) One-Fourth of One Percent (0.25%) per annum, if Agri-Nutrition's ratio
of consolidated Indebtedness to Consolidated Tangible Net Worth shall be less
than 2.0 to 1.0 but greater than or equal to 1.0 to 1.0 as determined pursuant
to Section 7.1(i)(i) by reference to Agri-Nutrition's most recent quarter-end
(or fiscal year-end) financial statements, and
(c) Three-Sixteenths of One Percent (0.1875%) per annum, if
Agri-Nutrition's ratio of consolidated Indebtedness to Consolidated Tangible Net
Worth shall be less than 1.0 to 1.0 as determined pursuant to Section 7.1(i)(i)
by reference to Agri-Nutrition's most recent quarter-end (or fiscal year-end)
financial statements,
calculated on the basis of the unused Bank's Commitment during the preceding
fiscal quarter of Borrowers ending as of the last day of each January, April,
July and October, which unused Bank's Commitment shall be arrived at by dividing
the aggregate of the daily unused Bank's Commitment for each day of that quarter
as of the close of each day by ninety (90) (or by the actual number of days for
any partial quarter). Payment of the Commitment Fee is a condition precedent to
Bank's obligations to make any new Loans hereunder.
3.10 Maturity. All Loans not paid prior to March 31, 2001,
together with all accrued and unpaid interest thereon, shall be due and payable
on March 31, 2001 (as from time to time extended, if any, pursuant to this
Section, the "Maturity Date"); provided, however, that in the event Bank, in its
sole and absolute discretion, shall deliver to Borrowers a written notice signed
by Bank on or before the date one year prior to the then current Maturity Date
(and prior to any subsequent Maturity Date thereafter if extended under this
Section 3.10) of Bank's intention to extend the term of this Agreement for an
additional year, then the Maturity Date of this Agreement shall be extended for
a period of one additional year following the then current Maturity Date.
Following any such extension of the Maturity Date by Bank, all of the
outstanding principal and all accrued and unpaid interest, fees and other
amounts due under this Agreement and the Note shall be due and payable on such
new Maturity Date, unless it is again extended by Bank, in its sole and absolute
discretion, under the foregoing sentence.
3.11 Facility Fee. In consideration of Bank's agreement to
extend credit hereunder, Borrowers shall jointly and severally pay to Bank on
the date hereof a facility fee in the amount of Five Thousand Dollars
($5,000.00).
<PAGE>
SECTION 4. PRECONDITIONS TO LOANS AND LETTERS OF CREDIT.
4.1 Initial Loan or Letter of Credit. Notwithstanding any
provision contained herein to the contrary, Bank shall have no obligation to
make any Loan or to issue any Letter of Credit hereunder unless Bank shall have
first received:
(a) this Agreement and the Note, each executed by a duly authorized officer
of each of the Borrowers;
(b) the Security Agreements and such other documents as Bank may reasonably
require under Section 5.1, each duly executed by an authorized officer of each
of the Borrowers;
(c) the Amendment to the Deed of Trust, duly executed by the authorized
officer of PM Resources;
(d) the Agreements of Pledge and such other documents as Bank may
reasonably require under Section 5.3, duly executed by an authorized officer of
Agri-Nutrition and by an authorized officer of St. JON, as such documents
require;
(e) 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 Agreement and the Note, the Security Agreements, the Amendment to the
Deed of Trust, the Pledge Agreements and the other Transaction Documents,
certified by the Secretary of each such Borrower;
(f) a Certificate of Corporate Good Standing of Agri-Nutrition, issued by
the Secretary of State of the State of Delaware;
(g) a certificate of corporate good standing of PM Resources issued by the
Secretary of State of the State of Missouri;
(h) a copy of the Agreement and Plan of Reorganization and of the three (3)
officer's certificates to be filed with Secretary of State of the State of
California, and a copy of the Merger Certificate to be filed with the Secretary
of State of the State of Delaware for the mergers of Zema Corporation and of
Mardel Laboratories, Inc. into St. JON;
(i) certificates of corporate good standing of St. JON issued by the
Secretary of State of the State of California, the Secretary of State of the
State of Illinois and by the Secretary of State of the State of North Carolina;
(j) an opinion of counsel of Dyer, Ellis & Joseph, independent counsel to
Borrowers, in the form of Exhibit D attached hereto and incorporated herein by
reference;
(k) the initial Borrowing Base Certificate required by Section 3.1(d);
<PAGE>
(l) a subordination and standby agreement duly executed by Ramon A.
Mulholland in favor of Bank and in form and substance acceptable to Bank;
(m) the Borrowing Notice required by Section 3.2 and/or the Letter of
Credit Application required by Section 3.3; and
(n) such other agreements, documents, instruments and certificates as Bank
may reasonably request.
4.2 Subsequent Loans and Letters of Credit. Notwithstanding
any provision contained herein to the contrary, Bank shall have no obligation to
make any subsequent Loan hereunder, to issue any subsequent Letter of Credit
hereunder or to convert any Prime Loan to a Treasury Rate Loan unless:
(a) Bank shall have received a current Borrowing Base Certificate as
required by Section 3.1(d);
(b) Bank shall have received a Borrowing Notice for such Loan as required
by Section 3.2 or a Letter of Credit Application for such Letter of Credit as
required by Section 3.3;
(c) on the date of and immediately after such Loan or Letter of Credit, no
Default or Event of Default under this Agreement shall have occurred and be
continuing;
(d) on the date of and immediately after such Loan or Letter of Credit, no
material adverse change in the business, financial position or results of
operations of any of the Borrowers or any of their respective Subsidiaries shall
have occurred since the date of this Agreement and be continuing; and
(e) all of the representations and warranties of each of the Borrowers
contained in this Agreement shall be true and correct on and as of the date of
such Loan or such Letter of Credit as if made on the date of such Loan or such
Letter of Credit.
Each request for a Loan or Letter of Credit by any of the
Borrowers hereunder shall be deemed to be a representation and warranty by each
of the Borrowers on the date of such Loan or Letter of Credit as to the facts
specified in clauses (c), (d) and (e) of this Section 4.2.
SECTION 5. SECURITY
5.1 Security Agreements. In order to secure the payment when
due of Borrowers' Obligations, each of the Borrowers has conveyed to Bank a
security interest in, among other things, all of such Borrower's accounts
receivable, inventory, machinery, equipment, fixtures and other tangible and
intangible personal property and all proceeds and products thereof, which
security interest is and shall be a first and prior interest in all such items
<PAGE>
except for those Uniform Commercial Code security interests described on
Schedule 6.12 attached hereto. Said security interests are evidenced by a
Security Agreement dated as of the date hereof and executed by Agri-Nutrition in
favor of Bank, a Security Agreement dated as of the date hereof and executed by
PM Resources in favor of Bank and by a Security Agreement dated as of the date
hereof and executed by St. JON in favor of Bank (as the same may from time to
time be amended, the "Security Agreements"). Each of the Borrowers further
covenants and agrees to execute and deliver to Bank any and all financing
statements, continuation statements and such other documentation as may be
requested by Bank in order to create, perfect and continue said security
interests. Upon demand, Borrowers shall jointly and severally pay all appraisal
fees, legal and filing fees and expenses incurred by Bank in the preparation of
the foregoing documents and perfection of the security interest contemplated
thereby. Bank shall have no obligation to make any Loan hereunder unless and
until Borrowers have fully satisfied these requirements.
5.2 Deed of Trust. In order to further secure the payment when
due of Borrowers' Obligations, PM Resources has conveyed to Bank a security
interest in all of PM Resource's real property, fixtures and improvements as
more fully described in that certain Deed of Trust and Security Agreement made
by PM Resources to Katherine D. Knocke as trustee for Bank dated as of September
9, 1993 (as the same has been or may be amended from time to time, the "Deed of
Trust"), which Deed of Trust shall be a first and prior interest in such real
property and improvements. PM Resources further covenants and agrees to execute
and deliver to Bank any and all amendments, including, without limitation, the
Amendment to Deed of Trust, and such other documentation as may be requested by
Bank from time to time in order to create, perfect and continue said Deed of
Trust as collateral security for all of Borrowers' Obligations. Upon demand,
Borrowers shall jointly and severally pay all legal and filing fees and
expenses, appraisal costs and title insurance premiums incurred by Bank in
connection with the Deed of Trust. Bank shall have no obligation to make any
Loan hereunder unless and until Borrowers have fully satisfied these
requirements.
5.3 Pledge Agreements. In order to further secure the payment
when due of Borrowers' Obligations, Agri-Nutrition has pledged to Bank and
granted to Bank a first perfected security interest in all of the issued and
outstanding capital stock of PM Resources and St. JON, as more fully described
in that certain Agreement of Pledge made by Agri-Nutrition in favor of Bank
dated as of the date hereof, and St. JON has pledged to Bank and granted to Bank
a first perfected security interest in all of the issued and outstanding capital
stock of St. JON VRX Products Limited, as more fully described in that certain
Agreement of Pledge made by St. JON in favor of Bank dated as of the date hereof
(collectively, as the has been or may be amended from time to time, the "Pledge
Agreements"), which Pledge Agreements shall be a first and prior interest in all
such capital stock. Agri-Nutrition and St. JON further agree to execute and
deliver to Bank any and all collateral schedules, stock powers, Reg. U-1
affidavits and other documents as may be reasonably requested by Bank from time
to time, together with all original stock certificates evidencing any shares of
capital stock in PM Resources, St. JON and/or St. JON VRX Products Limited. Upon
demand, Borrowers shall jointly and severally pay all legal and filing fees and
other expenses incurred by Bank in connection with the Pledge Agreements. Bank
shall have no obligation to make any Loan hereunder unless and until Borrowers
have fully satisfied these requirements.
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Borrowers represent and warrant to Bank that:
6.1 Corporate Existence and Power. Each of the Borrowers and
each Subsidiary of each of the Borrowers: (a) is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; (b) has all requisite corporate powers and all governmental and
regulatory licenses, authorizations, consents and approvals required to carry on
its business as now conducted; and (c) is duly qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure to so qualify would have a material
adverse effect on its business, financial condition or operations.
6.2 Corporate Authorization. The execution, delivery and
performance by Borrowers of this Agreement, the Note, the Amendment and the
other Transaction Documents are within the corporate powers of each of the
Borrowers and have been duly authorized by all necessary corporate action.
6.3 Binding Effect. This Agreement, the Note, the Security
Agreements, the Deed of Trust, the Amendment and the other Transaction Documents
have been duly executed and delivered by each of the Borrowers executing the
same and constitute the legal, valid and binding obligations of each such
Borrower enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights in general.
6.4 Financial Statements. Borrowers have furnished Bank with
the following financial statements, identified by the principal financial
officers of each of the Borrowers: (1) consolidated balance sheet and statements
of income, retained earnings and cash flows of Borrowers and their respective
Consolidated Subsidiaries as of October 31, 1997 and for the period then ended,
all certified by Borrowers' independent certified public accountants, which
financial statements have been prepared in accordance with Generally Accepted
Accounting Principles consistently applied; and (2) unaudited consolidated
balance sheet and statements of income, retained earnings and cash flows of each
of the Borrowers and their respective Consolidated Subsidiaries as of March 31,
1998, certified by the principal financial officers of each of the Borrowers as
being true and correct to the best of his knowledge and as being prepared in
accordance with Borrowers' normal accounting procedures. Borrowers further
represent and warrant to Bank that: (1) said balance sheets and their
accompanying notes fairly present the condition of Borrowers and their
respective Consolidated Subsidiaries as of the dates thereof; (2) there has been
no material adverse change in the condition or operation, financial or
otherwise, of any of the Borrowers or any of their respective Consolidated
Subsidiaries since March 31, 1998; and (3) none of the Borrowers nor any of
their respective Consolidated Subsidiaries has any direct or contingent
liabilities which are not disclosed on said financial statements in accordance
with Generally Accepted Accounting Principles.
<PAGE>
6.5 Litigation. Except as disclosed on Schedule 6.5 attached
hereto, there is no action or proceeding pending or, to the knowledge of
Borrowers, threatened against or affecting any of the Borrowers or any
Subsidiary of any of the Borrowers before any court, arbitrator or any
governmental, regulatory or administrative body, agency or official which could
result in any material adverse change in the condition or operation, financial
or otherwise, of any such Borrower or any Subsidiary of any of the Borrowers,
and none of the Borrowers nor any Subsidiary of any of the Borrowers is in
default with respect to any order, writ, injunction, decision or decree of any
court, arbitrator or any governmental, regulatory or administrative body, agency
or official, a default under which could have a material adverse effect on any
of the Borrowers or any Subsidiary of any of the Borrowers.
6.6 Pension and Welfare Plans. Each Pension Plan complies with
all applicable statutes and governmental rules and regulations; no Reportable
Event has occurred and is continuing with respect to any Pension Plan; none of
the Borrowers nor any ERISA Affiliate nor any Subsidiary of any of the Borrowers
has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a
"partial withdrawal" as defined in Sections 4203 or 4205 of ERISA, respectively;
no steps have been instituted by any of the Borrowers, any ERISA Affiliate or
any Subsidiary of any of the Borrowers to terminate any Pension Plan; no
condition exists or event or transaction has occurred in connection with any
Pension Plan or Multiemployer Plan which could result in the incurrence by any
of the Borrowers, any ERISA Affiliate or any Subsidiary of any of the Borrowers
of any material liability, fine or penalty; and none of the Borrowers nor any
ERISA Affiliate nor any Subsidiary of any of the Borrowers is a "contributing
sponsor" as defined in Section 4001(a)(13) of ERISA of a "single-employer plan"
as defined in Section 4001(a)(15) of ERISA which has two or more contributing
sponsors at least two of whom are not under common control. Except as disclosed
on Schedule 6.6 attached hereto, none of the Borrowers nor any Subsidiary of any
of the Borrowers has any contingent liability with respect to any "employee
welfare benefit plan", as such term is defined in Section 3(a) of ERISA, which
covers retired employees and their beneficiaries.
6.7 Tax Returns and Payment. Each of the Borrowers and each
Subsidiary of each of the Borrowers has filed all Federal, state and local
income tax returns and all other tax returns which are required to be filed and
has paid all taxes due pursuant to such returns or pursuant to any assessment
received by any of the Borrowers or any Subsidiary of any of the Borrowers,
except for the filing of such returns, if any, in respect of which an extension
of time for filing is in effect and except for such taxes, if any, as are being
contested in good faith by appropriate proceedings being diligently conducted
and as to which adequate reserves in accordance with Generally Accepted
Accounting Principles consistently applied have been provided. The charges,
accruals and reserves on the books of each of the Borrowers and each Subsidiary
of any of the Borrowers in respect of any taxes or other governmental charges
are, in the opinion of Borrowers, adequate.
<PAGE>
6.8 Subsidiaries. St. JON VRX Products Limited is the only
Subsidiary of St. JON as of the date hereof, and St. JON and PM Resources are
the only Subsidiaries of Agri-Nutrition as of the date hereof.
6.9 Compliance With Other Instruments; None Burdensome. None
of the Borrowers nor any Subsidiary of any of the Borrowers is a party to any
contract or agreement or subject to any charter or other corporate restriction
which materially and adversely affects its business, Property or financial
condition and which is not disclosed on such Borrower's financial statements
heretofore submitted to Bank; none of the execution and delivery by Borrowers of
the Transaction Documents, the consummation of the transactions therein
contemplated or the compliance with the provisions thereof will violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
any of the Borrowers, or any of the provisions of any Borrower's Certificate or
Articles of Incorporation or Bylaws or any of the provisions of any indenture,
agreement, document, instrument or undertaking to which any of the Borrowers is
a party or subject, or by which it or its Property is bound, or conflict with or
constitute a default thereunder or result in the creation or imposition of any
Lien pursuant to the terms of any such indenture, agreement, document,
instrument or undertaking (other than in favor of Bank pursuant to the
Transaction Documents). No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental, regulatory, administrative or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, the execution, delivery or performance of, or the legality, validity,
binding effect or enforceability of, any of the Transaction Documents.
6.10 Other Loans and Guarantees. Except as disclosed on
Schedule 6.10 attached hereto, none of the Borrowers nor any Subsidiary of any
of the Borrowers is a party to any loan transaction or Guarantee.
6.11 Labor Matters. Except as disclosed on Schedule 6.11
attached hereto, (a) no labor contract to which any of the Borrowers or any
Subsidiary of any of the Borrowers is subject is scheduled to expire during the
Term of this Agreement and (b) on the date of this Agreement, (i) none of the
Borrowers nor any Subsidiary of any of the Borrowers is a party to any labor
dispute and (ii) there are no strikes or walkouts relating to any labor contract
to which any of the Borrowers or any Subsidiary of any of the Borrowers is
subject.
6.12 Title to Property. Each of the Borrowers and each
Subsidiary of any of the Borrowers is the sole and absolute owner of, or has the
legal right to use and occupy, all Property it claims to own or which is
necessary for such Borrower or such Subsidiary of any of the Borrowers to
conduct its business. None of the Borrowers nor any Subsidiary of any of the
Borrowers has signed any financing statements, security agreements or chattel
mortgages with respect to any of its Property, has granted or permitted any
Liens with respect to any of its Property or has any knowledge of any Liens with
respect to any of its Property, except as disclosed on Schedule 6.12 attached
hereto.
6.13 Regulation U. None of the Borrowers is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or
<PAGE>
carrying margin stock (within the meaning of Regulation U of The Board of
Governors of the Federal Reserve System, as amended) and no part of the proceeds
of any Loan will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately (i) to purchase or carry margin stock or
to extend credit to others for the purpose of purchasing or carrying margin
stock, or to refund or repay indebtedness originally incurred for such purpose
or (ii) for any purpose which entails a violation of, or which is inconsistent
with, the provisions of any of the Regulations of The Board of Governors of the
Federal Reserve System, including, without limitation, Regulations G, U, T or X
thereof, as amended. If requested by Bank, Borrowers shall furnish to Bank a
statement or statements in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U.
6.14 Multi-Employer Pension Plan Amendments Act of 1980. None
of the Borrowers nor any Subsidiary of any of the Borrowers has any pension plan
or any liability for pension contributions pursuant to any plan subject to the
Multi-Employer Pension Plan Amendments Act of 1980, as amended ("MEPPAA").
6.15 Investment Company Act of 1940; Public Utility Holding
Company Act of 1935. None of the Borrowers is an "investment company" as that
term is defined in, or is otherwise subject to regulation under, the Investment
Company Act of 1940, as amended. None of the Borrowers is a "holding company" as
that term is defined in, or is otherwise subject to regulation under, the Public
Utility Holding Company Act of 1935, as amended.
6.16 Patents, Licenses, Trademarks, Etc. Each Borrower and
each Subsidiary of any of the Borrowers possesses all necessary patents,
licenses, trademarks, trademark rights, trade names, trade name rights and
copyrights to conduct its business without conflict with any patent, license,
trademark, trade name or copyright of any other Person.
6.17 Environmental and Safety and Health Matters. Except as
disclosed on Schedule 6.17 attached hereto: (i) the operations of each of the
Borrowers and each Subsidiary of any of the Borrowers comply with (A) all
applicable Environmental Laws and (B) all applicable Occupational Safety and
Health Laws; (ii) none of the operations of any of the Borrowers or any
Subsidiary of any of the Borrowers are subject to any judicial, governmental,
regulatory or administrative proceeding alleging the violation of any
Environmental Law or Occupational Safety and Health Law; (iii) none of the
operations of any of the Borrowers or any Subsidiary of any of the Borrowers is
the subject of any Federal or state investigation evaluating whether any
remedial action is needed to respond to (A) any spillage, disposal or release
into the environment of any Hazardous Material or any other hazardous, toxic or
dangerous waste, substance or constituent or other substance, or (B) any unsafe
or unhealthful condition at any premises of any of the Borrowers or such
Subsidiary of any of the Borrowers; (iv) none of the Borrowers nor any
Subsidiary of any of the Borrowers has filed any notice under any Environmental
Law or Occupational Safety and Health Law indicating or reporting (A) any past
or present spillage, disposal or release into the environment of, or treatment,
storage or disposal of, any Hazardous Material or any other hazardous, toxic or
dangerous waste, substance or constituent or other substance or (B) any unsafe
or unhealthful condition at any premises of any such Borrower or such Subsidiary
of any such Borrower; and (v) none of the Borrowers nor any
<PAGE>
Subsidiary of any of the Borrowers has any known contingent liability in
connection with (A) any spillage, disposal or release into the environment of,
or otherwise with respect to, any Hazardous Material or any other hazardous,
toxic or dangerous waste, substance or constituent or other substance or (B) any
unsafe or unhealthful condition at any premises of any such Borrower or such
Subsidiary of any such Borrower.
SECTION 7. COVENANTS.
7.1 Affirmative Covenants of Borrowers. Borrowers covenant and
agree that, so long as Bank has any obligation to make any Loan or to issue any
Letter of Credit hereunder or any of Borrowers' Obligations remain unpaid:
(a) Information. Borrowers will deliver to Bank:
(i) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of Borrowers, the
consolidated balance sheet of Agri-Nutrition and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows for
such fiscal year, all with consolidating disclosures and setting forth
in each case, in comparative form, the figures for the previous fiscal
year, all such financial statements to be prepared in accordance with
Generally Accepted Accounting Principles consistently applied and
reported on by and accompanied by the unqualified opinion of
independent certified public accountants of nationally recognized
standing selected by Agri-Nutrition and reasonably acceptable to Bank
together with (i) a certificate from such accountants to the effect
that, in making the examination necessary for the signing of such
annual audit report, such accountants have not become aware of any
Default or Event of Default that has occurred and is continuing, or, if
such accountants have become aware of any such event, describing it and
the steps, if any, being taken to cure it and (ii) the computations of
such accountants evidencing Borrowers' compliance with the financial
covenants contained in this Agreement;
(ii) As soon as available and in any event within
forty-five (45) days after the end of each of the first three (3)
fiscal quarters of each fiscal year of Borrowers, the consolidated
balance sheet of Agri-Nutrition and its Consolidated Subsidiaries as of
the end of such fiscal quarter and the related consolidated statements
of income, retained earnings and cash flows for such fiscal quarter and
for the portion of Borrowers' fiscal year ended at the end of such
fiscal quarter, all with consolidating disclosures and setting forth in
each case in comparative form, the figures for the corresponding fiscal
quarter and the corresponding portion of Borrowers' previous fiscal
year, all certified (subject to normal year-end adjustments) as to
fairness of presentation, Generally Accepted Accounting Principles and
consistency by the principal financial officers of Borrowers;
<PAGE>
(iii) As soon as available and in any event within
twenty-eight (28) days after the end of each month, a certificate of
the principal financial officers or controllers of Borrowers in the
form attached hereto as Exhibit E and incorporated herein by reference,
accompanied by supporting financial work sheets where appropriate;
(iv) As soon as available and in any event within
twenty-eight (28) days after the end of each month, the consolidated
balance sheets of each of the Borrowers and its respective Consolidated
Subsidiaries as of the end of each such month and the related
consolidated statements of income, retained earnings and cash flows for
such month and for the portion of each such Borrower's fiscal year
ended at the end of such month, all with consolidating disclosures and
setting forth in each case in comparative form, the figures for the
corresponding month and the corresponding portion of each such
Borrower's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, Generally
Accepted Accounting Principles and consistency by the principal
financial officer or controller of each such Borrower;
(v) Within twenty-eight (28) days after the end of
each month, the Borrowing Base Certificate dated as of the last day of
such preceding month-end, as required pursuant to Section 3.1(d)
hereof, together with an accounts receivable aging and inventory list
of each of the Borrowers if requested by Bank;
(vi) Promptly upon receipt thereof, any reports
submitted to any of the Borrowers or any Consolidated Subsidiary of any
of the Borrowers (other than reports previously delivered pursuant to
Sections 7.1(a)(i) and (ii) above) by independent accountants in
connection with any annual, interim or special audit made by them of
the books of any of the Borrowers or any Consolidated Subsidiary of any
of the Borrowers;
(vii) Promptly upon any filing thereof, and in any
event within ten (10) days after the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and annual,
quarterly or interim reports which Agri-Nutrition shall file with the
Securities and Exchange Commission;
(viii) Promptly upon the mailing thereof to the
shareholders of any of the Borrowers generally, and in any event within
ten (10) days after such mailing, copies of all financial statements,
reports, proxy statements and other material information so mailed; and
(ix) With reasonable promptness, such further
information regarding the business, affairs and financial condition of
any of the Borrowers or any Subsidiary of any of the Borrowers as Bank
may from time to time reasonably request.
<PAGE>
Bank is hereby authorized to deliver a copy of any financial
statement or other information made available by any of the Borrowers to any
regulatory authority having jurisdiction over Bank, pursuant to any request
therefor.
(b) Payment of Indebtedness. Each of the Borrowers and each Subsidiary of
any of the Borrowers will (i) pay any and all Indebtedness payable or guaranteed
by such Borrower or such Subsidiary of such Borrower, as the case may be, and
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) in accordance with the
agreement, document or instrument relating to such Indebtedness or Guarantee and
(ii) faithfully perform, observe and discharge all covenants, conditions and
obligations which are imposed upon such Borrower or such Subsidiary of such
Borrower, as the case may be, by any and all agreements, documents and
instruments evidencing, securing or otherwise relating to such Indebtedness or
Guarantee.
(c) Consultations and Inspections. Each of the Borrowers will permit, and
will cause each Subsidiary of any such Borrower to permit, Bank (and any Person
appointed by Bank to whom Borrowers do not reasonably object) to discuss the
affairs, finances and accounts of Borrowers and each Subsidiary of any of the
Borrowers with the officers of each such Borrower and each Subsidiary of any of
the Borrowers, all at such reasonable times and as often as Bank may reasonably
request. Each of the Borrowers will also permit, and will cause each Subsidiary
of any such Borrower to permit, inspection of its Properties, books and records
by Bank during normal business hours or at other reasonable times.
(d) Payment of Taxes; Corporate Existence; Maintenance of Properties;
Insurance. Each of the Borrowers and each Subsidiary of any of the Borrowers
will:
(i) Duly file all Federal, state and local income tax
returns and all other tax returns and reports of such Borrower and each
Subsidiary of any such Borrower which are required to be filed and duly
pay and discharge promptly all taxes, assessments and other
governmental charges imposed upon it or any of its income, Property or
assets; provided, however, that none of the Borrowers nor any
Subsidiary of any of the Borrowers shall be required to pay any such
tax, assessment or other governmental charge the payment of which is
being contested in good faith and by appropriate proceedings diligently
conducted and for which adequate reserves in form and amount
satisfactory to Bank have been provided, except that Borrowers and each
Subsidiary of any of the Borrowers shall pay or cause to be paid all
such taxes, assessments and governmental charges forthwith upon the
commencement of proceedings to foreclose any Lien which is attached as
security therefor, unless such foreclosure is stayed by the filing of
an appropriate bond in a manner satisfactory to Bank;
(ii) Do all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchise and
to be duly qualified to do business in all jurisdictions where the
nature of its business requires such qualification;
<PAGE>
(iii) Maintain and keep its Properties as a whole in
good repair, working order and condition; provided, however, that
nothing in this subsection (iii) shall prevent any abandonment of any
Property which is not disadvantageous in any material respect to Bank
and which, in the good faith opinion of the management of any Borrower,
is in the best interests of such Borrower or such Subsidiary of any
such Borrower, as the case may be; and
(iv) Insure with financially sound and reputable
insurers acceptable to Bank, all Property of Borrowers and each
Subsidiary of any of the Borrowers of the character usually insured by
corporations engaged in the same or similar businesses similarly
situated, against loss or damage of the kind customarily insured
against by such corporations, unless higher limits or coverage are
reasonably required in writing by Bank, and carry adequate liability
insurance and other insurance of a kind and in an amount generally
carried by corporations engaged in the same or similar businesses
similarly situated, unless higher limits or coverage are reasonably
required in writing by Bank. All such insurance may be subject to
reasonable deductible amounts. Promptly upon Bank's request therefor,
each of the Borrowers shall provide Bank with evidence that each such
Borrower maintains, and that each Subsidiary of any such Borrower
maintains, the insurance required under this Section 7.1(d)(iv), and
evidence of the payment of all premiums therefor.
(e) Accountant. Borrowers shall give Bank prompt notice of any change of
Borrowers' independent certified public accountants and a statement of the
reasons for such change. Borrowers shall at all times utilize independent
certified public accountants of nationally recognized standing reasonably
acceptable to Bank.
(f) ERISA Compliance. If any of the Borrowers or any Subsidiary of any of
the Borrowers shall have any Pension Plan, such Borrower and/or such Subsidiary
or Subsidiaries of any of the Borrowers shall comply with all requirements of
ERISA relating to such plan. Without limiting the generality of the foregoing,
none of the Borrowers nor any Subsidiary of any of the Borrowers shall:
(i) permit any Pension Plan maintained by it to
engage in any nonexempt "prohibited transaction," as such term is
defined in Section 4975 of the Code;
(ii) permit any Pension Plan maintained by it to
incur any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA, 29 U.S.C. ss. 1082, whether or not waived;
<PAGE>
(iii) terminate any such Pension Plan in a manner
which could result in the imposition of a Lien on any Property of any
of the Borrowers or any Subsidiary of any of the Borrowers pursuant to
Section 4068 of ERISA, 29 U.S.C. ss.1368; or
(iv) take any action which would constitute a
complete or partial withdrawal from a Multiemployer Plan within the
meaning of Sections 4203 and 4205 of Title IV of ERISA.
Notwithstanding any provision contained in this Section 7.1(f)
to the contrary, an act by any of the Borrowers or any Subsidiary of any of the
Borrowers shall not be deemed to constitute a violation of subparagraphs (i)
through (iv) hereof unless Bank determines in good faith that said action,
individually or cumulatively with other acts of any of the Borrowers and the
Subsidiaries of any of the Borrowers, does have or is likely to cause a
significant adverse financial effect upon any of the Borrowers or any Subsidiary
of any of the Borrowers.
Borrowers shall have the affirmative obligation hereunder to
report to Bank any of those acts identified in subparagraphs (i) through (iv)
hereof, regardless of whether said act does or is likely to cause a significant
adverse financial effect upon any of the Borrowers or any Subsidiary of any of
the Borrowers, and failure by Borrowers to report such act promptly upon any
such Borrower's becoming aware of the existence thereof shall constitute an
Event of Default hereunder.
(g) Maintenance of Books and Records. Each of the Borrowers and each
Subsidiary of any of the Borrowers will maintain its books and records in
accordance with Generally Accepted Accounting Principles consistently applied
and in which true, correct and complete entries will be made of all of its
dealings and transactions.
(h) Further Assurances. Each of the Borrowers will execute any and all
further agreements, documents and instruments, and take any and all further
actions which may be required under applicable law, or which Bank may from time
to time reasonably request, in order to effectuate the transactions contemplated
by this Agreement, the Note, the Security Agreements, the Deed of Trust, the
Letter of Credit Applications and the other Transaction Documents.
(i) Financial Covenants. Borrowers will:
(i) Maintain a ratio of Indebtedness (determined on a
consolidated basis for Borrowers and their Consolidated Subsidiaries
and in accordance with Generally Accepted Accounting Principles
consistently applied, but excluding Subordinated Debt) to Consolidated
Tangible Net Worth of not more than 2.50 to 1.0 at all times during the
Term hereof;
(ii) Maintain a ratio of Consolidated EBITDA minus
Capital Expenditures and minus purchases by Borrowers of any of the
<PAGE>
outstanding capital stock of Agri-Nutrition during any such period
(determined on a consolidated basis for Borrowers and their
Consolidated Subsidiaries and in accordance with Generally Accepted
Accounting Principles consistently applied, for the twelve month period
ending on the date of any such calculation), to Consolidated Interest
Expense plus Consolidated Tax Expense of at least (A) 1.10 to 1.0 at
all times up to and including July 31, 1998, (B) 1.35 to 1.0 at all
times from August 1, 1998 up to and including October 31, 1998, (C)
1.50 to 1.0 at all times from November 1, 1998 up to and including
October 31, 1999, and (D) 1.70 to 1.0 at all times thereafter during
the Term hereof;
(iii) Maintain a ratio of Indebtedness (determined on
a consolidated basis for Borrowers and their Consolidated Subsidiaries
and in accordance with Generally Accepted Accounting Principles
consistently applied, but excluding Subordinated Debt) to Consolidated
EBITDA of not more than (A) 7.00 to 1.0 at all times up to and
including July 31, 1998, (B) 6.50 to 1.0 at all times from August 1,
1998 up to and including February 28, 1999, (C) 7.00 to 1.0 at all
times from March 1, 1999 up to and including July 31, 1999, (D) 6.00 to
1.0 at all times from August 1, 1999 up to and including October 31,
1999, (E) 5.75 to 1.0 at all times from November 1, 1999 up to and
including February 28, 2000, (F) 6.75 to 1.0 at all times from March 1,
2000 up to and including July 31, 2000, and (G) 5.75 to 1.0 at all
times thereafter during the Term hereof;
(iv) Maintain a minimum net income or maximum net
loss as the case may be (in either case including extraordinary losses
but excluding extraordinary gains except to the extent extraordinary
gains may be netted against extraordinary losses in a period, and
determined on a consolidated basis for Borrowers and their Consolidated
Subsidiaries in accordance with Generally Accepted Accounting
Principles consistently applied, for the twelve-month period ending on
the date of each such calculation) of: (A) a net loss of not more than
One Hundred Fifty Thousand Dollars ($150,000.00) at each month-end up
to and including March 31, 1999, and (B) a net income of at least One
Hundred Thousand Dollars ($100,000.00) at each month-end thereafter,
commencing with the month ending April 30, 1999.
(v) Deliver a certificate of the principal financial
officers of each of the Borrowers containing the financial ratio
calculations required in clauses (i) through (iv) above simultaneously
with the financial statements referred to in Sections 7.1(a)(i) and
(ii).
(j) Compliance with Law. Each of the Borrowers will,
and will cause each Subsidiary of any of the Borrowers to, comply with any and
all laws, ordinances and governmental and regulatory rules and regulations to
which it is subject and obtain any and all licenses, permits, franchises and
other governmental and regulatory authorizations necessary to the ownership of
its Properties or to the conduct of its business, which violation or failure to
obtain might materially adversely affect the condition or operation, financial
or otherwise, of any of the Borrowers or any Subsidiary of any of the Borrowers.
<PAGE>
(k) Notices. Each of the Borrowers will notify Bank in writing of any of
the following immediately upon learning of the occurrence thereof, describing
the same and, if applicable, the steps being taken by the Person(s) affected
with respect thereto:
(i) Default. The occurrence of any Default or Event
of Default under this Agreement or any default or event of default by
any of the Borrowers, any other Obligor or any Subsidiary of any of the
Borrowers under any note, indenture, loan agreement, mortgage, deed of
trust, security agreement, lease or other similar agreement, document
or instrument to which any of the Borrowers, any other Obligor or any
Subsidiary of any of the Borrowers, as the case may be, is a party or
by which it is bound or to which it is subject;
(ii) Litigation. The institution of any litigation,
arbitration proceeding or governmental or regulatory proceeding
affecting any of the Borrowers, any other Obligor, any Subsidiary of
any of the Borrowers, any Collateral or any Third Party Collateral,
whether or not considered to be covered by insurance, provided that, if
such proceeding seeks money damages, the damages sought are in excess
of $100,000.00;
(iii) Judgment. The entry of any judgment or decree
against any of the Borrowers, any other Obligor or any Subsidiary of
any of the Borrowers in an amount of $100,000.00 or more;
(iv) Pension Plans. The occurrence of a Reportable
Event with respect to any Pension Plan; the filing of a notice of
intent to terminate a Pension Plan by any of the Borrowers, any ERISA
Affiliate or any Subsidiary of any of the Borrowers; the institution of
proceedings to terminate a Pension Plan by the PBGC or any other
Person; the withdrawal in a "complete withdrawal" or a "partial
withdrawal" as defined in Sections 4203 and 4205, respectively, of
ERISA by any of the Borrowers, any ERISA Affiliate or any Subsidiary of
any of the Borrowers from any Multiemployer Plan; or the incurrence of
any material increase in the contingent liability of any of the
Borrowers or any Subsidiary of any of the Borrowers with respect to any
"employee welfare benefit plan" as defined in Section 3(1) of ERISA
which covers retired employees and their beneficiaries;
(v) Change of Name. Any change in the name of any of
the Borrowers, any other Obligor or any Subsidiary of any of the
Borrowers at least fifteen (15) days prior to the effective date
thereof;
<PAGE>
(vi) Change in Place(s) of Business. Any
proposed opening, closing or other change of any place of business
of any of the Borrowers or any Subsidiary of any of the
Borrowers;
(vii) Environmental Matters. Receipt of any notice
that the operations of any of the Borrowers, any other Obligor or any
Subsidiary of any of the Borrowers are not in full compliance with any
of the requirements of any applicable Environmental Law or Occupational
Safety and Health Law; receipt of notice that any of the Borrowers, any
other Obligor or any Subsidiary of any of the Borrowers is subject to
any Federal, state or local investigation evaluating whether any
remedial action is needed to respond to the release of any Hazardous
Materials or any other hazardous or toxic waste, substance or
constituent or other substance into the environment; or receipt of
notice that any of the Properties or assets of any of the Borrowers,
any other Obligor or any Subsidiary of any of the Borrowers are subject
to an "Environmental Lien." For purposes of this Section 7.1(k)(vii),
"Environmental Lien" shall mean a Lien in favor of any governmental or
regulatory agency, entity, authority or official for (1) any liability
under Environmental Laws or (2) damages arising from or costs incurred
by any such governmental or regulatory agency, entity, authority or
official in response to a release of any Hazardous Materials or any
other hazardous or toxic waste, substance or constituent or other
substance into the environment;
(viii) Material Adverse Change. The occurrence of any
material adverse change in the business, operations or condition,
financial or otherwise, of any of the Borrowers, any other Obligor or
any Subsidiary of any of the Borrowers;
(ix) Change in Management or Line(s) of Business. Any
material change in the senior management of any of the Borrowers or any
Subsidiary of any of the Borrowers or any change in any Borrower's or
any Subsidiary of any of the Borrowers' line(s) of business; and
(x) Other Notices. Any notices required to be
provided pursuant to other provisions of this Agreement and notice of
the occurrence of such other events as Bank may from time to time
reasonably specify.
(l) Borrowers' Bank Accounts. Each Borrower will, and will cause each
Subsidiary of any of the Borrowers (other than St. JON VRX Products Limited) to,
maintain its primary checking, lockbox and operating accounts with Bank and to
use Bank's lockbox services for purposes of facilitating the collection of each
Borrower's or any such Subsidiary's accounts receivable from its customers.
7.2 Negative Covenants of Borrowers. Borrowers covenant and
agree that, so long as Bank has any obligation to make any Loan or to issue any
Letter of Credit hereunder or any of Borrowers' Obligations remain unpaid,
unless the prior written consent of Bank is obtained:
<PAGE>
(a) Limitation on Indebtedness. None of the Borrowers nor any Subsidiary of
any of the Borrowers will incur or be obligated on any Indebtedness, either
directly or indirectly, by way of Guarantee, suretyship or otherwise, other
than:
(i) Indebtedness evidenced by the Note;
(ii) Unsecured trade accounts payable incurred in the
ordinary course of business;
(iii) Indebtedness listed on Schedule 6.10 attached
hereto;
(iv) Indebtedness for Capitalized Leases permitted
under Section 7.2(i) in an amount not to exceed $100,000.00 in the
aggregate (for Borrowers and all Subsidiaries of any of the Borrowers)
at any one time outstanding;
(v) Borrowed money Indebtedness incurred by St. JON
VRX Products Limited in a maximum principal amount not to exceed
$1,000,000.00, which indebtedness may be guaranteed by Agri-Nutrition;
and
(vi) Indebtedness not otherwise permitted by this
Section 7.2(a) in an amount not to exceed $25,000.00 in the aggregate
at any one time outstanding for Borrowers and all Subsidiaries of any
of the Borrowers.
(b) Limitations on Liens. None of the Borrowers will create, incur, assume
or suffer to exist, or will cause or permit any Subsidiary of any such Borrower
to create, incur, assume or suffer to exist, any Lien on any of its Property,
assets or revenues other than:
(i) Liens presently in existence which are
described on Schedule 6.12 attached hereto;
(ii) Liens granted by St. JON VRX Products Limited on
its Property to secure the Indebtedness permitted under Section
7.2(a)(v) above;
(iii) Pledges or deposits in connection with or to
secure workmen's compensation, unemployment insurance, pension or other
employee benefits;
(iv) Any Lien renewing, extending or refunding any
Lien permitted hereunder, provided that the principal amount of
Indebtedness secured by such Lien is not increased and such Lien is not
extended to cover any other Property or assets of any such Borrower or
any Subsidiary of any such Borrower; and
<PAGE>
(v) Subject to Section 7.1(d)(i), Liens for taxes,
assessments or governmental charges or levies on the income, Property
or assets of any of the Borrowers or any Subsidiary of any of the
Borrowers if the same are being contested in good faith and by
appropriate proceedings diligently conducted and for which adequate
reserves in form and amount satisfactory to Bank are provided.
(c) Sale of Property. None of the Borrowers nor any Subsidiary of any of
the Borrowers will sell, lease, transfer or otherwise dispose of any Property or
assets of any such Borrower or such Subsidiary of any of the Borrowers, as the
case may be, except in the ordinary course of business; provided, however, that
the foregoing shall not preclude any of the Borrowers or any Subsidiary of any
of the Borrowers from selling, leasing, transferring or otherwise disposing of
less than substantially all of its Property or assets so long as the purchase
price for said Property or assets shall be equal to or greater than the
depreciated book value of said Property or assets.
(d) Mergers and Consolidations. None of the Borrowers nor any Subsidiary of
any of the Borrowers will merge or consolidate with any other Person or sell,
transfer or convey all or a substantial part of its Property or assets to any
Person, except that Subsidiaries of any of the Borrowers may merge with each
other or into any of the Borrowers, and except that any of the Borrowers or any
Subsidiary of any of the Borrowers may merge with or consolidate with any other
Person provided that such Borrower or such Subsidiary shall be the surviving
entity and no Default or Event of Default shall exist hereunder either prior to
or immediately following any such merger or consolidation, and provided further
that Borrowers shall have given Bank prompt written notice, but in no event less
than twenty (20) days' prior written notice, of any such merger or consolidation
and such Borrower or such Subsidiary shall execute UCC-1 financing statements or
other documents reasonably deemed necessary by Bank to perfect and continue
Bank's security interests in the Collateral acquired through any such merger or
consolidation.
(e) Acquisitions. None of the Borrowers nor any Subsidiary of any of the
Borrowers will acquire all or substantially all of the stock or assets of any
Person, except that any Borrower or any such Subsidiary may acquire all or
substantially all of the stock or assets of any other Person upon thirty (30)
days' prior written notice to Bank provided that no Default or Event of Default
then exists hereunder, and provided further that all of the accounts receivable,
Inventory, equipment, general intangibles and other assets of such acquired
Person shall be pledged as collateral to Bank for Borrowers' Obligations
hereunder in a manner satisfactory to Bank. Borrowers agree to execute and to
cause any such Subsidiary or other acquired Person to execute such security
agreements, pledge agreements, collateral assignments, UCC-1 financing
statements and other agreements which Bank may reasonably request in order to
grant and perfect such security interests.
<PAGE>
(f) Fiscal Year. None of the Borrowers nor any Subsidiary of any of the
Borrowers will change its fiscal year.
(g) Stock Redemptions and Distributions. None of the Borrowers will make or
declare or incur any liability to make any Distribution in respect of the
capital stock of Agri-Nutrition, except that provided no Default or Event of
Default has occurred and is continuing hereunder and provided Borrowers project
that they shall remain in compliance with each of the financial covenants
contained in Section 7.1(i) herein after any such Distribution, Agri-Nutrition
may repurchase up to 500,000 shares (less the number of shares repurchased
between December 12, 1995 and the date hereof) of its capital stock on the open
market pursuant to that certain share repurchase program outlined to Bank in a
letter from Agri-Nutrition to Bank dated December 12, 1995.
(h) Transactions with Related Parties. None of the Borrowers nor any
Subsidiary of any of the Borrowers will, directly or indirectly, engage in any
material transaction, in the ordinary course of business or otherwise, with any
Related Party unless such transaction is upon fair market terms, is not
disadvantageous in any material respect to Bank and has been approved by a
majority of the disinterested directors of such Borrower or such Subsidiary of
any of the Borrowers, as the case may be (or, if none of such directors are
disinterested, by a majority of the directors), as being in the best interests
of such Borrower or such Subsidiary of any such Borrower, as the case may be. In
addition, none of the Borrowers nor any Subsidiary of any of the Borrowers shall
(i) transfer any Property or assets to any Related Party for other than its fair
market value or (ii) purchase or sign any agreement to purchase any stock or
other securities of any Related Party (whether debt, equity or otherwise),
underwrite or Guarantee the same, or otherwise become obligated with respect
thereto. Nothing in this Section 7.2(h) shall prohibit any Borrower or any
Subsidiary from granting nonassignable, nonexclusive licenses of its patents and
trademarks at less than market value to any of the other Borrowers or other
Subsidiaries of any of the Borrowers hereunder.
(i) Loans and Investments. None of the Borrowers nor any Subsidiary of any
of the Borrowers will make any loans or advances or extensions of credit to
(other than extensions of credit in the ordinary course of business), purchase
any stocks, bonds, notes, debentures or other securities of, make any
expenditures on behalf of, or in any manner assume liability (direct, contingent
or otherwise) for the Indebtedness of any Person, except that Borrowers and the
Subsidiaries of any of the Borrowers may:
(i) Permit to remain outstanding those loans to
employees of Borrowers as disclosed on Schedule 6.10 attached hereto;
(ii) Acquire and own stock, obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to any such Borrower or any Subsidiary of any such
Borrower;
(iii) Own, purchase or acquire (A) prime commercial
paper and certificates of deposit in United States commercial banks
(having capital resources
<PAGE>
in excess of $20,000,000.00), in each case
due within one (1) year from the date of purchase and payable in the
United States in United States dollars, (B) obligations of the United
States government or any agency thereof, (C) obligations guaranteed
directly by the United States government or (D) repurchase agreements
of United States commercial banks (having capital resources in excess
of $20,000,000.00) for terms of less than one (1) year;
(iv) Make or permit to remain outstanding travel and
other like advances to officers and employees of any such Borrower or
any Subsidiary of any such Borrower in the ordinary course of business;
(v) Make loans from time to time to or advances on
behalf of any of the other Borrowers; and
(vi) Make loans from time to time to or advances to
St. JON VRX Products Limited in connection with the purchase of
Inventory from any of the Borrowers in the ordinary course of business.
(j) Dissolution or Liquidation. Borrowers shall not seek or permit the
dissolution or liquidation of any of the Borrowers in whole or in part.
(k) Change in Nature of Business. None of the Borrowers nor any Subsidiary
of any of the Borrowers will make any material change in the nature of its
business.
(l) Pension Plans. None of the Borrowers nor any Subsidiary of any of the
Borrowers shall (a) permit any condition to exist in connection with any Pension
Plan which might constitute grounds for the PBGC to institute proceedings to
have such Pension Plan terminated or a trustee appointed to administer such
Pension Plan or (b) engage in, or permit to exist or occur, any other condition,
event or transaction with respect to any Pension Plan which could result in the
incurrence by any of the Borrowers or any Subsidiary of any of the Borrowers of
any material liability, fine or penalty. None of the Borrowers nor any
Subsidiary of any of the Borrowers shall become obligated to contribute to any
Pension Plan or Multiemployer Plan other than any such plan or plans in
existence on the date hereof.
(m) Change in Ownership. At all times during the Term hereof, ownership of
all of PM Resources' and St. JON's voting stock shall be maintained by
Agri-Nutrition, and Agri-Nutrition shall maintain voting control of all of the
outstanding voting stock of PM Resources and St. JON at all times during the
Term hereof.
7.3 Use of Proceeds. Borrowers agree that (i) the proceeds of
the Facility A Loans will be used solely to refinance existing indebtedness of
Borrowers and for Borrowers' working capital requirements; (ii) the proceeds of
the Facility B Loan will be used solely to refinance existing indebtedness of
Borrowers and for Borrowers' general corporate purposes; (iii) none of such
proceeds will be used in violation of any applicable law or regulation; and (iv)
none of the Borrowers will engage principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying "margin stock" within the meaning of Regulation U of The Board of
Governors of the Federal Reserve System, as amended.
<PAGE>
SECTION 8. EVENTS OF DEFAULT.
If any of the following (each of the following herein
sometimes called an "Event of Default") shall occur and be continuing:
8.1 Any of the Borrowers shall fail to pay any of Borrowers'
Obligations as and when the same shall become due and payable, whether by reason
of demand, acceleration or otherwise;
8.2 Any representation or warranty of any of the Borrowers
made in this Agreement, in any other Transaction Document to which such Borrower
is a party or in any certificate, agreement, instrument or statement furnished
or made or delivered pursuant hereto or thereto or in connection herewith or
therewith, shall prove to have been untrue or incorrect in any material respect
when made or effected;
8.3 Any of the Borrowers shall fail to perform or observe any
term, covenant or provision contained in Section 7.1(a)(i), (ii), (vi), (vii),
(viii) or (ix), Section 7.1(i), Section 7.2 or Section 7.3;
8.4 Borrowers shall fail to timely deliver the Borrowing Base
Certificate required by Sections 3.1(d) and 7.1(a)(v) or the financial
statements or compliance certificate required by Section 7.1(a)(iii) or (iv),
unless prior to the date required for delivery of such financial statements,
compliance certificate or Borrowing Base Certificate, Borrowers shall notify the
Bank that they anticipate a delay in the delivery of such information, in which
case such default shall not constitute an Event of Default hereunder unless such
financial statement, compliance certificate or Borrowing Base Certificate is not
delivered within 10 days following such notice of delay;
8.5 Any of the Borrowers shall fail to perform or observe any
other term, covenant or provision contained in this Agreement and any such
failure shall remain unremedied for fifteen (15) days after written notice
thereof shall have been given to Borrowers by Bank;
8.6 This Agreement or any of the other Transaction Documents
shall at any time for any reason cease to be in full force and effect or shall
be declared to be null and void by a court of competent jurisdiction, or if the
validity or enforceability thereof shall be contested or denied by any of the
Borrowers, or if the transactions completed hereunder or thereunder shall be
contested by any of the Borrowers or if any of the Borrowers shall deny that it
has any or further liability or obligation hereunder or thereunder;
8.7 Any of the Borrowers, any Subsidiary of any of the
Borrowers or any other Obligor shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code or any
other Federal, state or foreign bankruptcy, insolvency, receivership,
<PAGE>
liquidation or similar law, (ii) consent to the institution of, or fail to
contravene in a timely and appropriate manner, any such proceeding or the filing
of any such petition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official of itself,
himself or herself or of a substantial part of its, his or her Property or
assets, (iv) file an answer admitting the material allegations of a petition
filed against itself, himself or herself in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable, admit in
writing its, his or her inability or fail generally to pay its, his or her debts
as they become due or (vii) take any corporate or other action for the purpose
of effecting any of the foregoing;
8.8 An involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of any of the Borrowers, any Subsidiary of any of the
Borrowers or any other Obligor, or of a substantial part of the Property or
assets of any of the Borrowers, any Subsidiary of any of the Borrowers or any
other Obligor, under Title 11 of the United States Code or any other Federal,
state or foreign bankruptcy, insolvency, receivership, liquidation or similar
law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or
similar official of any of the Borrowers, any Subsidiary of any of the Borrowers
or any other Obligor or of a substantial part of the Property or assets of any
of the Borrowers, any Subsidiary of any of the Borrowers or any other Obligor or
(iii) the winding-up or liquidation of any of the Borrowers, any Subsidiary of
any of the Borrowers or any other Obligor; and such proceeding or petition shall
continue undismissed for thirty (30) consecutive days or an order or decree
approving or ordering any of the foregoing shall continue unstayed and in effect
for thirty (30) consecutive days;
8.9 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of either of the Security Agreements;
8.10 Any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Deed of Trust;
8.11 Any "Default" or "Event of Default" (as defined therein)
shall occur under or within the meaning of either of the Pledge Agreements, or
if either of the Pledge Agreements shall at any time for any reason cease to be
in full force and effect or shall be declared to be null and void by a court of
competent jurisdiction, or if the validity or enforceability thereof shall be
contested or denied by Agri-Nutrition or St. JON, or if either Agri-Nutrition or
St. JON shall deny that it has any further liability or obligation thereunder,
or if either Agri-Nutrition or St. JON shall fail to comply with or observe any
of the terms, provisions or conditions contained in its Pledge Agreement;
8.12 Any default or event of default shall occur under
the terms of any Letter of Credit Application;
8.13 Any of the Borrowers, any Subsidiary of any of the
Borrowers or any other Obligor shall be declared by Bank to be in default on, or
pursuant to the terms of, (1) any other present or future obligation to Bank,
including, without limitation, any other loan, line of credit, revolving credit,
guaranty or letter of credit reimbursement obligation, or (2) any other present
or future agreement purporting to convey to Bank a Lien upon any Property or
assets of any of the Borrowers, such Subsidiary of any of the Borrowers or such
other Obligor, as the case may be;
<PAGE>
8.14 Any of the Borrowers, any Subsidiary of any of the
Borrowers or any other Obligor shall fail (and such failure shall not have been
cured or waived) to perform or observe any term, provision or condition of, or
any other default or event of default shall occur under, any agreement, document
or instrument evidencing, securing or otherwise relating to any outstanding
Indebtedness of any of the Borrowers, such Subsidiary of any of the Borrowers or
such other Obligor, as the case may be, for borrowed money (other than
Borrowers' Obligations) in a principal amount in excess of Five Hundred Thousand
Dollars ($500,000.00), if the effect of such failure or default is to cause or
permit such Indebtedness to be declared to be due and payable or otherwise
accelerated, or to be required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof;
8.15 Any of the Borrowers, any Subsidiary of any of the
Borrowers or any other Obligor shall have a judgment entered against it, him or
her in an amount of $100,000.00 or more by a court having jurisdiction in the
premises and such judgment shall not be appealed in good faith or satisfied by
such Borrower, such Subsidiary of any of the Borrowers or such other Obligor, as
the case may be, within thirty (30) days after the entry of such judgment;
8.16 The occurrence of a Reportable Event with respect to any
Pension Plan; the filing of a notice of intent to terminate a Pension Plan by
any of the Borrowers, any ERISA Affiliate or any Subsidiary of any of the
Borrowers; the institution of proceedings to terminate a Pension Plan by the
PBGC or any other Person; the withdrawal in a "complete withdrawal" or a
"partial withdrawal" as defined in Sections 4203 and 4205, respectively, of
ERISA by any of the Borrowers, any ERISA Affiliate or any Subsidiary of any of
the Borrowers from any Multiemployer Plan; or the incurrence of any material
increase in the contingent liability of any of the Borrowers or any Subsidiary
of any of the Borrowers with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA which covers retired employees and their
beneficiaries; or
8.17 The institution by any of the Borrowers, any ERISA
Affiliate or any Subsidiary of any of the Borrowers of steps to terminate any
Pension Plan if, in order to effectuate such termination, any such Borrower,
such ERISA Affiliate or such Subsidiary of any of the Borrowers, as the case may
be, would be required to make a contribution to such Pension Plan, or would
incur a liability or obligation to such Pension Plan, in excess of One Hundred
Thousand Dollars ($100,000.00) or the institution by the PBGC of steps to
terminate any Pension Plan;
THEN, and in each such event (other than an event described in
Sections 8.7 or 8.8), Bank may declare that its obligation to make Loans under
this Agreement has terminated, whereupon such obligation of Bank shall be
immediately and forthwith terminated, and Bank may further declare the entire
outstanding principal balance of and all accrued and unpaid interest on the Note
and all of the other Borrowers' Obligations to be forthwith due and payable,
<PAGE>
whereupon all of the unpaid principal balance of and all accrued and unpaid
interest on the Note and all such other Borrowers' Obligations shall become and
be immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by each of the
Borrowers, and Bank may exercise any and all other rights and remedies which it
may have under any of the other Transaction Documents or under applicable law;
provided, however, that upon the occurrence of any event described in Sections
8.7 or 8.8, Bank's obligation to make Loans under this Agreement shall
automatically terminate and the entire outstanding principal balance of and all
accrued and unpaid interest on the Note and all of the other Borrowers'
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each of the Borrowers, and Bank may exercise any and
all other rights and remedies which it may have under any of the other
Transaction Documents or under applicable law.
SECTION 9. GENERAL.
9.1 No Waiver. No failure or delay by Bank in exercising any
right, remedy, power or privilege hereunder or under any other Transaction
Document shall operate as a waiver thereof; nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The remedies provided herein and
in the other Transaction Documents are cumulative and not exclusive of any
remedies provided by law. Nothing herein contained shall in any way affect the
right of Bank to exercise any statutory or common law right of banker's lien or
setoff.
9.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrowers (any such notice being expressly
waived by each of the Borrowers) and to the fullest extent permitted by law, to
setoff and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by Bank and any and all other
indebtedness at any time owing by Bank to or for the credit or account of any of
the Borrowers against any and all of Borrowers' Obligations irrespective of
whether or not Bank shall have made any demand hereunder or under any of the
other Transaction Documents and although such obligations may be contingent or
unmatured. Bank agrees to promptly notify Borrowers after any such setoff and
application made by Bank, provided, however, that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of Bank under this Section 9.2 are in addition to any other rights and remedies
(including, without limitation, other rights of setoff) which Bank may have.
Nothing contained in this Agreement or any other Transaction Document shall
impair the right of Bank to exercise any right of setoff or counterclaim it may
have against any of the Borrowers and to apply the amount subject to such
exercise to the payment of indebtedness of any of the Borrowers unrelated to
this Agreement or the other Transaction Documents.
9.3 Cost and Expenses. Borrowers jointly and severally agree,
whether or not any Loan is made hereunder, to pay Bank upon demand (i) all
out-of-pocket costs and expenses and all Attorneys' Fees of Bank in connection
with the preparation, documentation, negotiation,
<PAGE>
execution and administration of this Agreement, the Note and the other
Transaction Documents, (ii) all recording, filing, title insurance, surveying
and appraisal fees incurred in connection with this Agreement and the other
Transaction Documents, (iii) all out-of-pocket costs and expenses and all
Attorneys' Fees of Bank in connection with the preparation of any waiver or
consent hereunder or any amendment hereof or any Event of Default or alleged
Event of Default hereunder, (iv) if an Event of Default occurs, all
out-of-pocket costs and expenses and all Attorneys' Fees incurred by Bank in
connection with such Event of Default and collection and other enforcement
proceedings resulting therefrom and (v) all other Attorneys' Fees incurred by
Bank relating to or arising out of or in connection with this Agreement or any
of the other Transaction Documents. Borrowers further jointly and severally
agree to pay or reimburse Bank for any stamp or other taxes which may be payable
with respect to the execution, delivery, recording and/or filing of this
Agreement, the Note, the Security Agreements, the Deed of Trust or any of the
other Transaction Documents. All of the obligations of Borrowers under this
Section 9.3 shall survive the satisfaction and payment of Borrowers' Obligations
and the termination of this Agreement.
9.4 Environmental Indemnity. Borrowers hereby jointly and
severally agree to indemnify Bank and hold Bank harmless from and against any
and all losses, liabilities, damages, injuries, costs, expenses and claims of
any and every kind whatsoever (including, without limitation, court costs and
Attorneys' Fees) which at any time or from time to time may be paid, incurred or
suffered by, or asserted against, Bank for, with respect to or as a direct or
indirect result of the violation by any of the Borrowers or any Subsidiary of
any of the Borrowers of any Environmental Laws; or with respect to, or as a
direct or indirect result of the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, properties utilized by
any of the Borrowers and/or any Subsidiary of any of the Borrowers in the
conduct of their respective businesses into or upon any land, the atmosphere or
any watercourse, body of water or wetland, of any Hazardous Materials or any
other hazardous or toxic waste, substance or constituent or other substance
(including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under the Environmental Laws); and
the provisions of and undertakings and indemnification set out in this Section
9.4 shall survive the satisfaction and payment of Borrowers' Obligations and the
termination of this Agreement.
9.5 General Indemnity. In addition to the payment of expenses
pursuant to Section 9.3, whether or not the transactions contemplated hereby
shall be consummated, Borrowers hereby jointly and severally agree to indemnify,
pay and hold Bank and any holder(s) of the Note, and the officers, directors,
employees, agents and affiliates of Bank and such holder(s) (collectively, the
"Indemnitees") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitees shall be
designated a party thereto), that may be imposed on, incurred by or asserted
against the Indemnitees, in any manner relating to or arising out of this
Agreement, any of the other Transaction Documents or any other agreement,
document or instrument executed and delivered by any of the Borrowers or any
other Obligor in connection herewith or therewith, the statements
<PAGE>
contained in any commitment letters delivered by Bank, Bank's agreement to make
the Loans hereunder or the use or intended use of the proceeds of any Loan
hereunder (collectively, the "indemnified liabilities"); provided that Borrowers
shall have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of that
Indemnitee as determined by a court of competent jurisdiction. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, each Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them. The provisions of the undertakings and indemnification set out in this
Section 9.5 shall survive satisfaction and payment of Borrowers' Obligations and
the termination of this Agreement.
9.6 Authority to Act. Bank shall be entitled to act on any
notices and instructions (telephonic or written) reasonably believed by Bank to
have been delivered by any person authorized to act on behalf of any of the
Borrowers pursuant hereto, regardless of whether such notice or instruction was
in fact delivered by a person authorized to act on behalf of any such Borrower,
and Borrowers hereby jointly and severally agree to indemnify Bank and hold Bank
harmless from and against any and all losses and expenses, if any, ensuing from
any such action.
9.7 Notices. Any notice, request, demand, consent,
confirmation or other communication hereunder shall be in writing and delivered
in person or sent by telegram, telex, telecopy or registered or certified mail,
return receipt requested and postage prepaid, if to Borrowers in care of
Agri-Nutrition at Riverport Executive Center II, 13801 Riverport Drive, Suite
111, Maryland Heights, Missouri 63043, Attention: Robert J. Elfanbaum, or if to
Bank at 135 North Meramec, St. Louis, Missouri 63105, Attention: Ted H. Kraizer,
or at such other address as either party may designate as its address for
communications hereunder by notice so given. Such notices shall be deemed
effective on the day on which delivered or sent if delivered in person or sent
by telegram, telex or telecopy, or on the third (3rd) Business Day after the day
on which mailed, if sent by registered or certified mail.
9.8 CONSENT TO JURISDICTION; JURY TRIAL WAIVER. EACH OF THE
BORROWERS IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY MISSOURI
STATE COURT OR ANY UNITED STATES OF AMERICA COURT SITTING IN THE EASTERN
DISTRICT OF MISSOURI, AS BANK MAY ELECT, IN ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT.
EACH OF THE BORROWERS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT TO
SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY OF SUCH
COURTS. EACH OF THE BORROWERS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH SUCH BORROWER MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT, AND EACH OF THE BORROWERS FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
<PAGE>
BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE BORROWERS HEREBY EXPRESSLY WAIVES
ALL RIGHTS OF ANY OTHER JURISDICTION WHICH SUCH BORROWER MAY NOW OR HEREAFTER
HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT DOMICILES. EACH OF THE BORROWERS
AUTHORIZES THE SERVICE OF PROCESS UPON SUCH BORROWER BY REGISTERED MAIL SENT TO
BORROWERS AT THEIR ADDRESS SET FORTH IN SECTION 9.7. EACH OF THE BORROWERS
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY LITIGATION BROUGHT IN ACCORDANCE
WITH THIS SECTION.
9.9 Bank's Books and Records. Bank's books and records showing
the account between Borrowers and Bank shall be admissible in evidence in any
action or proceeding and shall constitute prima facie proof thereof.
9.10 Governing Law; Amendments. This Agreement, the Note, the
Security Agreements and all of the other Transaction Documents shall be governed
by and construed in accordance with the internal laws of the State of Missouri,
and this Agreement and the other Transaction Documents may not be changed, nor
may any term, condition or Event of Default be waived, modified, or discharged
orally but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
9.11 References; Headings for Convenience. Unless otherwise
specified herein, all references herein to Section numbers refer to Section
numbers of this Agreement, all references herein to Exhibits A, B, C, D and E
refer to annexed Exhibits A, B, C, D and E which are hereby incorporated herein
by reference and all references herein to Schedules 6.5, 6.6, 6.10, 6.11, 6.12
and 6.17 refer to annexed Schedules 6.5, 6.6, 6.10, 6.11, 6.12 and 6.17 which
are hereby incorporated herein by reference. The Section headings are furnished
for the convenience of the parties and are not to be considered in the
construction or interpretation of this Agreement.
9.12 Subsidiary Reference. Any reference herein to a
Subsidiary or Consolidated Subsidiary of any of the Borrowers, and any financial
definition, ratio, restriction or other provision of this Agreement which is
stated to be applicable to any of the Borrowers and its Subsidiaries or
Consolidated Subsidiaries or which is to be determined on a "consolidated" or
"consolidating" basis, shall apply only to the extent any such Borrower has any
Subsidiaries or Consolidated Subsidiaries and, where applicable, to the extent
any such Subsidiaries are consolidated with such Borrower for financial
reporting purposes.
9.13 Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of each of the Borrowers and its successors and Bank
and its successors and assigns. None of the Borrowers may assign or delegate any
of its rights or obligations under this Agreement.
9.14 NO ORAL AGREEMENTS; ENTIRE AGREEMENT. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE.
TO PROTECT
<PAGE>
BORROWERS AND BANK FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS
REACHED BY BORROWERS AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, WHICH AGREEMENT AND OTHER
TRANSACTION DOCUMENTS ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS
BETWEEN BORROWERS AND BANK, EXCEPT AS BORROWERS AND BANK MAY LATER AGREE IN
WRITING TO MODIFY THEM. 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.
9.15 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.17 Resurrection of Borrowers' Obligations. To the extent
that Bank receives any payment on account of any of Borrowers' Obligations, and
any such payment(s) or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, subordinated and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or Federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrowers' Obligations or part thereof intended to be
satisfied and any and all Liens upon or pertaining to any Property or assets of
any of the Borrowers and theretofore created and/or existing in favor of Bank as
security for the payment of such Borrowers' Obligations shall be revived and
continue in full force and effect, as if such payment(s) had not been received
by Bank and applied on account of Borrowers' Obligations.
IN WITNESS WHEREOF, the parties have executed this Credit
Agreement this 14th day of May, 1998.
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum, Vice President
Chief Financial Officer
PM RESOURCES, INC.
By:
Robert J. Elfanbaum, Vice President
and Treasurer
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Vice President
FIRST BANK
By:
Ted H. Kraizer, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<CASH> 79,548
<SECURITIES> 0
<RECEIVABLES> 4,219,357
<ALLOWANCES> 0
<INVENTORY> 6,806,213
<CURRENT-ASSETS> 12,606,463
<PP&E> 5,679,265
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,417,957
<CURRENT-LIABILITIES> 3,304,723
<BONDS> 0
0
0
<COMMON> 93,336
<OTHER-SE> 15,975,157
<TOTAL-LIABILITY-AND-EQUITY> 27,417,957
<SALES> 16,245,373
<TOTAL-REVENUES> 16,245,373
<CGS> 11,986,969
<TOTAL-COSTS> 11,986,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 382,326
<INCOME-PRETAX> (728,585)
<INCOME-TAX> 280,506
<INCOME-CONTINUING> (448,079)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (448,079)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
