SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
Commission file number 0-4217
ACETO CORPORATION
_______________________________________________________
(Exact name of the company as specified in its charter)
NEW YORK 11-1720520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
One Hollow Lane, Suite 201 11042
LAKE SUCCESS, NEW YORK
(Address of principal (Zip Code)
executive offices)
Company's telephone number, including area code: (516) 627-6000
Securities registered pursuant to Section 12 (b) of the Act:
TITLE OF EACH CLASS Name of each exchange
ON WHICH REGISTERED
None
___________________________________________________________________
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01
_______________________________________________________
(Title of Class)
_______________________________________________________
Indicate by check mark whether the company (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
6,415,959
The aggregate market value of the voting stock of the company held by
non-affiliates of the company as of September 3, 1999 was $64,528,488.
Documents incorporated by reference: The Company's Proxy Statement for
the annual meeting of the Company's shareholders to be held on December 2,
1999. (See Part III herein).
PART I
ITEM 1. BUSINESS
The Company, which was incorporated in 1947, is primarily engaged in the
marketing of fine and industrial chemicals used principally in the
agricultural, color producing, pharmaceutical and surface coating industries.
The Company sells over 600 chemicals used in these and other fields.
Most of the chemicals distributed by the Company are purchased abroad
mainly for sale throughout the United States; to a minor extent, some chemicals
are sold abroad.
During the fiscal year ended June 30, 1999 approximately 50% of the
Company's purchases of chemicals came from Europe and approximately 35% from
Asia.
There were no significant changes in the kinds of products sold by the
Company or in the markets served or methods of distribution used by it.
The chemical industry is highly competitive. Most of the chemicals that
the Company sells are in competition with the products of chemical
manufacturers, including the largest chemical companies, who have substantially
greater resources than the Company. However, in the Company's opinion, based
on reports from its customers and suppliers, its competitive position is
enhanced by the following: the chemical products that it offers are prime
quality products, many produced by major chemical companies, some of whom are
the largest chemical companies in Europe and Asia, which products are offered
by the Company at attractive and competitive prices. For the most part the
Company warehouses the inventories of the chemicals which it sells at public
warehouses strategically located throughout the United States, and can
therefore fill orders rapidly from inventory. The Company has developed ready
access to key purchasing, research and technical executives of both its
customers and suppliers, and therefore one of its salient competitive strengths
is its ability to obtain quick decisions, when necessary, because of such
access. The technical support and services that the Company provides to its
customers is also a strength. The Company does not consider itself to be a
significant factor in the chemical industry taken as a whole.
One of the Company's products accounted for 15% of revenues in fiscal
1999 and 1998; no product accounted for as much as 10% of revenues in fiscal
1997. One of the Company's customers, DuPont Pharmaceuticals Company,
purchasing primarily the aforementioned product, accounted for 16% and 15% of
revenues in fiscal 1999 and 1998, respectively. Again, no customer accounted
for as much as 10% of revenues in fiscal 1997. One of the Company's suppliers
accounted for 29%, 25%, and 22% of total purchases in fiscal 1999, 1998 and
1997, respectively.
Certain of the chemicals purchased by the Company are supplied to it on
an exclusive basis, including the aforementioned pharmaceutical product. Based
on its relationships with its vendors, the Company believes its vendors will
continue to supply such chemicals on an exclusive basis.
The Company holds no patents, trademarks, licenses, franchises or
concessions which it considers to be material to its operations.
Sales of certain of the Company's chemicals are higher in the last six
months of the fiscal year. For the most part, the Company warehouses the
products that it sells and fills orders from inventory. It, therefore, does
not consider information concerning backlogs to be applicable.
A subsidiary of the Company markets certain agricultural chemicals and
contracts for the manufacture of other agricultural chemicals which are subject
to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). FIFRA
requires that test data be provided to the Environmental Protection Agency
(EPA) to register, obtain and maintain approved labels for pesticide products.
The EPA requires that follow-on registrants of these products compensate the
initial registrant for the cost of producing the necessary test data on a basis
prescribed in the FIFRA regulations. Follow-on registrants do not themselves
generate or contract for the data. However, when FIFRA requirements mandate
the generation of new test data to enable all registrants to continue marketing
a pesticide product, often both the initial and follow-on registrants establish
a task force to jointly undertake the testing effort. The Company is presently
a member of two such task force groups. The Company estimates the cost of test
data at the time it is first required, which estimates are amortized over a
period of up to five years, updated annually; and are included in cost of
sales.
Compliance with Federal, State and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment
will have no material effect on the capital expenditures and competitive
position of the Company. During fiscal 1993 the Company announced the closing
of its manufacturing subsidiary located in Carlstadt, New Jersey. At the same
time an environmental consultant was engaged by the Company to determine the
extent of contamination on the site and develop a plan of remediation. Based
on the initial estimates from the consultant a liability was established in
fiscal 1993 for $1.5 million. During fiscal 1997, after additional testing was
completed, the Company received a revised estimate from the consultant. As a
result, the Company recorded an additional liability of $800,000. At June 30,
1998 the remaining liability was $1.4 million. The Company believes it is
possible that such amount may not be sufficient to cover future environmental
remediation but does not believe there will be a material adverse effect on the
financial position or liquidity of the company. However, depending on the
amount and timing of any required remediation over and above the liability
established, it is possible that the Company's future results could be
materially affected in a particular reporting period. Other than the
aforementioned remediation, the Company is not aware of any material
environmental liabilities.
At June 30, 1999, the Company employed approximately 105 persons, none of
whom were covered by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's general headquarters and main sales office occupy
approximately 20,000 square feet of leased space in a modern office building in
Lake Success, New York. The lease expires in April 2001.
The Company's former manufacturing facility is located on an 11-acre
parcel in Carlstadt, New Jersey, owned by the Company. This parcel contains
one building with approximately 5,000 square feet of office space. The
property is held for sale.
In both January 1997 and July 1998 the Company sold parcels located in
Long Island City, New York. Each parcel was comprised of a 5,000 square foot
building.
ITEM 3. LEGAL PROCEEDINGS.
(None)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(None)
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded in the National Market System of
NASDAQ (Symbol: ACET) and was quoted at prices* ranging as follows:
FISCAL 1999 HIGH LOW
First Quarter 15 15/16 12 7/8
Second Quarter 13 7/16 10 1/8
Third Quarter 13 13/16 11 3/4
Fourth Quarter 11 15/16 10 5/16
FISCAL 1998 HIGH LOW
First Quarter 12 7/8 9 1/2
Second Quarter 13 5/8 12 1/8
Third Quarter 15 1/4 13 1/8
Fourth Quarter 16 1/2 14 1/4
*Represents high and low prices for actual transactions.
A cash dividend of $0.12 per common share was paid in January 1998. Cash
dividends of $0.13 per common share were paid in June 1998, January 1999 and
June 1999.
A 3 for 2 stock split was paid in April 1998. The above prices and cash
dividends have been adjusted, as appropriate.
As of September 1, 1999, there were approximately 700 holders of record of the
Company's common stock.
Shares held by the nominee of the Depository Trust Company, the country's
principal central depository, were approximately 5,100,000 shares and counted
as owned by one holder. Additional individual holdings in street name result
in a sizable number of beneficial owners represented on our records as owned by
various banks and stockbrokers.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
Net sales $169,189 $182,954 $169,387 $183,163 $164,783
Net income 6,091 7,557 6,228 (1)(2) 7,154 7,756
Net income per common $0.90 $1.08 $0.82 (1)(2) $0.88 $0.92
share - diluted (3)
Total assets 86,159 84,379 86,145 87,302 86,116
Working capital 49,459 54,423 48,927 50,907 48,289
Long-term liabilities 925 - 500 1,000 1,500
Redeemable preferred 750 750 750 750 821
stock
Shareholders' equity 63,982 63,261 60,434 63,161 60,143
Number of common 6,416 6,699 6,981 7,782 7,985
shares outstanding
at year end (3)
Book value per common $ 9.97 $ 9.44 $ 8.66 $ 8.12 $ 7.53
share (3)
Cash dividends per $ 0.26 $ 0.25 $ 0.24 $ 0.23 $ 0.22
common share (3)
(1) Includes an after-tax charge of $187 ($.03/share)(3)in final settlement of
a complaint by the U.S. Department of Justice sent to the Company on
February 10, 1995. The complaint alleged violation of the Resource
Conservation and Recovery Act (RCRA) by a then wholly owned subsidiary in
Waterbury, CT. This subsidiary was sold on June 19, 1996.
(2) Includes an after-tax charge of $480 ($.06/share)(3)to cover a revised
estimate for remediation of the Company's former manufacturing site in
Carlstadt, NJ.
(3) Adjusted for stock split and dividend, as appropriate.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary source of liquidity is cash provided from operating
activities; $1.8 million in fiscal 1999 and $8.6 million in fiscal 1998. Cash
and short-term investments totaled $11.4 and $21.0 million and working capital
was $49.5 and $54.4 million at June 30, 1999 and 1998, respectively. In
addition, the Company's long-term investments totaled $11.9 and $8.0 million
for the same periods. These investments are highly liquid and can be used for
working capital if needed. The Company has sufficient lines of credit available
with banks, should any additional funds be required.
Two components of working capital had significant changes. Inventory
increased $2.8 million to $29.6 million at June 30, 1999 from $26.8 million at
June 30, 1998. This was the result of higher projected sales in the first
quarter of fiscal 2000 compared to the first quarter of fiscal 1999. The
decrease of $9.6 million in cash and cash equivalents and short-term
investments was the result of the following three initiatives: The Company
continued its stock repurchase program and purchased 339,000 shares of common
stock for $4.3 million. It also acquired 100% of the outstanding stock of CDC
Products Corp. (CDC) which required an initial cash outlay of $2.1 million.
Lastly, the shifting of cash and short-term investments to longer maturities,
taking advantage of higher yields, increased long-term investments by $3.8
million.
Any funds required for additional acquisitions, stock buybacks, or
environmental remediation will be funded by the aforementioned sources of
liquidity.
RESULTS OF OPERATIONS:
Net sales decreased 8% in fiscal 1999, to $169.2 million from $183.0
million in fiscal 1998, returning sales to fiscal 1997 levels. Continuing
erosion in selling prices of dye intermediates was the largest factor causing
this decline in 1999, followed by the loss of sales of two very low profit
agricultural products and one biochemical product. Increased sales of several
relatively new pharmaceutical intermediates offset some of the decline. The 8%
increase in fiscal 1998 from 1997 was almost entirely due to increased sales of
a pharmaceutical product first introduced in fiscal 1997.
Volume decreased 7% in 1999, compared with 1998, consistent with the
sales decrease. The decrease can be attributed to the same factors as the
sales decline. In fiscal 1998, volume increased 12% from fiscal 1997, compared
with a 7% sales increase. Many product lines saw decreasing prices in 1998,
more than offsetting the effect on volume of the increases in sales of the
aforementioned pharmaceutical product, which is relatively high-priced.
Gross margins improved significantly in fiscal 1999, rising to 13.4% from
12.2% in fiscal 1998. Freight and warehousing costs decreased considerably, as
a corporate initiative to lower costs was instituted. In addition, the
aforementioned decrease in sales of low margin items had a positive effect on
margins. Finally, we saw improved margins across many of our product lines.
The decrease in margins in 1998 from 12.6% in 1997 was due to increased freight
and warehousing (which led to the initiative) and increased sales of a low-
margin pharmaceutical product.
Selling, general and administrative expenses increased by $2.5 million to
$15.3 million from $12.8 million in fiscal 1999 compared to 1998. The
inclusion of CDC in the consolidated financial statements accounted for
$750,000 of this increase. A customer claim in the amount of $237,000 was
recorded in March 1999. Compensation increased by $1,000,000 due to payments
of bonuses, annual salary increases and additional personnel. In addition,
there were increases in legal fees, bad debts and fringe benefits. Offsetting
some of these increases were decreases in rent expense, bank charges, selling
expenses and consulting fees.
Selling, general and administrative expenses increased slightly in fiscal
1998 compared to 1997. Selling expenses increased by $500,000 to $1.5 million
from $1.0 million. This was the result of an increase in the cost of business
travel along with the continued development of our international sales
activities. Consulting fees increased by $300,000 primarily due to consulting
agreements with recently retired senior executives. In addition, there were
modest increases in bank fees, office and telephone expenses. Offsetting most
of these increases was a decrease in compensation expense resulting from the
aforementioned retirees, and a decrease in medical and business insurance
expense. Interest expense, which primarily relates to long-term debt, was
$18,000, $59,000 and $110,000 in fiscal 1999, 1998 and 1997, respectively. A
twelve year note, payable to the Prudential Insurance Company of America, was
paid in full in December 1998.
Other income increased slightly in fiscal 1999 compared to 1998. Higher
average cash available for investments during the fiscal year resulted in a
slight increase in investment income. Royalty income increased significantly
due to increased sales of an agricultural product in Europe. Offsetting most
of these increases was a decrease in proceeds from the sale of inventory
relating to a subsidiary sold in June 1996. Also, gains on marketable
securities decreased in fiscal 1999 compared to 1998.
Other income decreased to $2.3 million in fiscal 1998 compared to $2.5
million in fiscal 1997. Lower cash available for investments during the fiscal
year due to the Company's continuing stock repurchase program, along with lower
interest rates, caused a significant decrease in interest income on
investments. This was partially offset by an increase in royalty income. The
sale of property held by a subsidiary resulted in a $200,000 gain during fiscal
1997.
The effective tax rates were 37.5%, 35.6% and 38.9% in fiscal 1999, 1998
and 1997, respectively. Significant payments from the Company's non-qualified
retirement plan, which are deductible for tax purposes on the date of
distribution, caused an unusually low tax rate for the year ended June 30,
1998.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS:
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133." SFAS 137 amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which was issued in June 1998. SFAS 137
defers the effective date of SFAS 133 to all fiscal quarters of fiscal years
beginning after June 15, 2000. Earlier application is permitted. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measures those instruments at fair value. While management has not determined
the impact of the new standard, it is not expected to be material.
YEAR 2000 DISCLOSURE:
During fiscal 1998, the Company determined that it needed to modify or
replace significant portions of its customized software so that its information
systems would function properly with respect to dates in the year 2000 and
beyond. In addition, the Company has assessed all the third party hardware and
software it uses for Year 2000 compliance. The Company also has initiated
discussions with its significant suppliers, customers, and financial
institutions to ascertain that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is continuing to
monitor the extent to which its operations are vulnerable should those
organizations fail to properly remediate their computer systems. The Company's
Year 2000 team includes both internal and external staff. The team's activities
are designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The Company has completed
implementation of its Year 2000 initiative. All significant computer and
business systems are now compliant. While the Company believes its planning
efforts are adequate to address its Year 2000 concerns, there can be no
guarantee that the systems of other companies on which the Company's systems
and operations rely will be converted on a timely basis. The Company believes
it unlikely that there will be a material effect on the Company.
The total cost of the Company's Year 2000 initiative was approximately
$100,000.
MARKET RISK:
The Company maintains foreign currency contracts solely to hedge open
purchase commitments. It has established policies, procedures and internal
processes governing the management of this hedging to reduce market risks
inherent in foreign exchange. Also, the Company has interest rate exposure
relating to short and long term investments and minimal exposure in the equity
markets. Any change in these markets would not materially affect the
consolidated financial position, results of operations or cash flows of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item 8 are set forth at the end of
this report. The following is the applicable supplementary data:
The following is a summary of the unaudited quarterly results of operations for
the years ended June 30, 1999 and 1998.
QUARTERLY FINANCIAL DATA (Unaudited)
(In thousands except per share amounts)
Year ended June 30, 1999
Quarter Ended
SEPT.30,1998 DEC.31,1998 MAR.31,1999 JUNE 30,1999
Net sales $36,365 $46,098 $45,420 $41,306
Gross profit 4,352 6,072 6,704 5,612
Net income 1,018 1,926 1,646 1,501
Net income per
common share 0.15 0.28 0.25 0.23
Year ended June 30, 1998
Quarter Ended
SEPT.30,1997 DEC.31,1997 MAR.31,1998 JUNE 30,1998
Net sales $43,764 $40,671 $50,453 $48,065
Gross profit 5,169 5,528 5,690 5,921
Net income 1,533 1,974 2,112 1,938
Net income per
common share* 0.22 0.28 0.30 0.28
* Adjusted for stock split, as appropriate.
Cost of sales during interim periods is determined by gross profit rates based
upon the mix of products sold during each quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Company's proxy statement relating to the annual meeting of the Company's
shareholders to be held on December 2, 1999, which will be filed with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K (the Proxy Statement), is hereby incorporated by reference.
Based solely on its review of the copies of such forms received by it,
the Company believes that during the fiscal year covered by this Form 10-K all
filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
The Company's Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company's Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See Index to Consolidated Financial Statements and Schedules
included elsewhere herein.
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1999.
(c) Exhibits
3(i) Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4(a)(iii) to Registration
Statement No. 2-70623 on Form S-8 (S-8 2-70623)).
3(ii) Certificate of Amendment dated November 21, 1985 to
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for the fiscal year ended June
30, 1986).
3(iii)(c) By-laws, currently in effect (incorporated by reference to
Exhibit 3(iii)(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1998)
(1998 10-K).
10(ii)(a) Profit Sharing Plan, as amended and restated
effective July 1, 1989 (incorporated by reference to
Exhibit 10(iii)(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995).
10(iii) 401(k) Plan, effective August 1, 1997, (incorporated by
reference to Exhibit 10 (ii) to the 1998 10-K).
10(iv)(a) Supplemental Executive Retirement Plan, effective
June 30, 1985, as amended and restated, effective
July 1, 1992 (incorporated by reference to Exhibit
10(iv)(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993)(1993 10-K)).
10(v) 1980 Stock Option Plan (incorporated by reference to
Item 4(a)(ii) of S-8 2-70623).
10(v)(a) 1980 Stock Option Plan (as amended and restated
effective as of September 19, 1990) (incorporated
by reference to exhibit 4(c) to Registration
Statement No. 33-38679 on Form S-8).
10(v)(b) Aceto Corporation Stock Option Plan (as Amended and
Restated effective as of September 19, 1990) (and as
further Amended effective June 9, 1992) (incorporated
by reference to Exhibit 10(v)(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1992).
10(v)(c) 1998 Aceto Corporation Omnibus Equity Award Plan
10(vi) Lease between Aceto Corporation and M. Parisi & Son
Construction Co., Inc. for office space at One
Hollow Lane, Lake Success, New York dated May 24,
1990 (incorporated by reference to Exhibit 10(vi)
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990).
10(vii) Stock Purchase Agreement between Windham Family Limited
Partnership, Peter H. Kliegman, CDC Products Corp. and
Aceto Corporation.
21 Subsidiaries of the Company (incorporated by reference
to Exhibit 21 to 1993 10-K).
24 Consent of KPMG LLP.
Exhibit 10(v)(c)
ACETO CORPORATION
1998 OMNIBUS EQUITY AWARD PLAN
SECTION 1.
Purpose.
The purposes of the ACETO CORPORATION 1998 Omnibus Equity Award Plan are to
attract, retain and motivate Eligible Participants, as defined below, to
compensate them for their contributions to the Company's growth and profit and
to encourage them to own the Company's Common stock, thereby promoting the
interests of the Company and its stockholders.
SECTION 2.
Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"AFFILIATE" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company (ii) a subsidiary of the Company and (iii) any entity
in which the Company has a significant equity or business interest, in any case
as determined by the Board.
"AWARD" shall mean any Option, Restricted Stock Award, or other stock-based
Award.
"AWARD AGREEMENT" shall mean any written instrument or document evidencing any
Award, which may, but need not be, executed by an Eligible Participant.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" shall be deemed to have occurred if: (i) any "person" as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company,) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the voting power of the
Company's then outstanding securities; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii), or (iv) of this paragraph) whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of the two year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board of
Directors; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than 20% of the combined
voting power of the Company's then outstanding securities shall not constitute
a change in Control of the Company; or (iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets. If any of the events enumerated in clauses (i) through (iv) occur the
Board shall determine the effective date of the Change in Control resulting
therefrom, for purposes of the Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder.
"COMMITTEE" shall mean a committee of the Board designated by the Board to make
recommendations to the Board with regard to Awards. Until otherwise determined
by the Board, the Executive Committee of the Board (which serves as the
Executive Compensation Committee) shall be the Committee under the Plan.
"COMPANY" shall mean ACETO CORPORATION.
"ELIGIBLE PARTICIPANT" shall mean an employee (including an officer, Executive
Officer or director) of the Company or any Affiliate. Such term shall also
mean any non-employee director, adviser, consultant or independent contractor
to the Company or any Affiliate, and any reference to employment or termination
of employment under the Plan shall be deemed to apply to such director,
adviser, consultant or independent contractor, for the purpose of the Plan
only, as if the services of such person constitute employment services.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXECUTIVE OFFICER" shall mean, at any time, an individual who is an executive
officer of the Company within the meaning of Exchange Act Rule 3b-7 promulgated
and interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time, or who is an officer of the
Company within the meaning of Exchange Act Rule 16a-1(f) as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
"FAIR MARKET VALUE" Shall mean with respect to any given day, the average of
the mean between the highest and lowest reported sales prices on the principal
national stock exchange on which the Common Stock is traded, or if such
exchange was closed on such day or, if it was open but the Common Stock was not
traded on such day, then on the preceding day that the Common Stock was traded
on such exchange.
"NON-QUALIFIED STOCK OPTION" shall mean an Option which does not meet the
requirements of Section 422 of the Code.
"OPTION" shall mean a Non-Qualified Stock Option.
"PARTICIPANT" shall mean any Eligible Participant selected by the Board to
receive an Award under the Plan.
"PERSON" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"PLAN" shall mean this ACETO CORPORATION 1998 OMNIBUS EQUITY AWARD PLAN.
"QDRO" shall mean a domestic relations order meeting such requirements as the
Committee shall determine, in its sole discretion.
"RESTRICTED STOCK" Shall mean any Share granted under Section 7 of the Plan.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"SHARES" shall mean shares of the common stock, $ .01 par value, of the
Company.
SECTION 3.
Administration.
(a) AUTHORITY OF COMMITTEE. The Committee shall, subject to the terms of the
Plan and applicable law, make recommendations to the Board with regard to (i)
designation of Participants; (ii) the type or types of Awards to be granted to
an Eligible Participant; (iii) the number of Shares to be covered by Awards;
(iv) terms and conditions of Awards; and (v) unless otherwise expressly
provided in the Plan, designations, determination, interpretations, and
suggested decisions with respect to the Plan or any Award.
(b) AUTHORITY OF BOARD. All Awards under the Plan shall be made by the Board,
which shall have full authority to accept, reject or modify any
recommendations of the Committee. All designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Board, may be made at any time
and shall be final, conclusive, and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or beneficiary of any
Award, and any stockholder.
SECTION 4.
Shares Available for Awards.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b), the
number of Shares with respect to which Awards may be granted under the Plan
shall be five hundred thousand (500,000).
If, after the effective date of the Plan, any Shares covered by an Award
granted under the Plan are forfeited, or if such an Award terminates or is
canceled without the delivery of shares, then the Shares covered by such Award,
or the number of Shares otherwise counted against the aggregate number of
Shares with respect to which Awards may be granted, to the extent of any
such, forfeiture, termination or cancellation, shall again become Shares
with respect to which Awards may be granted. In the event that any
Option or other Award granted hereunder is exercised through the delivery
of Shares or in the event that withholding tax liabilities arising from such
Award are satisfied by the withholding of Shares by the Company, the number
of Shares available for Awards under the Plan shall be increased by the number
of Shares so surrendered or withheld.
(b) ADJUSTMENTS. In the event that any dividend (other than regular
dividends) or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares, or other similar corporate transaction or
event affects the Shares such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then adjustment shall be made, in such
manner as shall be equitable, of (i) the number of Shares with respect to which
Awards may be granted, (ii) the number of Shares subject to outstanding Awards,
and (iii) the grant or exercise price with respect to any Award, provided, that
with respect to any Award no such adjustment shall be made to the extent that
such adjustment would be inconsistent with the Plan's meeting the requirements
of Section 162(m) of the Code, as from time to time amended.
(c) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5.
Eligibility.
Any employee (including an officer, Executive Officer or director) of the
Company or any Affiliate, including any non-employee director, advisor,
consultant or independent contractor to the Company or any Affiliate, shall be
an Eligible Participant. To the extent the Board deems it necessary,
appropriate or desirable to comply with foreign law or practice and to further
the purpose of this Plan, the Board may, without amending this Plan, (i)
establish rules applicable to Awards granted to Participants who are foreign
nationals, are employed outside the United States, or both, including rules
that differ from those set forth in this Plan, and (ii) grant Awards to such
Participants in accordance with those rules.
SECTION 6.
Stock Options. - TERMS AND CONDITIONS.
All Options granted under the Plan shall be Non-qualified Stock Options and
shall be evidenced by Award Agreements which shall be subject to applicable
provisions of the Plan and such other provisions as they may contain including:
(a) PRICE. The exercise price per Share shall not be less than 100% of the
Fair Market Value of a Share on the date of Award.
(b) PERIOD. The Board, upon recommendation of the Committee may establish
the term of any Option award under the Plan, provided, however, that an Option
shall expire no later than 10 years from the date of Award.
(c) TIME OF EXERCISE. The Board, upon recommendation of the Committee, may
establish installment exercise terms in Awards to Participants based on the
Company's publicly traded Share price, and may establish installment exercise
terms based on the passage of time or otherwise, such that the Option
becomes fully exercisable in a series of cumulating portions, and may also
establish other conditions of exercise as it shall determine and may
accelerate the exercisability of any Option granted to a Participant
under the Plan.
(d) PAYMENT. No Shares shall be delivered pursuant to any exercise
of an Option until payment in full of the option price in cash, or its
equivalent, or by exchanging Shares owned by the optionee (which are not the
subject of any pledge or other security interest), or by a combination of
the foregoing, provided that the combined value of all cash and cash
equivalents and the Fair Market Value of any such Shares so tendered to the
Company as of the date of such tender is at least equal to such option price.
(e) EXERCISE. An Option, or portion thereof, shall be exercised by delivery
of a written notice of exercise to the Company, and payment of the full price
of the Shares being exercised. A Participant shall not have any of the rights
or privileges of the holder of Common Stock until such time as Shares of Common
Stock are issued or transferred to the Participant.
SECTION 7.
Restricted Stock
(a) GRANT. Subject to the provisions of the Plan, the Board, upon
recommendation of the Committee, shall have authority to determine the
Participants to whom Shares of Restricted Stock shall be granted, the number of
Shares of Restricted Stock to be granted to each Participant, and the other
terms and conditions of such Awards.
Restricted Stock may be awarded to an Eligible Participant in lieu of a
portion, as determined by the Board, of any annual cash bonus earned by such
Participant, which will vest ratably over a period of years determined by the
Board on each anniversary of the date of Award. Such Restricted Stock so
awarded, as set forth in the Award Agreement may have a premium in Shares
greater than the portion of the bonus to be paid in Restricted Shares, which
Premium shares shall be delivered to the Participant when the Award is fully
vested, provided that the Participant is in the employ of the Company when
vesting occurs.
(b) TRANSFER RESTRICTIONS. Upon the lapse of the restrictions applicable to
Shares of Restricted Stock, the Company shall deliver certificates for same to
the Participant or the Participant's legal representative.
(c) PAYMENT. Each share of Restricted Stock shall be paid in Shares, upon
the lapse of the restrictions applicable thereto, or otherwise in accordance
with the applicable Award Agreement.
(d) DIVIDENDS AND DISTRIBUTIONS. Dividends and other distributions paid on
or in respect of any Shares of Restricted Stock shall be paid to the
Participant.
SECTION 8.
Termination of Employment.
The following provisions shall apply in the event of the Participant's
termination of employment unless otherwise provided in the Award Agreement:
(a) NON-QUALIFIED STOCK OPTIONS. (i) Termination of Employment. If the
Participant's employment with the Company or its Affiliates is terminated for
any reason other than death, permanent and total disability, or retirement, the
Participant's right to exercise any Non-Qualified Stock Option shall terminate,
and such Option shall expire, on the earlier of (A) the first anniversary of
such termination of employment or (B) the date of such Option would have
expired had it not been for the termination of employment. The Participant
shall have the right to exercise such option prior to such expiration to the
extent it was exercisable at the date of such termination of employment and
shall not have been exercised.
(ii) DEATH, DISABILITY OR RETIREMENT. If the Participant's employment
with the Company or its Affiliates is terminated by death, permanent and
total disability, or retirement, the Participant or his or her estate
representative (if employment is terminated by death) shall have the right,
within three (3) months from the date of determination of permanent and
total disability, retirement, or the appointment of an estate representative,
to exercise any Non-Qualified Stock Option to the extent it was
exercisable at the date of such termination of employment and
shall not have been exercised, but in no event shall such option be
exercisable later than the date the Option would have expired had it not been
for the termination of such employment.
(b) RESTRICTED STOCK. In the event of a Participant's retirement, permanent
and total disability, or death, or in cases of special circumstances, the Board
may, when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part, any or all remaining restrictions with respect to
such Participant's entitlement to shares of Restricted Stock.
SECTION 9.
Change in Control.
Notwithstanding any other provision of the Plan to the contrary, upon a
Change in Control all outstanding Awards shall vest, become immediately
exercisable or payable and have all restrictions lifted as may apply to the
type of Award.
SECTION 10.
Amendment and Termination.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension discontinuation or termination
shall be made without stockholder approval to: increase the number of shares
issuable; reduce the exercise price of Options;
or extend the termination period of the Plan. The Board, however, may not
amend or terminate the Plan without a Participant's consent insofar as it would
adversely affect a Participant's rights to previously granted Awards.
(b) CANCELLATION. Any Award Agreement to the contrary notwithstanding, any
Award granted hereunder may be cancelled with the approval and agreement of the
Participant in consideration of a cash payment or alternative Award made to the
holder of such cancelled Award equal in value to the Fair Market Value of such
cancelled Award.
SECTION 11.
General Provisions
(a) NONTRANSFERABILITY. No Award shall be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a Participant, except
by will or the laws of descent and distribution or pursuant to a QDRO.
(b) NO RIGHTS TO AWARDS. No Participant or other Person shall have any claim
to be granted any Award, and there is no obligation for uniformity of treatment
of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards need not be the same with respect to each recipient.
(c) SHARE CERTIFICATES. All certificates for Shares or other securities of
the Company delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Board may deem advisable under the Plan or the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which such Shares or other securities are then listed, and any
applicable Federal or state laws, and a legend or legends may be put on any
such certificates to make appropriate reference to such restrictions.
(d) WITHHOLDING. A Participant may be required to pay to the Company and the
Company shall have the right and is hereby authorized to withhold from any
Award, from any payment due or transfer made under any Award or under the Plan
or from any compensation or other amount owing to a Participant the amount (in
cash, or Shares), of any applicable withholding taxes in respect of an Award,
its exercise, or any payment or transfer under an Award or under the Plan and
to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes.
(e) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an Award
Agreement that shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto.
(f) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(g) RIGHTS AS STOCKHOLDER. No holder of an Award of stock options or
beneficiary of any such Award shall have any rights as a stockholder with
respect to such options until he or she has exercised such option and become
the holder of Shares. In connection with each grant of Restricted Stock
hereunder, the applicable Award shall be entitled to the rights of a
stockholder in respect of such Restricted Stock, except for such transfer
restrictions as may be applicable thereto.
(h) GOVERNING LAW. The validity, construction, and effect of the Plan and any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York.
(i) SEVERABILITY. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to
any Person or Award, or would disqualify the Plan or any Award under any
applicable law, such provision shall be construed or deemed amended to conform
to the applicable laws, or if it cannot be construed or deemed amended without,
in the determination of the Board, materially altering the intent of the Plan
or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(j) OTHER LAWS. The Company may refuse to issue or transfer any Shares or
other consideration under an Award if, it determines that the issuance or
transfer of such shares might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder, or beneficiary. Without limiting
the generality of the foregoing, no Award granted hereunder shall be construed
as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless the Board has determined that any such offer, if made,
would be in compliance with all applicable requirements of the U.S. federal
securities laws any other laws to which such offer, if made, would be subject.
(k) NO TRUST FUND CREATED. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a Participant or any other Person. To the
extent that any Person acquires rights pursuant to an Award, such rights shall
be no greater than the rights of any unsecured general creditor of the Company.
(l) NO OBLIGATION TO EXERCISE OPTIONS. The granting of an Option shall
impose no obligation upon the Participant to exercise such Option.
(m) PLAN EXPENSES. Any expenses of administering this Plan shall be borne by
the Company.
(n) NO WARRANTY OF TAX EFFECT. Except as may be contained in any Award
Agreement, no opinion shall be deemed to be expressed or warranties made as to
the effect of foreign, federal, state, or local tax on any Awards.
SECTION 12.
Share Ownership Guidelines.
It is an objective of this Plan that designated Eligible Participants be owners
of Shares.
(a) APPLICABILITY. Share ownership guidelines are applicable to the Chief
Executive Officer ("CEO") and to managerial Participants designated by the
Board ("Designated Participants").
(b) BASIS. Share ownership guidelines are in terms of Fair Market Value of
Shares to be owned relative to the positions held and base salaries of
Designated Participants. Ownership levels and guidelines will be reviewed (and
if advisable modified) by the Board (upon recommendation of the Committee)
periodically, based on internal reports and overall operations of the Company.
(c) TARGETED GUIDELINE LEVELS. Designated Participants will either from
inception of the Plan or commencement of employment have five (5) years to
reach the targeted guideline levels of Share ownership, which levels can be
changed, modified, or suspended due to individual or group circumstances.
Restricted Stock awarded to a Participant shall be included in calculating
Shares owned.
(d) GUIDELINES.
POSITION/BASE SALARY GUIDELINES, AS A MULTIPLE
("X") OF SALARY
CEO 2X
Base Salary of $100,000.00 or more 1X
Base Salary of under $100,000.00 1/2X
SECTION 13.
Stockholder Approval and Effective Dates.
This Plan shall become operative and in effect on such date as it shall be
approved by the stockholders of the Company. No option or Award shall be
granted hereunder after the expiration of ten years after the date that it
shall have become operative and in effect.
Exhibit 10 (vii)
STOCK PURCHASE AGREEMENT
AGREEMENT ("Agreement") dated the 16th day of October, 1998, by and among
Windham Family Limited Partnership, a New York limited partnership with its
address at 5 Shore Park Road, Great Neck, New York 10023 ("Windham"), Peter H.
Kliegman, residing at 5 Shore Park Road, Great Neck, New York 11023 ("Kliegman"
and collectively with Windham, "Seller"), CDC Products Corp., a New York
corporation, with its principal place of business at 74-16 Grand Avenue,
Elmhurst, New York 11373-4127 (the "Company") and Aceto Corporation, a New York
corporation with its principal offices at One Hollow Lane, Lake Success, New
York 11042-1215 ("Purchaser").
W I T N E S S E T H :
WHEREAS, Windham owns 2,000 shares of common stock of the Company, without par
value, which constitutes all of the issued and outstanding common stock shares
of the Company, and Kliegman owns all of the issued and outstanding shares of
the preferred stock, par value $100 per share, of the Company (the aforesaid
common and preferred shares collectively the "Shares"); and
WHEREAS, Seller desires to sell and Purchaser desires to purchase the Shares on
the terms and conditions set forth herein; and
WHEREAS, Purchaser wishes that the company employ Kliegman and Kliegman wishes
to be so employed pursuant to an employment agreement to be executed by Company
and Kliegman contemporaneously with the closing of the transaction
contemplated hereby; and
WHEREAS, Purchaser desires that the Company lease the premises at 74-16 Grand
Avenue, Elmhurst, New York (the "Premises") which constitute the Company's
principal place of business from the owner of the Premises, Monitor Holding
Corporation, a New York corporation ("Monitor") wholly owned by Kliegman; and
WHEREAS, The Company with consent of Purchaser wishes to lease the Premises and
Seller and Monitor wish to lease the Premises to the Company pursuant to a
lease which the Company will execute and Kliegman will cause Monitor to execute
contemporaneously with the closing of the transaction contemplated hereby.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES.
Seller agrees to sell and Purchaser agrees to purchase all of the Shares.
SECTION 2. PURCHASE PRICE.
The total purchase price for the Shares shall be TWO MILLION THREE HUNDRED
NINETY FIVE THOUSAND ($2,395,000) DOLLARS of which THREE HUNDRED THOUSAND
($300,000) DOLLARS shall be payable to Kliegman for the preferred stock
("Preferred Stock Purchase Price") and the balance of TWO MILLION NINETY-FIVE
THOUSAND ($2,095,000) DOLLARS shall be payable to Windham for the common stock
("Common Stock Purchase Price"). The Common Stock Purchase Price shall be
subject to downward adjustments as hereinafter provided. The purchase price
shall be payable as follows:
2.1 Amount Due at Closing. The aggregate sum which Purchaser shall pay at
closing shall be ONE MILLION SIX HUNDRED FORTY FIVE THOUSAND ($1,645,000)
DOLLARS which shall be paid at the Closing by certified check, a bank cashiers
check or electronic fund transfer of which THREE HUNDRED THOUSAND ($300,000)
DOLLARS shall be payable to Kliegman in full payment of the Preferred Stock
Purchase Price, and the balance of ONE MILLION THREE HUNDRED FORTY-FIVE
THOUSAND ($1,345,000) DOLLARS which shall be paid to Windham as the down
payment for and partial payment of the Common Stock Purchase Price.
2.2 Balance. The balance of the Common Stock Purchase Price, SEVEN HUNDRED
FIFTY THOUSAND ($750,000) DOLLARS, shall be payable to Windham on the first
business day of February, 2000, 2001, and 2002, in equal, consecutive,
installments of TWO HUNDRED FIFTY THOUSAND ($250,000) DOLLARS each, subject to
downward adjustment in each instance, as provided in Section 2.3.
2.3 Adjustment of Common Stock Purchase Price.
Each installment of the Common Stock Purchase Price payable pursuant to Section
2.2 shall be subject to a non-cumulative downward adjustment equal to fifty
percent (50%) of the amount by which the Company's earnings before interest,
income taxes, depreciation and amortization ("EBITDA") is less than FIVE
HUNDRED THOUSAND ($500,000) DOLLARS for the calendar year immediately preceding
the payment date, provided however, that in no event shall any such payment be
less than ONE HUNDRED TWENTY FIVE THOUSAND ($125,000) DOLLARS. If EBITDA in
any year is less than TWO HUNDRED FIFTY THOUSAND ($250,000) DOLLARS (resulting
in the payment of the minimum required payment of ONE HUNDRED TWENTY FIVE
THOUSAND ($125,000) DOLLARS), there shall be no downward adjustment in
subsequent years based upon any such EBITDA shortfall in a prior year. EBITDA
shall be determined by the Purchaser's accounting department, subject to review
by Kliegman and the Company's accountants, using generally accepted accounting
principles applied in a consistent basis with prior periods and shall be
calculated to include all revenues derived from the Company's operations less
only operating expenses directly, reasonably and necessarily incurred in the
Company's operations before interest on debt service, depreciation,
amortization and income taxes. No amount shall be included in such expenses
for Purchaser's overhead or for salaries, management fees or other like payment
to persons or entities related to or affiliated with Purchaser who are not
involved exclusively in the day to day operations of the Company, nor shall any
expenses be included which are extraordinary, non-recurring, or outside of the
ordinary course of business or, unless expressly agreed to in writing by
Sellers, inconsistent with prior practices of the Company.
2.4 Debt Satisfaction; Kliegman Guaranties:
Set forth in Schedule 2.4 are:
(a) The Company's remaining obligations as of September 30, 1998, to Messrs.
Chanes and Cort pursuant to their respective employment and retirement
compensation agreements with the Company;
(b) All indebtedness owing by the Company to European American Bank ("EAB")
pursuant to (i) the Company's term loan agreement, and (ii) its revolving
credit line as presently in effect;
(c) All Uniform Commercial Code Financing Statements-Form UCC-1 with respect
to security interest granted to EAB pursuant to its agreements with the
Company; and
(d) All equipment leases with respect to which Kliegman is a guarantor.
Contemporaneously with the Closing, Purchaser shall fully pay and satisfy the
Company's obligations to Messrs. Chanes and Cort due and owing as of the
Closing Date, pursuant to their respective employment and retirement
compensation agreements with the Company each dated December 1, 1991 and all
indebtedness owing by the Company to European American Bank ("EAB") pursuant to
the Company's term loan agreement dated August --, 1995 and its revolving
credit line as presently in effect pursuant to agreement dated March --, 1998.
Seller will cooperate with Purchaser in causing to be executed, delivered and
filed termination statements on form UCC-3 with respect to all security
interests granted to EAB to secure the indebtedness to EAB pursuant to its
agreements with the Company. In addition, Purchaser will contemporaneously
with the closing cause Kliegman to be removed as personal guarantor with
respect to equipment leases set forth in Schedule 2.4 hereto, or failing that,
shall indemnify Kliegman and hold him harmless from any claims with respect
thereto.
SECTION 3. CLOSING.
3.1 Closing. The closing of the transactions contemplated hereby shall take
place at the offices of Meyer, Suozzi, English & Klein, P.C., 1505 Kellum
Place, Mineola, New York 11501, at 10:00 A.M. on November 24, 1998, or at such
other time and place as the parties may mutually agree (the "Closing Date").
3.2 Transfer of Stock. At the closing, Seller shall deliver to Purchaser
certificates representing all of the Shares, accompanied by stock powers duly
endorsed for transfer to Purchaser, free and clear of all liens, claims,
encumbrances and restrictions.
SECTION 4. INSPECTION CONFIDENTIALITY.
4.1 Inspection. Purchaser and its agents shall have the right to inspect the
Company's books, records and premises at any time during the regular business
hours of the Company, on reasonable notice, or at any other time upon mutual
agreement of the parties.
4.2 Confidentiality. Purchaser shall keep confidential all information it
obtains about Seller or about the Company, or about any of the Company's
officers, employees or agents, that Purchaser acquires as a result of such
inspection, and as a result of its due diligence in connection herewith, all
pursuant to that certain Confidentiality and Non-Disclosure Agreement which
Purchaser has executed and delivered to the Company contemporaneously herewith,
a copy of which is annexed hereto as Exhibit A.and will not disclose same if
Closing does not take place.
SECTION 5. EXECUTION OF EMPLOYMENT AGREEMENT AND LEASE.
5.1 Employment Agreement. At the closing, Company and Kliegman with the
consent of Purchaser shall enter into an Employment Agreement in form annexed
hereto as Exhibit B, pursuant to which Kliegman shall serve as the Company's
President and Chief Executive officer, to be negotiated prior to the Closing
date to the mutual satisfaction of the parties.
5.2 Lease. At the Closing, Company and Monitor with consent of Purchaser
shall enter into a lease for the Premises in the form of lease annexed hereto
as Exhibit C. to be negotiated prior to the Closing date to the mutual
satisfaction of the parties.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants as follows:
6.1 Corporate Status.
6.1.1 The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has the corporate
power and authority to own its property and to carry on its business as and
where such is now conducted;
6.1.2 The Company is duly qualified as a foreign corporation in all
jurisdictions in which the ownership of its properties or the conduct of its
business requires qualification and all such jurisdictions are set forth on
Schedule 6.1.2 hereto and made a part hereof.
6.1.3 The Company has no subsidiaries.
6.1.4 The capitalization of the Company consists of Twenty Thousand (20,000)
authorized shares of common stock, with no par value, of which Two Thousand
(2,000) shares are issued and outstanding and shares of preferred stock, par
value $100 per share, of which shares are issued and outstanding. The Company
has no treasury shares. All of the issued and outstanding shares of stock are
duly authorized, validly issued, fully paid and nonassessable and are owned and
held by Windham, with respect to the common, and Kliegman, with respect to the
preferred, free and clear of all liens, charges and encumbrances, restrictive
agreements and assessments, and are not subject to any restrictions with
respect to transferability. There are no outstanding options, calls,
subscriptions, warrants, rights, agreements, commitments or obligations of any
kind with respect to the issuance or sale of additional shares of the Company's
stock;
6.1.5 The Certificate of Incorporation and By-laws and lists of the officers
and directors of the Company, copies of which shall have been delivered to
Purchaser, are true and correct and complete in all respects and no proceedings
have been instituted or authorized with respect to their modification,
amendment or alteration;
6.1.6 All approvals or consents required for Seller to consummate the
transactions contemplated herein have been obtained and the consummation of the
transactions contemplated by this Agreement will not violate any provisions of
any law or any of the provisions of the Company's Certificate of Incorporation
or By-Laws or result in the breach or termination of any provision of, or
constitute a default, under any indenture, agreement or other instrument to
which Seller or the Company is a party or by which any of the Company's
properties may be bound, and which, if violated would materially detract from
the value of the Shares in the hands of Purchaser;
6.1.7 This Agreement constitutes the valid and binding obligation of Seller
enforceable in accordance with its terms except to the extent enforceability
may be limited by principles of equity or bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally.
6.2 Financial.
6.2.1 The audited balance sheets of the Company as at September 30, 1997, 1996
and 1995 and the auditor's review at September 30, 1998 and the statement of
earnings and profits for the fiscal years then ended (the "Financials"), copies
of which shall be provided to the Purchaser in Schedule 6.2, are true and
correct reports of the financial condition and results of operations of the
Company and were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the methods used for each
preceding period;
6.2.2 Since September 30, 1998, there has not been: (i) any material adverse
change in the financial condition or in the operations of the business of the
Company; (ii) any damage, destruction or loss (whether or not covered by
insurance), materially and adversely affecting the Premises, business, property
or assets of the Company nor any proceedings in eminent domain (or purchase in
lieu thereof), commenced or consummated with respect to any property or
buildings (or any portion thereof) owned by the Company or Monitor; (iii) any
increase in the compensation payable to or to become payable by the Company to
officers or key salaried employees or agents or in any bonus (over that paid in
the previous year), insurance, pension or other benefit plan, payment or
arrangement made to, for, or with any such officers, key salaried employees or
agents; (iv) any labor disputes; (v) any declaration, setting aside, or payment
of any dividend or any distribution by the Company in respect of its stock, or
any redemption, purchase or other acquisition by the Company of any of its
Shares; (vi) any cancellation of any of the debts or claims of the Company or
of the Seller, except in the ordinary course of business, or waiver of any
rights of value, or any discharge or satisfaction by Seller or the Company of
any lien or encumbrance, or payment of any obligation or liability (other than
current liabilities as shown on the most recent Financials) and current
liabilities incurred since the date in the ordinary course of business; (vii)
any amendment or termination or threatened termination of any contract or lease
agreement; (viii) any mortgage, deed, secured debt (other than purchase money
equipment financing), pledge or subjection to lien (except liens for taxes not
yet due and except for liens in respect of purchase money equipment financing),
charge or any other encumbrance of any property, tangible or intangible of
Seller or the Company; (ix) any other event or condition of any character,
other than general business conditions, pertaining to the Company and
materially and adversely affecting the results of operations or business or
financial condition of the Company.
6.3 Liabilities Fully Disclosed. Except to the extent reflected or reserved
against in the Financials or incurred in the ordinary course of business, or
disclosed in this Agreement or on any schedule hereto, the Company has no
material liabilities of any nature, whether accrued, absolute, contingent or
otherwise, whether due or to become due.
6.4 Taxes. Except as set forth on Schedule 6.4 hereto, all federal, state
and local tax returns and reports required by law to be filed by the Company
have been filed and paid or reserved against.
6.5 Litigation. Except as set forth on Schedule 6.5 hereto, there is no
claim, administrative proceeding, litigation proceeding or governmental
investigation pending or, to the knowledge of Seller, threatened against or
relating to the Company which would materially detract from the value of the
Shares in the hands of Purchaser.
6.6 Title to Personal Property.
6.6.1 Except as set forth on Schedule 6.6 hereto, the Company has good and
marketable title to all of its personal property, machinery, equipment and
other tangible and intangible assets free and clear of any mortgages, liens,
pledges or encumbrances of any nature whatsoever;
6.6.2 All currently used machinery, equipment and other personal property of
the Company is complete and in working order and has been routinely maintained.
6.6.3 Seller has no knowledge of any infringement or claims of infringement by
or against Seller or the Company of patents, trademarks, tradename rights,
copyrights or publication rights in connection with any products, equipment,
material or supplies used or sold by the Company.
6.7 Contracts. All contracts, licenses and other agreements set forth on
Schedule 6.7(i) hereto and equipment leases listed on Schedule 6.7(ii) hereto
are valid and binding upon the parties thereto and enforceable in accordance
with the terms thereof. The Company has complied with all material provisions
of and is not in material default under any such agreements, leases or
commitments, and the continued validity and enforceability of such agreements,
leases and commitments will not be effected by the consummation of the
transactions contemplated by this Agreement.
6.8 Inventory. All the inventory of the Company reflected in the Financials,
or thereafter acquired by the Company consists of a quality and quantity
salable in the ordinary course of the Company's business, and all such
inventory is valued at lower of cost or market on a basis consistent with prior
years; and the values at which inventories are carried in the Financials
reflect the normal inventory valuation policy of the Company, consistent with
prior years.
6.9 Real Property. Annexed hereto as Schedule 6.9 hereto is a true and
complete list and brief description of all real properties leased or owned by
the Company, including all significant structures located thereon.
6.9.1 The Company has valid and enforceable leases with respect to the
Premises except as enforceability against the other party to any such lease may
be limited by general equitable principles or bankruptcy or insolvency laws as
the same affect the rights of creditors generally, has in all material effects
performed all the obligations required to be performed by it to the date hereof
under said leases, and possesses and quietly enjoys possession of said premises
under said leases.
6.9.2 Except as set forth on Schedule 6.9.2 hereto, the Company owns all real
property identified in the Schedule as being owned by it, free and clear of any
mortgage, lien, pledge or encumbrance of any nature whatsoever.
6.9.3 Each of the major improvements located on such real property and the use
thereof by the Company conforms in all material respects to applicable zoning,
building, environmental, work place and other federal, state and local laws and
each of such major improvements is substantially in good condition, ordinary
wear and tear accepted and requires no material capital expenditures for the
satisfactory continuation of its present uses.
6.10 Insurance. Schedule 6.10 hereto is a list of all insurance policies
currently in force with respect to the business of the Company, together with
the premiums currently paid or payable thereon. Copies of all such policies
shall have been made available to Purchaser for examination.
6.11 Labor Matters. Except as set forth on Schedule 6.11 hereto, the Company
does not have any written or oral contract with, or commitment or liabilities
to, any labor organization or association of employees, or pending or
contemplated negotiation with any such organization or association.
6.12 Employee Benefit Plans, Employment Agreements.
Except as set forth in Schedule 6.12.1 hereto, Seller does not maintain nor
sponsor, nor contribute to, any pension, profit-sharing, savings, bonus,
incentive or deferred compensation, severance pay, medical, life insurance,
welfare or other employee benefit plan. All pension, profit-sharing, savings,
bonus, incentive or deferred compensation, severance pay, medical life
insurance, welfare or other employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(hereinafter referred to as "ERISA"), in which the employees participate (such
plans and related trusts, insurance and annuity contracts, funding media and
related agreements and arrangements being hereinafter referred to as the
"Benefit Plans") comply with all requirements of the Department of Labor and
the Internal Revenue Service, and with all other applicable law, and Seller has
not taken or failed to take any action with respect to the Benefit Plan which
could reasonably be expected to create any liability on the part of Seller or
Purchaser. Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA)
as to each Benefit Plan has complied with all requirements of ERISA and all
other applicable laws in respect of each such Benefit Plan. Seller has
furnished to Purchaser copies of all Benefit Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans for a period of
three years prior to the date hereof. Such financial statements and annual
reports and returns are true and correct in all material respects, and none of
the actuarial assumptions underlying such documents has changed since the
respective dates thereof.
In addition:
(i) Each Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service as
to its qualification;
(ii) Seller does not maintain, sponsor or contribute to, and has never
maintained, sponsored or contributed to a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA) or a Multiemployer Plan (within the meaning
of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of Section 406 of ERISA
or Section 4975(c) of the Code) has occurred with respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement, and no act or
omission of Seller or the Company in any way limits, impairs, modifies or
otherwise affects the right of Seller or Purchaser unilaterally to amend or
terminate any Benefit Plan after the closing, subject to the requirements of
applicable law;
(v) there are no contributions which are or hereafter will be required to have
been made to trusts in connection with any Benefit Plan that would constitute
a "defined contribution plan" (within the meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits with respect to the
Benefit Plans, there are no actions, suits or claims (including claims for
income taxes, interest, penalties, fines or excise taxes with respect thereto)
pending with respect to any Benefit Plan, or any circumstances which might give
rise to any such action, suit or claim (including claims for income taxes,
interest, penalties, fines or excise taxes with respect thereto);
(vii) All reports, returns and similar documents with respect to the Benefit
Plans required to be filed with any governmental agency have been so filed on
or before their due date; and
(viii) Seller has no obligation to provide health or other welfare benefits to
former, retired or terminated employees, except as specifically required under
Section 4980B of the Code or Section 601 of ERISA. Seller has complied with
the notice and continuation requirements of Section 4980B of the Code or
Section 601 of ERISA and the regulations thereunder.
6.12.2 Except as set forth on Schedule 6.12.2 hereto, the Company has no
written or oral employment agreements with any of its employees other than
routine month to month arrangements terminable by the Company without penalty.
6.13 Banking Facilities; Powers of Attorney. Schedule 6.13 hereto sets
forth a complete and accurate list of:
6.13.1 Each bank and safety deposit facility in which the Company has an
account or safety deposit box; and
6.13.2 The names of all persons authorized to draw on each such account or to
have access to any such safety deposit box facility, together with the
description of the authority (and conditions thereof, if any) of each such
person with respect thereto; and
6.13.3 The names of all persons holding a Power of Attorney from, on behalf of
or relating to the Company, together with a description of the authorities (and
conditions thereof, if any) conferred by such Power of Attorney.
6.14 Environmental Matters.
6.14.1 Except as set forth on Schedule 6.14.1 hereto, Seller, the Company and
any other person or entity for whose conduct they are or may be responsible,
has not generated, manufactured, refined, transported, treated, stored,
handled, disposed, transferred, produced, processed or used any Hazardous
Materials (as hereinafter defined and as defined to include oils and petroleum
products) or any solid waste in or at any of the Facilities (as hereinafter
defined) or in connection with any of the Company's operations, or at any other
real property currently or previously owned, occupied, leased, operate or
subleased by the Company (collectively, for purposes of this Section, the
"Facilities"), except in compliance with all applicable Environmental Laws (as
hereinafter defined).
6.14.2 There has been no release or threat of release of any Hazardous
Materials on, under or from any of the Facilities, except for (i) authorized
discharges complying with all applicable Environmental Laws, or (ii) releases
or discharges by third-parties not under contract with the Company or third-
parties not acting or failing to act at the request or direction of the
Company.
6.14.3 No portion of any of the Facilities has been listed, designated or
identified in the National Priorities List ("NPL") or the CERCLA Information
System ("CERCLIS"), or on any similar list of locations to be investigated or
disposal sites published under federal or state law for purposes of requiring
investigation, cleanup, or remedial or corrective action under any
Environmental Law.
6.14.4 No transportation, disposal or reclamation company used by the Company
to transport, dispose of or reclaim Hazardous Materials has been cited by any
governmental entity or has been involved in any private litigation as a result
of its transportation, disposal or reclamation of any Hazardous Materials.
6.14.5 Except as set forth on Schedule 6.14.5 hereto, no notice of violation,
lien, complaint, suit, order or other notice or communication concerning any
alleged violation of any Environmental Law with respect to any of the
Facilities have been received by the Company, nor has the Company received any
document or information request, notice, demand letter, or administrative
inquiry from any governmental entity under CERCLA (as hereinafter defined) or
any comparable state or local law in connection with any off-site hazardous
waste site, nor has the Company been informed that the Company might be a
potentially responsible or liable party in connection with any such site.
6.14.6 Except as set forth in Schedule 6.14.6, the Company has all permits,
approvals and licenses required under any applicable Environmental Laws to be
issued to the Company in connection with its operations at any of the
Facilities, and the Company is in full compliance with the terms and conditions
of such permits, approvals and licenses and such permits, approvals and
licenses are in full force and effect.
6.14.7 For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Environmental Laws" shall mean all Federal, state or local laws, rules,
regulations, codes, ordinances, or by-laws, and any judicial or administrative
interpretations thereof, including orders, decrees, judgments, ruling,
directives or notices of violation, that create duties, obligations or
liabilities with respect to: (i) human health; or (ii) environmental pollution,
impairment or disruption, including, without limitation, laws governing the
existence, use, storage, treatment, discharge, release, containment,
transportation, generation, manufacture, refinement, handling, production,
disposal, or management of any Hazardous Materials, or otherwise regulating or
providing for the protection of the environment, and further including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. <section>9601 et seq.) ("CERCLA"), the Hazardous
Materials Transportation Act (49 U.S.C. <section>1801 et seq.) the Public
Health Service Act (42 U.S.C. <section> 300 et seq.), the Pollution Prevention
Act (42 U.S.C. <section> 13101 et seq.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. <section> 136 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. <section> 6901 et seq.), the Safe Drinking Water Act
(21 U.S.C. <section> 349, 42 U.S.C. <section><section>201, 300f), the Toxic
Substance Control Act (15 U.S.C. 2601 <section> et seq.), the Clean Water Act
(33 U.S.C. <section> 1251 et seq.), the Clean Air Act (42 U.S.C. <section>7401
et seq.), and similar New York State and local statutes, and all regulations
adopted pursuant thereto.
(ii) "Hazardous Materials" means (i) any "hazardous material," "hazardous
substance," "hazardous waste," "oil," "regulated substance," "toxic substance"
or words of similar import as defined under any of the Environmental Laws, (ii)
asbestos in any form; (iii) urea formaldehyde foam insulation; (iv)
polychlorinated biphenyls; (v) radon gas; (vi) flammable explosives; (vii)
radioactive materials; (viii) any chemical, contaminant, solvent, material,
pollutant or substance that may be dangerous or detrimental to any of the
Facilities, the environment or the health and safety of employees or other
occupants of any of the Facilities; and (iv) any substance, the generation,
storage, transportation, utilization, disposal, management, release or location
of which, on, under or from any of the Facilities is prohibited or otherwise
regulated pursuant to any of the Environmental Law.
6.15 Disclosure. No representation or warranty in this agreement, nor any
statement, certificate, schedule or exhibit furnished or to be furnished by or
on behalf of Seller pursuant to this agreement, nor any document or certificate
delivered to Purchaser pursuant to this agreement or in connection with actions
contemplated herein, contains or shall contain any untrue statement of a
material fact.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants as follows:
7.1 Corporate. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, has full power
and lawful authority to carry on the business which it is now conducting and
which it will conduct after the closing of this Agreement, and to own the
assets and properties now owned by it or to be acquired by it pursuant to this
Agreement. Purchaser is duly qualified to do business and is good standing in
all jurisdictions in which it is required to be so qualified. Purchaser's
subsidiaries are listed on Schedule 7.1 hereto.
7.2 Acquisition of Stock. Purchaser is acquiring the Shares for Purchaser's
own account in order to acquire the business of the Company.
7.3 Authority Relative to this Agreement. Purchaser has full power to enter
into this Agreement and carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of Purchaser. No other acts or proceedings on the part of Purchaser
are necessary to authorize this Agreement or the transactions contemplated
herein and, when duly executed and delivered, this Agreement will constitute a
valid and legally binding obligation of Purchaser. The Purchaser has complied
with all disclosure requirements under all federal and state securities laws
with respect to the transaction contemplated hereby, it is not required to file
with the Securities and Exchange Commission information on form 8-K with
respect to this Agreement and the transactions contemplated hereby. Neither
the execution and delivery of this Agreement or the consummation of the
transactions contemplated herein nor compliance by Purchaser with any of the
provisions hereof will violate any provisions of the law or of Purchaser's
certificate of incorporation or by-laws or result in the breach or termination
of any provision of, or constitute a default under any indenture, agreement or
other instrument to which it is a party or by which any of its properties may
be bound.
7.4 Litigation. To the knowledge of Purchaser, there is no claim,
administrative proceeding, litigation proceeding or governmental investigation
pending or, to the knowledge of Purchaser, threatened against or relating to
Purchaser or its properties or business which could prevent or interfere with
the consummation of the transactions contemplated by this Agreement.
7.5 Disclosure. No representation or warranty in this Agreement, nor any
statement, certificate, schedule or exhibit furnished or to be furnished by or
on behalf of Purchaser pursuant to this Agreement, nor any document or
certificate delivered to Seller pursuant to this Agreement or in connection
with actions contemplated herein, contains or shall contain any untrue
statement of a material fact.
SECTION 8. CONDITIONS TO PURCHASER'S OBLIGATIONS.
The obligation of Purchaser to complete the transactions contemplated herein
shall be subject to satisfaction of the following conditions on or before the
Closing Date, each of which may be waived by Purchaser in a written document
signed by Purchaser specifically identifying the condition waived. Seller
agrees to use its best efforts to see that all of such conditions are
satisfied.
8.1 Representations and Warranties. The representations and warranties of
Seller set forth herein shall be accurate in all material respects on the
Closing Date, and Seller shall have duly performed all obligations undertaken
by or imposed upon it herein.
8.2 Litigation. No action, claim or proceeding shall have been made or
instituted, or to the knowledge of Seller, threatened, and no order, decree or
judgment of any court, agency, commission or authority shall be subsisting,
questioning the validity of this Agreement or seeking to restrain the
consummation thereof, which in the opinion of counsel for any of the parties
affected will render it impossible or inadvisable to consummate the transaction
provided for in this Agreement.
8.3 Monitor's Estoppel Certificate, Certificate of Good Standing Purchaser
has received: (a) the duly executed estoppel certificate of Monitor with regard
to the matters set forth in paragraph 6.9.1 hereof; and (b) a long form
Certificate of Good Standing of the Company issued by the New York Department
of State.
8.4 Opinion of Counsel. Purchaser shall have received an opinion of Seller's
counsel, dated as of the Closing Date, which may rely upon opinions of special
counsel and upon the representations of Seller and shall provide that:
8.4.1 Company is a corporation duly organized and existing and in good
standing under the laws of the State of New York and has no subsidiaries;
8.4.2 Counsel knows of no pending litigation to which Seller or Company is a
party or any threatened litigation against any of them other than as disclosed
in this Agreement;
8.4.3 Seller owns and holds all of the issued and outstanding Shares of the
Company and has full power and authority to sell, assign, transfer, convey and
deliver to Purchaser the Shares, free and clear of any liens, charges,
encumbrances, restrictive agreements and assessments and to counsel's
knowledge the shares are not subject to any other restriction with respect to
transferability and upon the consummation of the transactions contemplated by
this Agreement, Purchaser will receive good and absolute title thereto free
from all liens, charges, encumbrances, restrictive agreements, equities and
claims whatsoever;
8.4.4 This Agreement is a valid and binding obligation of Seller, enforceable
in accordance with its terms, except as limited by the laws of general
application to the rights and remedies of creditors and as limited by
principles of equity.
8.5 Satisfaction of Purchaser's Counsel. All transactions contemplated
hereby and the form and substance of all legal proceedings and of all documents
used and delivered hereunder, shall be reasonably satisfactory to Samuel I.
Hendler, Esq., Purchaser's counsel.
8.6 Transfer Instruments. Seller shall have delivered to Purchaser the
certificates evidencing the Shares which are the subject hereof, accompanied by
stock powers duly executed for transfer of the Shares to Purchaser, in form and
substance satisfactory to Purchaser's counsel, as shall be effective to vest in
Purchaser good and marketable title, in the Shares free of all liens and
encumbrances.
SECTION 9. CONDITIONS TO SELLER'S OBLIGATIONS.
The obligations of Seller to complete the transactions contemplated by this
Agreement shall be subject to satisfaction of the following conditions on or
before the Closing Date each of which may be waived by Seller in a written
document signed by Seller specifically identifying the conditions waived.
Purchaser agrees to use its best efforts to see that all of such conditions are
satisfied.
9.1 Representations and Warranties. The representations and warranties of
Purchaser set forth herein shall be accurate in all
material respects and on the Closing Date, and Purchaser shall have duly
performed all obligations undertaken by it or imposed upon it herein, including
without limitation, the consent of the Purchaser to the execution and delivery
of the Employment Agreement and the Lease.
9.2 Litigation. No action, claim or proceeding shall have been made or
instituted, or to the knowledge of the Purchaser, threatened, and no order,
decree or judgment of any court, agency, commission or authority shall be
subsisting, questioning the validity of this Agreement or seeking to restrain
the consummation thereof, which in the opinion of counsel for any of the
parties effected will render it impossible or inadvisable to consummate the
transaction provided for in this Agreement.
9.3 Opinion of Counsel. Seller shall have received an opinion of Purchaser's
counsel dated as of the Closing Date, which shall provide that:
9.3.1 Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York;
9.3.2 All corporate and other proceedings required to be taken by or on the
part of Purchaser to authorize Purchaser to carry out this Agreement and to
make payment as herein provided have duly and properly been taken;
9.3.3 This Agreement is a valid and binding obligation of Purchaser
enforceable in accordance with its terms, except as limited by laws of general
application as to the rights and remedies of creditors and as limited by
principles of equity; and
9.3.4 Any action required to be taken under state and federal securities laws
has been properly taken with respect to the Agreement and the transactions
contemplated thereby; and
9.3.5 None of the transactions contemplated herein will to Counsel's
knowledge be a violation constituting a default or grounds for revocation under
any provision of any contract, agreement, indenture, license or any instrument
to which Seller or the Company is a party or by which Purchaser is bound.
9.4 Satisfaction of Seller's Counsel. All transactions contemplated hereby,
and the form and substance of all legal proceedings and of all documents used
or delivered hereunder, shall be reasonably satisfactory to Messrs. Meyer,
Suozzi, English & Klein, P.C., Seller's counsel.
SECTION 10. FURTHER ASSURANCES.
After the Closing Date, and at any time and from time to time, at the request
of Purchaser, Seller will execute and deliver to Purchaser any and all further
instruments and assurances and take any and all other actions as may be
reasonably requested by Purchaser in order to effectively transfer and convey
to Purchaser all rights contemplated to be acquired by it under this Agreement.
Without limiting the generality of the foregoing, Seller shall:
10.1 Make available to Purchaser such files, records, historical sales data
and other information relating to the conduct of the Company as Purchaser may
reasonably request;
10.2 Cooperate with Purchaser at Purchaser's reasonable request in notifying
employees, customers and suppliers of the transfer of the Company to Purchaser;
10.3 Refer all inquiries relating to the Company received after the Closing
Date to Purchaser; and
10.4 Afford Purchaser reasonable assistance in effecting an orderly transfer
of the Company.
SECTION 11. INDEMNIFICATION.
11.1 Seller's Indemnification of Purchaser. Seller agrees to indemnify and
hold Purchaser harmless against any and all loss, damages, costs and expenses
(including reasonable counsel fees) incurred in respect of:
11.1.1 The breach of any representation, warranty, or agreement of Seller in
this Agreement;
11.1.2 Any and all liabilities and obligations of Seller and the Company,
including any and all tax liabilities, arising from any actions of Seller with
respect to the operation of the Company prior to the Closing Date with the
exception of any tax liabilities accrued and disclosed to Purchaser by Seller
to date; and
11.1.3 Any and all liabilities or obligations arising on or after the Closing
Date for claims against Seller or the Company based on events occurring on or
before the Closing Date regardless of the nature of the claim.
11.2 Purchaser's Indemnification of Seller. Purchaser agrees to indemnify and
hold Seller harmless against any and all loss, damage, costs and expenses
(including reasonable counsel fees) incurred in respect of:
11.2.1 The breach of any representation, warranty, or agreement of Purchaser in
this Agreement;
11.2.2 Any and all liabilities and obligations of the Company which arise
subsequent to the Closing Date of the Agreement;
11.2.3 Any and all liabilities or obligations of the Company arising from any
actions of Purchaser with respect to the operation of the Company after the
Closing Date, including any and all tax liabilities or recapture of taxes
resulting from (i) a change effected in the basis of the Company's assets by
Purchaser; or (ii) any other actions of the Purchaser;
11.2.4 Any and all liabilities or obligations arising after the Closing Date
for claims arising from events occurring after the Closing Date; and
11.2.5 Any and all obligations of the Company set forth in Schedule 11.2.5
herein for which Seller has executed and given personal guarantees.
11.3 Notice. Each party seeking indemnity hereunder shall give the
indemnifying party prompt notice of any claim. The indemnifying party may
assume the defense of such action or negotiation for settlement of any such
claim. If the indemnifying party assumes such defense, the party seeking
indemnification shall have the right to participate therein at its own expense.
SECTION 12. CONDUCT OF BUSINESS PENDING CLOSING.
Pending the Closing Date of the transactions contemplated herein, Seller hereby
agrees:
12.1 The business of the Company shall be conducted only in its ordinary
course;
12.2 No dividend or other distribution or payment shall be declared or paid
with respect to the Company's shares and that the
Company shall not redeem, purchase or otherwise acquire such shares;
12.3 No salary or wage increases shall be declared or paid by the Company
except in the usual and ordinary course of business, consistent with prior
established practice.
12.4 Seller shall not modify, discharge or otherwise alter any of the
Company's contracts or commitments except as such occur in the ordinary course
of the Company's business;
12.5 The Company shall not enter into any new contracts or commitments, except
contracts in the ordinary course of business; and
12.6 Seller or the Company shall make no expenditures for any alterations,
additions or improvements to any of the Company's assets or property, whether
leased or owned, except with Purchaser's approval.
SECTION 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made herein or pursuant to this Agreement or
in any schedule, exhibit or agreement executed in connection herewith shall be
deemed material and shall survive the closing hereunder for a period of two (2)
years beyond the Closing Date.
SECTION 14. BROKERS.
No broker has been employed or engaged by any party with respect to this
Agreement and the transactions contemplated hereby. Seller will indemnify
Purchaser and Purchaser will indemnify Seller with respect to claims for
brokerage commissions or fees alleged to be owing, arising from this Agreement.
SECTION 15. SCHEDULES AND OTHER ITEMS.
All schedules hereto and other items required to be provided hereunder, shall
be provided to the other party by the party required to provide same within two
(2) weeks from the date hereof. the due diligence period provided for in
Section 16.
SECTION 16. DUE DILIGENCE PERIOD.
Within four (4) weeks from the date hereof (the "Due Diligence Period"),
Purchaser shall have the opportunity to examine, review and evaluate the
schedules hereto and other items required to be provided to purchaser
hereunder. Additionally, during the Due Diligence Period, Purchaser shall have
the opportunity to evaluate: the Financials; the Company's customers and the
market situation for the Company's products; the Company's equipment and
inventory, and the Company's environmental liabilities. Additionally, during
said period the parties shall attempt to negotiate the Lease and the Employment
Agreement.
SECTION 17. TERMINATION
17.1 Grounds for Termination. This Agreement may be terminated at any time
prior to Closing:
a) By mutual written consent of Purchaser and Seller;
b) By Purchaser or Seller if the Closing shall not have occurred on or before
January 31, 1999;
c) By Purchaser if there is a material breach of any representation or warranty
set forth in Section 6 of this Agreement or any covenant or agreement to be
complied with or performed by Seller pursuant to the terms of this Agreement or
the failure of a condition set forth in Section 8 to be satisfied (and such
condition is not waived in writing by Purchaser) on or prior to the Closing
Date, or the occurrence of any event which results or would result in the
failure of a condition set forth in Section 8 to be satisfied on or prior to
the Closing Date; provided, however,that Purchaser may not terminate this
Agreement prior to the Closing if Sellers have not had adequate opportunity to
cure such failure;
d) By Seller if there are any material breaches of representation or warranty
set forth in Section 7 of this Agreement or of any covenant or agreement to be
complied with or performed by Purchaser pursuant to the terms of this Agreement
or the failure of a condition set forth in Section 9 to be satisfied (and such
condition is not waived in writing by Seller) on or prior to the Closing Date,
or the occurrence of any event which results or would result in the failure of
a condition set forth in Section 9 to be satisfied on or prior to the Closing
Date; provided, however, that Seller may not terminate this Agreement prior to
the Closing if Purchaser has not had an adequate opportunity to cure such
failure;
e) By Purchaser if during the Due Diligence Period, Purchaser in its sole
discretion determines that the business or affairs of the Company or the market
for its products, or the business outlook for the Company or its products, are
not up to Purchaser's expectations.
f) By either party if the parties cannot negotiate to the satisfaction of each
party the Lease and Employment Agreement prior to the Closing.
17.2 Effect of Termination. In the event of termination of this Agreement:
a) Each party will redeliver all documents, work papers and other material of
the other party relating to the transactions contemplated by this Agreement,
whether obtained before or after the execution of this Agreement, to the party
furnishing the same;
b) The confidentiality provisions of Section 4.2 and the Confidentiality and
Non-Disclosure agreement referred to therein shall continue in full force and
effect.
c) Neither party shall have any liability or further obligation to any other
party, except as stated in subsections (a), (b), and (d) of this Section, and
except for any willful breach of this Agreement occurring prior to the proper
termination of this Agreement; and
d) Each party shall pay the fees and expenses of its own advisors including
accountants and attorneys, in preparing and negotiating this Agreement.
SECTION 18. MISCELLANEOUS.
18.1 Notices. Any notice required by this Agreement shall be in writing, and
shall be deemed to be duly given when sent by facsimile transmission, delivered
by overnight courier or mailed certified mail, return receipt requested, with a
copy sent by first class mail, to the addresses set forth above or to such
other address as either party shall designate in writing from time to time or
to the fax numbers set forth herein, as the case may be. All notices to
Seller, Kliegman, Windham or Monitor shall be accompanied by copy to Counsel:
Murray D. Schwartz, Esq.
Meyer, Suozzi, English & Klein, P.C.
1505 Kellum Place
Mineola, New York 11501
Fax #: (516) 741-6706
All notices to Purchaser shall be accompanied by copy to Counsel:
Samuel I. Hendler, Esq.
1983 Marcus Avenue
Suite 121
Lake Success, New York 11042
Fax #: (516) 616-1852
18.2 Captions. The captions and section headings herein are for convenience
only, and in no way define, limit or describe the scope or intent thereof, or
in any way affect the construction of this Agreement.
18.3 Entire Agreement. This Agreement sets forth the entire understanding of
the parties with respect to the subject matter hereof and may not be amended
nor modified except in writing signed by all the parties hereto.
18.4 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York.
18.5 Arbitration. Disputes arising out of this Agreement, or the
relationships of the parties to each other shall be submitted to the American
Arbitration Association ("AAA") for determination in Nassau County, New York,
in accordance with the rules and regulations of the AAA. If Purchaser and
Seller fail to agree on the selection of an arbitrator or arbitrators from the
initial list of arbitrators submitted to them by AAA, the AAA shall appoint an
arbitrator or arbitrators without the submission of additional lists to
Purchaser or Seller. The arbitrator or arbitrators shall resolve all submitted
matters, and his [or her] or their determination with respect to such matters
shall be conclusive, binding and final upon Purchaser and Seller. Purchaser and
Seller shall bear their own costs of arbitration including legal fees. The
fees and disbursements of the AAA shall be shared equally by Purchaser and
Seller.
18.6 Waiver. The failure of any party to insist upon strict performance of
any of the provisions of this Agreement shall not be construed as a waiver of
any subsequent default.
18.7 Non-Exclusive Remedies. No remedy conferred by any provision hereof shall
be exclusive of any other remedy, and each and every remedy shall be cumulative
and in addition to every remedy given hereunder or now or hereafter existing at
law or in equity. The election of any one or more remedies by any party shall
not constitute a waiver of the right to obtain other available remedies.
18.8 Modification. This Agreement contains the entire agreement of the parties
and supersedes any prior or contemporaneous negotiations, understandings or
agreements between the parties, written or oral, with respect to the
transaction contemplated by this Agreement. This Agreement may not be changed
or terminated orally, but may only be changed by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension, discharge or termination is sought.
18.9 No Rule of Construction. All parties and their respective counsel have
read, negotiated and participated in the drafting of the language and terms
used in this Agreement. Accordingly, no rule of construction shall apply to
this Agreement which construes any language, whether ambiguous, unclear or
otherwise, in favor of, or against any party by reason of that party's role in
drafting this Agreement.
18.10 Severability. A determination by the arbitrators that a provision or
part of any provision of this Agreement is invalid or unenforceable shall not
affect the remaining parts or provisions of this Agreement that shall continue
in full force and effect.
18.11 Benefit and Burden. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
but may not be assigned by either party without the express written consent of
the other, which consent shall not be unreasonably withheld or delayed.
18.12 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
Agreement as of the date and year first above written.
SELLER: WINDHAM FAMILY LIMITED PARTNERSHIP
By:__________________________________________
Peter H. Kleigman, General Partner
By:
Peter H. Kliegman
CDC PRODUCTS CORP.
By:
PURCHASER:
ACETO CORPORATION
By:____________________________________________
Exhibit 24
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Aceto Corporation:
We consent to incorporation by reference in the registration statement (No.
33-38679) on Form S-8 of Aceto Corporation of our report dated August 18, 1999,
relating to the consolidated balance sheets of Aceto Corporation and
subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended June 30, 1999, and the related financial
statement schedule, which report appears in the June 30, 1999 annual report on
Form 10-K of Aceto Corporation.
/s/KPMG LLP
Melville, New York
September 28, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 5 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ACETO CORPORATION
(Company)
ACETO CORPORATION
(Company)
By /S/LEONARD S. SCHWARTZ /S/DONALD HOROWITZ
Leonard S. Schwartz Donald Horowitz
Chairman, President Secretary/Treasurer and
and Chief Executive Officer Chief Financial Officer
Date: September 23, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/S/LEONARD S. SCHWARTZ Chairman, President and 9-23-99
Leonard S. Schwartz Chief Executive Officer
/S/DONALD HOROWITZ Secretary/Treasurer, 9-23-99
Donald Horowitz Chief Financial Officer
/S/ANTHONY BALDI Director 9-23-99
Anthony Baldi
/S/RICHARD AMITRANO Director 9-23-99
Richard Amitrano
/S/SAMUEL I. HENDLER Director 9-23-99
Samuel I. Hendler
ACETO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated financial statements:
Consolidated balance sheets as of June 30, 1999 and 1998
Consolidated statements of income for the years ended June 30,
1999, 1998 and 1997
Consolidated statements of cash flows for the years ended June
30, 1999, 1998 and 1997
Consolidated statements of shareholders' equity for the years
ended June 30, 1999, 1998 and 1997
Notes to consolidated financial statements
Schedules:
II - Valuation and qualifying accounts
All other schedules are omitted because they are not required
or the information required is given in the consolidated
financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Aceto Corporation:
We have audited the accompanying consolidated balance sheets of Aceto
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aceto Corporation
and subsidiaries at June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1999 in conformity with generally accepted accounting principles.
Melville, New York /s/KPMG LLP
August 18, 1999
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,991 $ 9,178
Short-term investments 7,427 11,862
Receivables:
Trade, less allowance for
doubtful accounts:
1999, $219; 1998, $219 26,073 23,986
Other _ 942 1,502
27,015 25,488
Inventory 29,644 26,783
Prepaid expenses 240 233
Deferred income tax benefit, net 1,188 754
Property held for sale 456 493
Total current assets 69,961 74,791
Long-term investments 11,852 8,025
Long-term notes receivable 976 902
Property and equipment:
Machinery and equipment 639 -
Leasehold improvements 191 -
Computers 1,085 812
Furniture and fixtures 733 599
Automobiles 135 158
2,783 1,569
Less accumulated depreciation 2,238 1,189
545 380
Goodwill, less accumulated amortization 2,514 -
(1999, $76, 1998, $0)
Other assets 311 281
Total Assets $86,159 $84,379
See accompanying notes to consolidated financial statements.
1999 1998
(In thousands except par value)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 750 $ 549
Current installments
on long-term liabilities 125 250
Accounts payable 2,972 2,195
Accrued merchandise purchases 9,447 10,905
Accrued compensation 2,569 2,549
Accrued environmental remediation 1,323 1,378
Accrued income taxes 956 716
Other accrued expenses 2,360 1,826
Total current liabilities 20,502 20,368
Long-term liability, excluding
current installments 925 -
Redeemable preferred stock,
$2.50 par value per share;
Authorized 2,000 shares;
issued and outstanding:
300 shares 750 750
Shareholders' equity:
Common stock, $.01 par value per share;
Authorized: 1999, 20,000 shares; 1998,
10,000 shares; issued: 1999, 9,001
shares; 1998, 9,001 shares 90 90
Capital in excess of par value 57,637 57,531
Retained earnings 31,224 26,888
88,951 84,509
Less:
Cost of common shares held in treasury;
1999, 2,585 shares; 1998, 2,302 shares 24,969 21,248
Total shareholders' equity 63,982 63,261
Commitments and contingencies
Total Liabilities and Shareholders' Equity $ 86,159 $ 84,379
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
(In thousands except per share amounts)
Net sales $169,189 $182,954 $169,387
Cost of sales 146,450 160,645 148,053
Gross profit 22,739 22,309 21,334
Selling, general and
administrative expenses 15,328 12,816 12,719(1)
Provision for environmental remediation - - 800(2)
Operating profit 7,411 9,493 7,815
Other income (expense):
Interest expense (18) (59) (110)
Interest and other income 2,357 2,309 2,496
2,339 2,250 2,386
Income before income taxes 9,750 11,743 10,201
Income taxes:
Federal:
Current 3,634 3,299 3,571
Deferred (369) 424 (121)
State and local:
Current 459 388 544
Deferred (65) 75 (21)
3,659 4,186 3,973
NET INCOME $6,091 $7,557 $6,228(1)(2)
Net income per common share:
Basic $ 0.92 $ 1.11 $ 0.83(1)(2)
Diluted 0.90 1.08 0.82(1)(2)
Weighted average shares outstanding:
Basic 6,543 6,732 7,458
Diluted 6,788 6,983 7,625
See accompanying notes to consolidated financial statements.
(1) Includes an after-tax charge of $187($.03/share), $225 pre-tax in final
settlement of a complaint by the U.S. Department of Justice sent to the
Company on February 10, 1995. The complaint alleged violation of the
Resource Conservation and Recovery Act (RCRA) by a then wholly owned
subsidiary in Waterbury, CT. This subsidiary was sold on June 19, 1996.
(2) Includes an after-tax charge of $480($.06/share), $800 pre-tax to cover a
revised estimate for remediation of the Company's former manufacturing
site in Carlstadt, NJ.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
(In thousands)
Operating activities:
Net income $6,091 $7,557 $6,228
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 355 192 179
Gain on sale of assets (178) - (198)
Provision for doubtful accounts 213 27 80
Changes in assets and liabilities,
net of effect of the purchase of CDC
Products Corp.:
Investments - trading securities (258) (774) (437)
Deferred tax benefit (434) 499 (142)
Trade accounts receivable (1,877) 614 32
Other receivables 568 (139) (773)
Inventory (2,481) 4,427 (1,054)
Prepaid expenses 56 7 (136)
Other assets 12 30 (120)
Drafts & acceptances payable 201 (194) (259)
Accounts payable 501 (1,744) 892
Accrued merchandise purchases (1,458) (815) 518
Accrued compensation 20 (906) 125
Accrued environmental remediation (55) (9) 597
Accrued income taxes 296 (70) 282
Other accrued expenses 205 (107) (26)
Net cash provided by operating activities 1,777 8,595 5,788
Investing activities:
Purchases of investments-held-to-maturity (10,703) (4,732) (6,186)
Proceeds from investments-held-to-maturity 11,568 6,844 8,728
Issuance of notes receivable (159) - (192)
Payments received on notes receivable 85 46 34
Purchases of property and equipment (138) (253) (155)
Proceeds from sale of property 183 - 259
Payments for purchase of CDC Products Corp. (2,111) - -
Net cash provided by (used in)
investing activities (1,275) 1,905 2,488
Financing activities:
Payments of debt (250) (500) (500)
Proceeds from exercise of stock options 137 433 138
Payments for purchases of treasury stock (4,252) (3,649) (7,357)
Proceeds from issuance of treasury stock
to employees 431 - -
Payments of cash dividends (1,755) (1,748) (1,795)
Net cash used in financing activities (5,689) (5,464) (9,514)
Net increase (decrease) in cash and
cash equivalents (5,187) 5,036 (1,238)
Cash and cash equivalents at beginning of year 9,178 4,142 5,380
Cash and cash equivalents at end of year $3,991 $9,178 $4,142
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNADJUSTED FOR STOCK SPLIT PAID IN APRIL 1998)
Capital in Common
Common Excess of Retained Stock Held in
STOCK ISSUED PAR VALUE EARNINGS TREASURY TOTAL
BALANCE AT JUNE 30, 1996 $ 60 $57,387 $16,646 $(10,932) $63,161
Net income - - 6,228 - 6,228
Cash dividends:
Common stock
($0.36 per share) - - (1,725) - (1,725)
Preferred stock - - (70) - (70)
Exercise of stock options
(19 shares) - (46) - 203 157
Federal income tax benefit
from 1980 stock option plan - 40 - - 40
Purchase of treasury stock
(552 SHARES) - - - (7,357) (7,357)
BALANCE AT JUNE 30, 1997 60 57,381 21,079 (18,086) 60,434
Net income - - 7,557 - 7,557
Stock split - 3 for 2 30 (30) - - -
Cash dividends:
Common stock ($0.31
per share) - - (1,678) - (1,678)
Preferred stock - - (70) - (70)
Exercise of stock options
(47 shares) - 24 - 487 511
Federal income tax benefit
from 1980 stock option plan - 156 - - 156
Purchase of treasury stock
(250,000 SHARES) - - - (3,649) (3,649)
BALANCE AT JUNE 30, 1998 90 57,531 26,888 (21,248) 63,261
Net income - - 6,091 - 6,091
Stock distribution to
employees (33 shares) - 117 - 312 429
Cash dividends:
Common stock ($0.26
per share) - - (1,685) - (1,685)
Preferred stock - - (70) - (70)
Exercise of stock options
(23 shares) - (60) - 219 159
Federal income tax benefit
from 1980 stock option plan - 49 - - 49
Purchase of treasury stock
(339 SHARES) - - - (4,252) (4,252)
BALANCE AT JUNE 30, 1999 $ 90 $57,637 $31,224 $(24,969) $63,982
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS
Aceto Corporation and subsidiaries (the Company) is primarily engaged in the
marketing of fine and industrial chemicals used principally in the
agricultural, color producing, pharmaceutical and surface coating industries.
Most of the chemicals distributed by the Company are purchased abroad mainly
for sale throughout the United States; to a minor extent, some chemicals are
sold abroad.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. There were no cash
equivalents at June 30, 1999 and $1,000 at June 30, 1998.
INVESTMENTS
The Company classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase and periodically
re-evaluates such classifications. There were no securities classified as
available-for-sale as of June 30, 1999 and 1998. Trading securities are carried
at fair value, with unrealized holding gains and losses included in earnings.
Held-to-maturity securities are recorded at cost and are adjusted for the
amortization or accretion of premiums or discounts over the life of the related
security. In determining realized gains and losses, the cost of securities sold
is based on the specific identification method. Interest and dividends on the
investments are accrued at the balance sheet date.
INVENTORY
Inventory consists primarily of finished goods and is stated at the lower of
cost (principally on a specific identification basis) or market (net realizable
value).
ENVIRONMENTAL REMEDIATION
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and can be reasonably estimated.
Such accruals are adjusted as further information develops or circumstances
change.
STOCK OPTIONS
Prior to July 1, 1996 the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense recorded on the date of vesting only if and to the
extent that the market price of the underlying stock at date of grant exceeded
the exercise price. On July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation",
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS 123
also allows entities to continue to apply the provisions of APB 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS 123 had
been applied. The Company has elected to continue to apply the provisions of
APB 25 and provide the pro forma disclosure provisions of SFAS 123.
COMMON STOCK
On December 10, 1998, the shareholders approved a proposal to amend the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock from 10,000 to 20,000.
On March 18, 1998, the Board of Directors authorized a three-for-two stock
split effected in the form of a stock dividend, which was payable April 13,
1998, to shareholders of record on March 30, 1998. In accounting for the stock
split, an amount equal to the par value of the common shares issued was
transferred from capital in excess of par value to common stock. This transfer
was reflected on the consolidated balance sheet as of June 30, 1998. Par value
remained unchanged at $.01 per share. Unless otherwise noted, references to
shares, share prices and per share amounts have been adjusted retroactively to
reflect the stock split.
NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted SFAS 128, "Earnings Per
Share". In accordance with the requirements of SFAS 128, net income per common
share amounts (basic EPS) were computed by dividing net income after deducting
preferred stock dividends on the Company's $2.50 cumulative redeemable
preferred stock by the weighted average number of common shares outstanding and
excluded any potential dilution. Net income per common share amounts, assuming
dilution (diluted EPS), were computed by reflecting potential dilution from the
exercise of stock options and conversion of preferred stock. Income per share
amounts for all periods presented have been restated to conform with the
provisions of SFAS 128.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
PROPERTY HELD FOR SALE
Property held for sale, which includes land and buildings, is stated at cost.
Impairment, if any, is recognized if the estimated fair value less costs to
sell is lower than the carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using sum-of-the-
years and declining balance methods. The estimated useful lives range from
three to ten years.
GOODWILL
Goodwill is amortized on a straight-line basis over a twenty-year period. The
recoverability of goodwill is assessed by determining whether the amortization
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of the excess cost over fair value of assets acquired
will be impacted if estimated future operating cash flows are not achieved.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company purchases inventory in several foreign currencies and, as a result,
is subject to foreign currency fluctuations. To minimize the effects, the
Company enters into future foreign exchange contracts. The Company, as a
policy, does not enter into these contracts for trading purposes. The
contracts are entered into as hedges of inventory purchase commitments. Gains
and losses on future foreign exchange contracts are reported as a component of
the underlying transaction.
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
issued in June 1998. SFAS 137 defers the effective date of SFAS 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. Earlier
application is permitted. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
While management has not determined the impact of the new standard, it is not
expected to be material.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS 130, "Reporting Comprehensive
Income", effective July 1, 1998. This Statement requires that all items
recognized under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. Other comprehensive income
may include foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale. The Company has no items of other
comprehensive income, therefore there is no difference between the Company's
comprehensive income and net income.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform to the 1999 presentation.
(3) BUSINESS ACQUISITION
On November 24, 1998 the Company purchased all the capital stock of CDC
Products Corp. (CDC) for a purchase price of $3,161. Of the purchase price,
$2,111 was paid at closing and the balance of $1,050 is scheduled to be paid in
equal installments of $125 in January 2000, 2001 and 2002 and $225 in August
2000, 2001 and 2002. The payments to be made in August 2000, 2001 and 2002 are
subject to downward adjustment in the event certain earnings, as defined in the
purchase agreement, are not achieved. In the event the August payments are
adjusted downward such adjustments will be recorded as reductions to goodwill.
The acquisition was accounted for as a purchase and, accordingly, the cost of
the acquisition was allocated to the net assets acquired, based upon their
estimated fair values. The excess of cost over the fair value of net assets
acquired amounted to $2,590 and is being treated as goodwill. Amortization of
goodwill amounted to $76 for the year ended June 30, 1999. The assets acquired
consisted primarily of inventory, accounts receivable and fixed assets. The
results of operations of CDC have been included in the accompanying
consolidated statements of income from the date of acquisition. Proforma
results of operations were not provided as their effect on the consolidated
results of operations were not material.
In connection with the acquisition the Company entered into a non-competition
agreement, which value was estimated to be $75. The non-competition agreement
is being amortized on a straight-line basis over three years.
(4) INVESTMENTS
A summary of trading securities, classified as short-term, follows:
JUNE 30, 1999 JUNE 30, 1998
Cost Cost
FAIR VALUE BASIS FAIR VALUE BASIS
U.S. Treasury securities $2,731 $2,705 $2,874 $2,800
Corporate securities 1,602 1,153 1,201 817
The change in the net unrealized holding gains (losses) on trading securities
was $17, $103 and $(31) for the years ended June 30, 1999, 1998 and 1997,
respectively.
A summary of held-to-maturity securities as of June 30, 1999 and 1998 follows:
JUNE 30, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
COST OR COST GAINS LOSSES VALUE
Held-to-maturity securities:
Short-term investments:
Corporate securities $2,014 $ 5 $ - $2,019
U.S. treasury securities 999 2 - 1,001
Municipal obligations 81 - - 81
Long-term investments:
Corporate securities 10,630 - 71 10,559
U.S. treasury securities 1,000 6 - 1,006
Municipal obligations 222 - 2 220
JUNE 30, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
COST OR COST GAINS LOSSES VALUE
Held-to-maturity securities:
Short-term investments:
Corporate securities $7,280 $ 18 $ - $7,298
Municipal obligations 507 - 4 503
Long-term investments:
Corporate securities 6,029 41 - 6,070
U.S. treasury securities 1,996 18 - 2,014
The contractual maturities on the long-term investments range between one and
three years.
(5) NOTES RECEIVABLE
The Company currently holds five notes receivable with outstanding balances
aggregating $1,062 and $948 at June 30, 1999 and 1998, respectively, which have
arisen from sales of property. The notes are either secured by a first
mortgage on the real property sold or collateralized by a security interest in
the asset sold. The notes range in length from seven to twenty-five years and
pay interest at either a fixed or variable rate. The fixed rates on three
notes are 8.00%, 9.25% and 9.50%. The variable rates on the other two notes,
which are based on either 1% or 2.5% over prime, were 9.00% and 10.50% at June
30, 1999 and 9.50% and 11.00% at June 30, 1998. Included in current asssets
are notes receivable due within one year totaling $86 and $46 at June 30, 1999
and 1998, respectively.
(6) ENVIRONMENTAL REMEDIATION
During fiscal 1993 the Company announced the closing of its manufacturing
subsidiary located in Carlstadt, New Jersey. At the same time an environmental
consultant was engaged by the Company to determine the extent of contamination
on the site and develop a plan of remediation. Based on the initial estimates
from the consultant a liability was established in fiscal 1993 for $1,500.
During fiscal 1997 after additional testing was completed, the Company received
a revised estimate from the consultant. As a result, the Company recorded an
additional liability of $800. The remaining liability was $1,300 and $1,400 at
June 30, 1999 and 1998, respectively. The Company believes it is possible that
such amount may not be sufficient to cover future environmental remediation but
does not believe there will be a material adverse effect on the financial
position or liquidity of the Company. However, depending on the amount and
timing of any required remediation over and above the liability established, it
is possible that the Company's future earnings could be materially affected in
a particular reporting period. Other than the aforementioned remediation, the
Company is not aware of any material environmental liabilities.
(7) FINANCING ARRANGEMENTS
At June 30, 1999 and 1998 the Company had available two lines of credit with
financial institutions totaling $15,000. The Company maintains compensating
balances under informal arrangements. There were no short-term loans
outstanding under the lines of credit at any time during the three year period
ended June 30, 1999. The lines of credit can be withdrawn by the financial
institutions at any time.
(8) NET INCOME PER COMMON SHARE
A reconciliation between the numerators and denominators of the basic and
diluted income per share computation for net income follows:
1999 1998 1997
Net income $ 6,091 $ 7,557 $ 6,228
Preferred stock dividends (70) (70) (70)
Net income available for common
shareholders 6,021 7,487 6,158
Weighted average common shares 6,543 6,732 7,458
Effect of dilutive securities:
Stock options 106 112 28
Convertible preferred stock 139 139 139
Weighted average common and
potential common shares
outstanding 6,788 6,983 7,625
Basic income per share $ 0.92 $ 1.11 $ 0.83
Diluted income per share 0.90 1.08 0.82
Employee stock options of 232, 280 and 280 for the second, third and fourth
quarters, respectively, of fiscal 1999 were not included in the net income per
share calculation because their effect would have been anti-dilutive. For
fiscal years 1998 and 1997, all employee stock options were included.
(9) REDEEMABLE PREFERRED STOCK
The Company has 2,000 authorized shares of redeemable preferred stock with a
par value of $2.50 per share. The stock is redeemable at the option of either
the holder or issuer at par. All of the outstanding preferred stock is held by
the Aceto Corporation Profit Sharing Plan. Redeemable preferred stock
outstanding at both June 30, 1999 and 1998 consisted of the following:
SHARES PAR VALUE
Third series 100 $250
Fourth series 40 100
Fifth series 40 100
Sixth series 40 100
Seventh series 40 100
Eighth series 40 100
300 $750
The third, fourth, fifth, sixth, seventh and eighth series of preferred stock
are convertible beginning on the date of issue into the Company's common stock
at ratios of 6.4, 6.4, 5.1, 6.0, 6.0 and 4.2 shares of preferred stock to 1
share of common stock, respectively, subject to antidilution provisions. The
third and sixth series pay 10%, the fourth and fifth series pay 8%, the seventh
series pays 9.5% and the eighth series pays 9% annual cumulative cash dividends
on par value. All series have voting rights. In the event of liquidation of the
Company, all series share ratably in the remaining proceeds.
(10) STOCK BASED COMPENSATION PLANS
In December 1998, the Company adopted the Aceto Corporation 1998 Omnibus Equity
Award Plan (1998 Plan). In accordance with the 1998 Plan the Company's Board
of Directors may grant up to 500 shares of common stock in the form of stock
options or restricted stock to eligible participants. The exercise price per
share, determined by the Board, for options granted cannot be less than the
fair market value of the stock on the date of grant. The options vest as
determined by the Board and expire no later than ten years from the date of
grant. Restricted stock may be granted to an eligible participant in lieu of a
portion of any annual cash bonus earned by such participant. Such award may
have a premium in shares greater than the portion of bonus paid in restricted
stock. The award vests ratably over a period of years as determined by the
Board. The premium vests when the award is fully vested, provided that the
participant is in the employ of the Company when vesting occurs. At June 30,
1999, under the 1998 Plan, 267 shares of common stock were available for grant
as either options or restricted stock. Under the terms of the Company's 1980
Stock Option Plan (1980 Plan), options may be issued to officers and key
employees. The exercise price per share can be greater or less than the market
value of the stock on the date of grant. The options vest either immediately or
over a period of years and expire no later than five or ten years from the date
they are fully vested. At June 30, 1999 and 1998, under the 1980 Plan, options
to purchase 312 shares of common stock were available for grant. The Board
does not intend to issue additional options from this Plan.
The following tabulations summarize the shares of common stock under option for
both plans at June 30, 1999, 1998 and 1997, and the activity with respect to
options for the respective years then ended.
Shares Weighted Average
subject to exercise price
OPTION PER SHARE
Balance at June 30, 1996 343 $ 7.08
Granted 225 8.93
Exercised (29) 4.86
FORFEITED (12) 7.99
Balance at June 30, 1997 527 $ 7.96
Granted 81 10.00
Exercised (66) 6.54
FORFEITED - -
Balance at June 30, 1998 542 $ 8.44
Granted 211 12.50
Exercised (23) 5.84
FORFEITED (12) 12.52
Balance at June 30, 1999 718 $ 9.65
Options exercisable at June 30, 1999, 1998 and 1997 were 283, 245 and 228,
respectively. At June 30, 1999, outstanding options had expiration dates
ranging from December 31, 1999 to December 31, 2015.
Under the 1980 Plan, during the period options become exercisable, compensation
is charged to operations for the excess of fair market value over the option
price at the date of grant. Such charges to operations were $108, $121 and $121
in fiscal 1999, 1998 and 1997, respectively. Under the 1998 Plan, compensation
is recorded for the value of restricted stock granted. During 1999 $432 was
charged to operations for grants of restricted stock.
The per share weighted average fair value of stock options granted during 1999,
1998 and 1997 was $3.10, $6.07 and $2.81, respectively, on the date of the
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
Risk-free
Date of Expected Expected interest Dividend
GRANT VOLATILITY(%) LIFE(YEARS) RATE(%) YIELD(%)
1999
12/10/99 20 7.5 4.53 2.08
1998
1/26/98 20 5.0 6.22 1.90
1/26/98 20 16.5 6.25 1.90
1997
1/24/97 20 5.0 6.19 2.62
6/05/97 20 13.4 6.52 2.67
The Company applies APB 25 in accounting for its stock option grants and,
accordingly, no compensation cost has been recognized in the financial
statements for its stock options which have an exercise price equal to or
greater than the fair value of the stock on the date of the grant. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS 123, the Company's net income and income per
share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997
Net income:
As reported $6,091 $7,557 $6,228
Pro forma 5,808 7,281 5,983
Income per share-basic:
As reported $ 0.92 $1.11 $ 0.83
Pro forma 0.88 1.07 0.79
Income per share-diluted:
As reported $ 0.90 $ 1.08 $ 0.82
Pro forma 0.86 1.04 0.79
Pro forma net income reflects only options granted beginning in fiscal 1996.
Therefore, the full impact of calculating compensation costs for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation costs are reflected over the options' vesting period
and compensation cost for options granted prior to July 1, 1995 is not
considered.
Summarized information about stock options outstanding and exercisable at June
30, 1999 was as follows:
Outstanding Exercisable
Exercise Number of Average Average Number of Average
PRICE RANGE SHARES LIFE(1) PRICE(2) SHARES PRICE(2)
$ 4- 8 203 3.2 $ 7.50 163 $7.43
8-12 295 11.3 8.98 100 8.94
12-14 220 8.9 12.54 20 12.92
(1) Weighted average contractual life remaining, in years.
(2) Weighted average exercise price.
(11) INTEREST AND OTHER INCOME
Interest and other income earned during the fiscal years ended June 30, 1999,
1998 and 1997 were comprised of the following:
1999 1998 1997
Dividends $ 142 $ 140 $ 19
Interest 1,375 1,314 1,595
Net gain on investments 62 114 105
Net gain on sale of assets 16 - 198
Royalty income 539 427 248
Miscellaneous 223 314 331
$2,357 $2,309 $2,496
(12) INCOME TAXES
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at June 30, 1999 and 1998 are presented below:
1999 1998
Deferred tax assets:
Accrued environmental remediation
liabilities not currently
deductible $ 529 $ 551
Accrued retirement plan 361 -
Accrued compensation 197 314
Additional costs inventoried for
tax purposes pursuant to the
Tax Reform Act of 1986 188 125
Allowance for doubtful accounts
receivable 88 88
Differences in depreciation of
property and equipment 14 31
Total gross deferred tax assets 1,377 1,109
Deferred tax liabilities:
Accounts receivable 475 election - 172
Other 189 183
Total gross deferred tax liabilities: 189 355
Net deferred tax assets $1,188 $ 754
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. In order to
fully realize the deferred tax asset, the Company will need to generate future
taxable income of approximately $3,400. Taxable income for the years ended June
30, 1999 and 1998 was approximately $9,600 and $10,900, respectively.
Based upon the level of historical taxable income and projections for taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences.
Reconciliation of the statutory Federal income tax rate and the effective tax
rate for the fiscal years ended June 30, 1999, 1998 and 1997 follows:
1999 1998 1997
Federal statutory tax rate 34.0% 34.0% 34.0%
State and local taxes, net
of Federal income tax
benefit 2.7 3.0 3.4
Other 0.8 (1.4) 1.5
Effective tax rate 37.5% 35.6% 38.9%
(13) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the years ended June 30, 1999,
1998 and 1997 was as follows:
1999 1998 1997
Interest $ 18 $ 59 $ 110
Income taxes 3,841 3,759 5,024
In connection with the acquisition of CDC, the Company recorded $1,050 of
amounts due the previous owner as a liability.
In January 1997, the Company received a note in the amount of $206, and in July
1998, the Company received a note in the amount of $170 in connection with the
sale of buildings and land.
(14) RETIREMENT PLANS
The Company has retirement plans in which employees are eligible to
participate. The Company's annual contribution per employee, which is at
management's discretion, is based on a percentage of compensation paid. The
Company's provisions for contributions amounted to $725, $607 and $607 in
fiscal 1999, 1998 and 1997, respectively.
(15) SEGMENT INFORMATION
The Company has five reportable segments which are organized by products: (1)
Agrochemicals, whose products include herbicides, fungicides and insecticides,
as well as a sprout inhibitor for potatoes, (2) Industrial Chemicals, whose
products include a variety of specialty chemicals used in adhesives, coatings,
food, fragrance, cosmetics and many other areas, (3) Organic Intermediates and
Colorants, whose products include dye and pigment intermediates used in the
color-producing industries like textiles, inks, paper and coatings, as well as
intermediates used in production of agrochemicals, (4) Pharmaceutical
Biochemicals and Nutritionals products, which include the active ingredients
for generic pharmaceuticals, vitamins and nutritional supplements, and (5)
Pharmaceutical Intermediates and Custom Manufacturing products, used in
preparation of pharmaceuticals, primarily by major ethical drug companies. The
Company does not allocate assets by segment as they are not provided to the
chief operating decision maker. The Company also does not have any significant
assets outside the United States. The Company evaluates performance of the
segments based on gross profit. Sales to customers located in foreign
countries, primarily Canada, Mexico, Brazil, Argentina, United Kingdom and
Germany, totaled $18,700, $23,400 and $20,000 for the years ended June 30,
1999, 1998 and 1997, respectively. One customer of the Pharmaceutical
Intermediates and Custom Manufacturing Segment accounted for 16% and 15% of net
sales in fiscal 1999 and 1998, respectively. No customer accounted for as much
as 10% of net sales in fiscal 1997. Summarized financial information for each
of the segments for years ended 1999, 1998 and 1997 follows:
Indust- Organic Pharma-
trial Inter- ceutical Pharma-
Agro- Chem- mediates Bio- ceutical
Chemicals icals & Colorants chemicals & Inter-
Nutritionals mediates
& Custom
Mfging. Other Totals
1999
Net
sales $10,377 44,722 38,946 28,272 44,255 2,617 $169,189
Gross
Profit $ 3,740 7,703 5,397 4,769 3,331 1,354 $ 26,294
Unallocated
cost of sales(1) 3,555
Net gross
profit $ 22,739
1998
Net
sales $14,588 44,940 53,002 31,724 38,342 358 $182,954
Gross
Profit $ 3,746 8,023 6,813 4,970 2,961 21 $ 26,534
Unallocated
cost of sales(1) 4,225
Net gross
profit $ 22,309
1997
Net
sales $17,239 44,762 48,690 36,619 21,744 333 $169,387
Gross
Profit $ 3,330 7,087 6,304 5,358 2,497 267 $ 24,843
Unallocated
cost of sales(1) 3,509
Net gross
profit $ 21,334
(1) Represents freight and storage costs that are not allocated to a segment.
(16) FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
At June 30, 1999 and 1998 the Company had future foreign exchange contracts in
the amount of $6,100 and $10,800, respectively. The contracts have varying
maturities extending to February 2000. At June 30, 1999 and 1998 the Company
had not hedged open purchase commitments of approximately $600 and $1,300,
respectively. For fiscal 1999, 1998 and 1997, gains and losses on foreign
currency transactions, including terminated hedges that occurred prior to the
transaction date, were not
material.
The Company is exposed to credit losses in the event of non-performance by the
financial institutions, who are the counter parties, on its future foreign
currency contracts. The Company anticipates, however, that the financial
institutions will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral to support financial
instruments, but monitors the credit standing of the financial institution.
OFF-BALANCE SHEET RISK
Commercial letters of credit are issued by the Company during the ordinary
course of business through major domestic banks as requested by certain
suppliers. The Company had open letters of credit of approximately $5,700 and
$5,000, as of June 30, 1999 and 1998, respectively. The terms of these letters
of credit are all less than one year. No material loss is anticipated due to
non-performance by the counter parties to these agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of all financial instruments classified as a current asset
or current liability are deemed to approximate fair value because of the short
maturity of these instruments. The fair value of foreign currency contracts
(used for hedging purposes) was estimated by obtaining quotes from brokers and
the difference between the fair value and contract value was not material. The
difference between the fair value of long-term financial instruments and their
carrying value at both June 30, 1999 and 1998 was not material. The fair value
of the Company's long-term debt and notes receivable was based upon current
rates offered for similar financial instruments to the Company.
BUSINESS AND CREDIT CONCENTRATION
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of trade receivables. The Company's
customers are dispersed across many industries and are located primarily in the
United States. The Company estimates an allowance for doubtful accounts based
upon the creditworthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could affect the
Company's estimate of this allowance. The Company as a policy does not
require collateral from its customers, however it maintains credit insurance
covering certain non-United States receivables. At June 30, 1999, three
customers accounted for 18% and, at June 30, 1998, four customers accounted
for 33% of net accounts receivable.
One of the Company's products accounted for 15% of revenues in fiscal 1999 and
1998; no product accounted for as much as 10% of revenues in fiscal 1997. One
of the Company's suppliers accounted for 29%, 25% and 22% of total purchases in
fiscal 1999, 1998 and 1997, respectively.
(17) COMMITMENTS AND CONTINGENCIES
A subsidiary of the Company markets certain agricultural chemicals which are
subject to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA).
FIFRA requires that test data be provided to the Environmental Protection
Agency (EPA) to register, obtain and maintain approved labels for pesticide
products. The EPA requires that follow-on registrants of these products
compensate the initial registrant for the cost of producing the necessary test
data on a basis prescribed in the FIFRA regulations. Follow-on registrants
do not themselves generate or contract for the data. However, when FIFRA
requirements mandate the generation of new test data to enable all
registrants to continue marketing a pesticide product, often both the initial
and follow-on registrants establish a task force to jointly undertake the
testing effort. The Company is presently a member of two such task force
groups. The Company estimates the cost of test data at the time it is first
required, which estimates are amortized over a period of up to five years,
updated annually, and are included in cost of sales.
The Company and its subsidiaries are subject to various claims which have
arisen in the normal course of business. The impact of the final resolution of
these matters on the Company's results of operations or liquidity in a
particular reporting period is not known. Management is of the opinion,
however, that the ultimate outcome of such matters will not have a material
adverse effect upon the Company's financial condition or liquidity.
The Company currently leases an office facility under an operating lease
expiring April 2001. In addition, a subsidiary leases a manufacturing facility.
The lease has a remaining life of one year. At June 30, 1999, future minimum
lease payments in the aggregate and for each of the five succeeding years are
as follows:
Fiscal year
ending
JUNE 30 AMOUNT
2000 $ 727
2001 422
2002 -
2003 -
2004 -
$1,149
Total rental expense amounted to approximately $638, $530 and $490 for fiscal
1999, 1998 and 1997, respectively.
Schedule II
ACETO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1999, 1998 and 1997
Balance at Charged to Balance
beginning costs and Deduc- at end
DESCRIPTION OF YEAR EXPENSES TIONS OF YEAR
Year ended June 30, 1999:
Allowance for doubtful
accounts $ 219,366 212,808 212,808(a) $ 219,366
Year ended June 30, 1998:
Allowance for doubtful
accounts $ 219,366 26,857 26,857(a) $ 219,366
Year ended June 30, 1997:
Allowance for doubtful
accounts $ 207,366 80,379 68,379(a) $ 219,366
(a) Specific accounts written off as uncollectible.