Exhibit G
Audited Financial Statements for the Fiscal Years ended June 30, 1997 and
1998
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements: Number
Independent Auditors' Report
Consolidated Balance Sheets at June 30, 1998 and 1997
Consolidated Statements of Operations for the years
ended June 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders'
Equity for the years ended June 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
All schedules have been omitted because the required information is not
applicable or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
BioTechnica International, Inc.:
We have audited the consolidated financial statements of BioTechnica
International, Inc. and subsidiary (the "Company") as listed in the
accompanying index. 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 BioTechnica
International, Inc. and subsidiary as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Indianapolis, Indiana
July 17, 1998
BIOTECHNICA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
June 30, June 30,
ASSETS 1998 1997
Current assets:
Cash and cash equivalents $ 353 $ 207
Accounts receivable, less allowance for doubtful
accounts of $97 9,458 7,068
Inventories 7,761 8,330
Prepaid expenses and other current assets 139 130
Total current assets 17,711 15,735
Net property, plant and equipment 8,040 9,316
Goodwill and other assets, net 7,879 8,385
Total assets $33,630 $33,436
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 7,700 $10,900
Borrowings from affiliates-current 3,600 --
Accounts payable 489 721
Accrued liabilities 2,936 1,669
Due to affiliates 244 115
Total current liabilities 14,969 13,405
Borrowings from affiliates long-term 6,761 5,261
Other noncurrent liabilities 431 295
Total liabilities $22,161 $18,961
Shareholders' equity:
Preferred stock, Class A, 900,000 shares
Outstanding (involuntary liquidation value of
$9 million at June 30, 1998 and 1997) $ 9 $ 9
Common stock, 103,094,737 and 104,094,737 shares
outstanding at June 30, 1998 and June 30, 1997,
respectively 1,031 1,041
Additional paid-in capital 20,823 20,823
Accumulated deficit (10,299) (7,303)
Treasury stock (95) (95)
Total shareholders' equity $11,469 $14,475
Commitments (note 12)
Total liabilities and shareholders' equity $33,630 $33,436
See accompanying notes to consolidated financial statement
BIOTECHNICA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share amounts)
---------Years Ended June 30,-----------
1998 1997 1996
Net sales:
Domestic $18,047 $17,004 $ 17,151
Export-Affiliates 2,984 2,977 1,489
Export-Other 309 104 127
21,340 20,085 18,767
Cost of goods sold 14,158 12,319 12,990
Gross margin 7,182 7,766 5,777
Operating expenses:
Sales and marketing 4,710 4,163 4,203
Warehouse and distribution 1,331 1,316 1,196
General and administrative 2,677 2,569 2,473
Amortization of goodwill 499 499 499
9,217 8,547 8,371
Operating loss (2,035) (781) (2,594)
Other income (expense):
Interest expense (966) (880) (832)
Gain (loss) on disposition
of fixed assets (225) 13 405
Other 231 208 321
Loss before income taxes (2,995) (1,440) (2,700)
Income tax expense (benefit) 1 9 (15)
Net loss $(2,996) $ (1,449) $ (2,685)
Net loss per common share $ (.04) $ (.02) $ (0.03)
See accompanying notes to consolidated financial statements
BIOTECHNICA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of dollars, except share data)
Preferred Stock Additional
Class A Non-Voting Common Stock Paid-In
Shares Par Value Shares Par Value Capital
Balance June 30, 1995 700,000 $ 7 115,418,788 $1,154 $18,893
Issuance of Preferred
Stock 200,000 2 -- -- 1,998
Net loss for Fiscal 1996 -- -- -- -- --
Balance June 30, 1996 900,000 $ 9 115,418,788 $1,154 $20,891
Repurchase of common shares -- -- (11,324,051) (113) (68)
Net loss for Fiscal 1997 -- -- -- -- --
Balance June 30, 1997 900,000 $ 9 104,094,737 $1,041 $20,823
Net loss for Fiscal 1998 -- -- -- -- --
Repurchase of common shares -- -- (1,000,000) (10) --
Balance June 30, 1998 900,000 $ 9 103,094,737 $1,031 $20,823
Total
Treasury Stock (Accumulated Shareholders'
Shares Par Value Deficit) Equity
Balance June 30, 1995 (39,160) $(95) $(3,169) $ 16,790
Issuance of Preferred Stock -- -- -- 2,000
Net loss for Fiscal 1996 -- -- (2,685) (2,685)
Balance June 30, 1996 (39,160) $(95) (5,854) $ 16,105
Repurchase of common shares -- -- -- (181)
Net loss for Fiscal 1997 -- -- (1,449) (1,449)
Balance June 30, 1997 (39,160) $(95) $(7,303) $ 14,475
Net loss for Fiscal 1998 -- -- (2,996) (2,996)
Repurchase of common shares -- -- -- (10)
Balance June 30, 1998 (39,160) $(95) $(10,299) 11,469
See accompanying notes to consolidated financial statements
BIOTECHNICA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Years Ended June 30,
1998 1997 1996
Cash Flow from Operating Activities:
Net loss $ (2,996) $ (1,449) $ (2,685)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 940 954 903
Amortization 499 499 499
(Gain) loss on disposition of fixed assets 225 (13) (405)
Changes in assets and liabilities:
Accounts receivable (2,390) 896 (186)
Inventories 569 (2,354) 951
Other assets (2) 87 27
Accounts payable and Accrued
liabilities, and Due to affiliates 1,300 (124) (178)
Net cash provided by (used in)
operating activities (1,855) (1,504) (1,074)
Cash Flow from Investing Activities:
Acquisition of property, plant
and equipment (130) (600) (1,527)
Proceeds from asset sales 241 65 1,078
Net cash provided by (used in)
investing activities 111 (535) (449)
Cash Flow from Financing Activities:
Net borrowing(repayment) under line of credit (3,200) 2,400 (700)
Proceeds (payment) of long-term debt
to affiliates 1,500 2,000 (2,065)
Proceeds (payment) of short-term debt
to affiliates 3,600 (2,060) 2,175
Payments on long-term debt and
notes payable -- (107) (92)
Repurchase of common stock (10) (181) --
Issuance of Class A Preferred Stock -- -- 2,000
Net cash provided by
financing activities 1,890 2,052 1,318
Net increase (decrease) in
cash and cash equivalents 146 13 (205)
Cash and cash equivalents at
beginning of year $ 207 $ 194 $ 399
Cash and cash equivalents at
end of year $ 353 $ 207 $ 194
See accompanying notes to consolidated financial statement
BIOTECHNICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business
BioTechnica International, Inc. and its subsidiary, LG Seeds, Inc. (the
"Company"), sell corn, soybean, alfalfa and other agricultural seed to
dealers, distributors and farmers through its seed operations. The Company
operates in a twelve-state region centered in the Midwestern United States.
Sales are generally made on open account to customers. Because of the
geographic concentration of the Company's customers in the Midwest, it is
significantly dependent upon the weather and market conditions in its market
areas. In addition, industry sales levels are dependent upon factors
resulting from governmental agriculture policies and farm programs.
As of June 30, 1998, approximately 95% of the common stock and 100% of the
Preferred Stock of the Company is owned by Limagrain Genetics Corporation
("LG Corp."), which is controlled by Groupe Limagrain Holding ("Limagrain")
of Chappes, France.
B. Principles of Consolidation
The consolidated balance sheets as of June 30, 1998 and 1997, and statements of
operations for the three years ended June 30, 1998, include the Company and its
wholly-owned subsidiary, LG Seeds, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
C. Revenue Recognition
Sales of seed products are recorded upon shipment, reduced by a reserve for
estimated returns and discounts.
D. Research and Development Costs
Although the Company has no significant internal research and development
effort, it has access to research conducted by LG Corp. and other Limagrain
affiliates. The cost of this expertise is paid to LG Corp. in the form of
royalties on products sold.
E. Advertising
The Company expenses all advertising in the period incurred. Advertising
expenses for Fiscal 1998, 1997, and 1996 were $166,000, $133,000, and $80,000,
respectively.
F. Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of three months or less.
G. Inventories
Inventories consist primarily of seed products and supplies. Seed product
inventory is valued at the lower of average cost by crop year or market.
Supply inventory is valued at the lower of cost (using the first-in,
first-out method) or market. Gains or losses, if any, on commodity
hedging transactions are included as a component of inventory.
H. Derivatives
The Company has contractual commitments with seed growers for payments based on
the local commodity prices for soybeans and wheat. To mitigate the impact of
fluctuations in commodity prices on inventory costs, the Company attempts from
time to time to hedge these commitments by using Chicago Board of Trade
futures contracts for the respective crops. The Company matches these
futures contracts to its purchases of inventory, closing out the futures
contracts as payments are made to the seed growers and recognizing the gains
and losses as a component of the product cost in cost of sales. There were
no open futures contracts at either June 30, 1998 or 1997.
I. Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets.
Depreciable lives for asset classes are:
Land improvements 15 years
Buildings and improvements 15 to 32 years
Machinery and equipment 3 to 20 years
J. Goodwill
Goodwill is being amortized using the straight-line method over a period of 20
years. The Company evaluates the existence of goodwill impairment on the basis
of whether the goodwill is fully recoverable from projected, undiscounted
net cash flows.
K. Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes whereby 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
temporary 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.
The Company files a Federal consolidated tax return with other corporations
controlled by LG Corp. The related tax sharing agreement provides that
consolidated Federal income tax is allocated among profitable companies.
Companies with operating losses receive benefits in the future by
effectively offsetting taxable income against prior operating losses.
L. Loss Per Common Share
Loss per common share has been computed by dividing the loss applicable to
common shareholders by the weighted-average number of common shares
outstanding. Net loss has been increased by current year cumulative
preferred stock dividends (whether or not declared) to arrive at loss
applicable to common shareholders. The Company has no dilutive potential
common shares.
M. Fair Value of Financial Instruments
Carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, and due to affiliates-current, approximate fair.
The Company's borrowings under its Line of Credit are at variable interest
rates tied to market rates and, accordingly, the Company considers the fair
value to be the same as the carrying value. The estimated fair value
of Borrowings from Affiliates-long-term, based on borrowing rates currently
available to the Company on bank loans with similar terms and maturities would
be $5,919,000.
N. Use of Estimates
Management of the Company has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
2. INVENTORIES
Inventories at June 30, 1998 and 1997 are as follows:
(in thousands of dollars)
1998 1997
Finished seed $ 4,473 $ 4,666
Unfinished seed 2,594 2,955
Supplies and other 694 709
Total inventories $ 7,761 $ 8,330
"Finished seed" consists of bagged product, ready for sale, net of reserves
for obsolescence. "Unfinished seed" consists of bulk product not yet bagged
and the cost associated with the seed crop planted in the spring of the
applicable fiscal year. "Supplies and other" consists of foundation seed,
unused bags, pallets and other supply items.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 and 1997 are as follows:
(in thousands of dollars)
1998 1997
Land and improvements $ 577 $ 768
Buildings and improvements 7,869 8,185
Machinery and equipment 5,399 5,312
Construction in progress 13 52
$13,858 $14,317
Less accumulated depreciation 5,818 5,001
Net property, plant and
equipment $ 8,040 $ 9,316
4. LOSS PER SHARE
Loss per share was calculated as follows: (in thousands of dollars)
1998 1997 1996
Net loss $ (2,996) $ (1,449) $ (2,685)
Current year cumulative preferred
stock dividends (undeclared) (675) (675) (608)
Net loss available for common
shares (3,671) (2,124) (3,293)
Weighted average shares outstanding 103,650,098 114,635,033 15,379,628
Net loss per common share (0.04) (0.02) (0.03)
5. GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following:
(in thousands of dollars)
1998 1997
Goodwill $ 9,966 $ 9,966
Amortization of goodwill (2,173) (1,674)
Net goodwill $ 7,793 $ 8,292
Deposits and other 86 93
TOTAL $ 7,879 $ 8,385
6. LINE OF CREDIT AND NOTE PAYABLE
The Company has a revolving credit arrangement with its principal bank
("Line of Credit") whereby the Company can borrow up to $12,000,000 based on
a borrowing base formula and subject to certain limitations in availability.
This Line of Credit, which expires December 31, 1998, bears interest (at
the Company's option) based upon (i) the Bank Prime Loan rate, (ii) the
London Interbank Offered Rate ("LIBOR") index or (iii) the Bank Offered Rate.
Borrowings under this Line of Credit are secured by the inventory and accounts
receivable of the Company and its subsidiary and by the guarantees of
Limagrain and LG Corp. The maximum and average amounts outstanding under
this Line of Credit during the year ended June 30, 1998 were $10,900,000 and
$6,177,000, respectively. The weighted average interest rate during Fiscal
1998 was 6.92%.
7. BORROWINGS FROM AFFILIATES
Borrowings from affiliates at June 30, 1998 and 1997 were as follows:
(in thousands of dollars)
1998 1997
Current:
Limagrain Genetics Corp.
Due on demand at an annual interest $ 3,000 $ --
rate of 6.5%
Due on demand at an annual interest
rate of 5% 600 --
Total borrowings from affiliates-current $ 3,600 $ --
Long-term:
Limagrain Genetics Corp.
Due July 1, 2000 at an annual interest $ 1,500 $ --
rate of 6.5%
Due July 1, 2000 at an annual interest
rate of 5% 5,261 5,261
Total borrowings from affiliates-long-term $ 6,761 $ 5,261
In addition to these notes at June 30, 1998 and 1997, the Company owes
affiliates $244,000 and $115,000, respectively, for current items.
8. CAPITAL STOCK
Authorized shares of stock include: 150,000,000 shares of common stock;
11,100,000 shares of Class A common; 11,100,000 shares of Class B common;
and 2,000,000 shares of Class A Preferred.
As of June 30, 1998 and 1997, there were only two classes of stock issued and
outstanding: common stock and Class A Preferred Stock.
On November 30, 1995, the Company retired a long-term note of $2,000,000 in
exchange for $2,000,000 of the Company's Class A Preferred Stock.
On June 6, 1997, the Company repurchased and retired 11,324,051 shares of its
common stock from a shareholder at $0.016 per share. This common stock
represented approximately 9.8% of the total common stock. The price of
$0.016 per share was substantially below the then-current market price and
net book value per share.
On February 2, 1998, the Company repurchased and retired 1,000,000 shares of
its common stock from a shareholder at $0.01 per share. This common stock
represented approximately 1.0% of total common stock outstanding on that
date. The price of $0.01 per share was substantially below the then-current
market price and net book value per share.
The Class A Preferred Stock of the Company (all of which is owned by LG Corp.)
pays a cumulative dividend of $.75 per share per year when declared by the
Board of Directors. No such dividend has been declared by the Board of
Directors. Pursuant to the terms and conditions of the Company's Class A
Preferred Stock, should any dividend be declared or paid on the common stock
of the Company, the holders of Class A Preferred Stock would be entitled to
receive dividends at a rate per share equal to that of the common stock in
addition to their preferred dividends. As of June 30, 1998 and 1997, the
cumulative amount of undeclared dividends on the Class A Preferred Stock
was $2,425,000 and $1,750,000, respectively.
9. STOCK OPTION PLAN
The Company has reserved 1,500,000 shares of common stock for issuance under an
incentive stock option plan. During Fiscal 1996, all outstanding options
were either (i) repurchased by the Company or (ii) determined to have expired.
The cancellation of these options resulted in a reduction of general and
administrative expense of $150,000 during Fiscal 1996. As of June 30, 1998
and 1997, there were no options outstanding.
10. RETIREMENT PLAN
The Company participates in a 401(k) savings retirement plan sponsored by
LG Corp. The plan covers substantially all full-time employees of the
Company with at least one year of service. Vesting occurs over a five-year
period at 20% per year. Employees may contribute up to the lesser of 15% of
their salary or an amount determined annually by Federal income tax
regulations. Company contributions may consist of a basic amount for all
covered employees, a matching contribution for a portion of employee
contributions, and a potential additional discretionary contribution.
Company contributions under the plan were $168,207, $177,064, and $82,145, for
Fiscal 1998, Fiscal 1997, and Fiscal 1996, respectively.
11. INCOME TAXES
On June 30, 1998 and 1997, the Company had pre-acquisition net operating loss
carryforwards of approximately $1,360,000 and $1,496,000, respectively,
which expire at a rate of $136,000 per year through 2008. The Company had
post-acquisition net operating loss carryforwards of approximately $14,886,000
and $13,332,000 on June 30, 1998 and 1997, respectively, which expire through
2018.
The components of income tax expense (benefits) are as follows:
(in thousands of dollars)
1998 1997 1996
Federal $ -- $ -- $(28)
State 1 9 13
Total $ 1 $ 9 $(15)
The actual income tax benefit differed from the expected income tax benefit
(computed by applying the applicable U.S. Federal corporate income tax rate
of 34% to loss before income taxes) as follows:
(in thousands of dollars)
1998 1997 1996
Computed "expected" tax benefit $(1,018) $(490) $(933)
Amortization of goodwill 170 170 170
State income taxes, net of
Federal benefit -- 6 9
Alternative minimum tax -- -- (28)
Other (324) 24 (250)
Change in valuation allowance 1,173 299 1,017
Total $ 1 $ 9 $ (15)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at June 30, 1998 and 1997 are
presented below.
(in thousands of dollars)
1998 1997
Deferred tax assets:
Net operating loss carryforward
(Pre-acquisition) $ 530 $ 583
Net operating loss carryforward
(Post-acquisition) 5,804 5,199
Allowance for doubtful accounts 38 38
Allowance for inventory valuation 179 121
Accrued compensation, sales allowances
and other expenses 827 295
Total gross deferred tax assets $ 7,378 $ 6,236
Valuation allowance (6,792) (5,623)
Total deferred tax assets 586 613
Deferred tax liability:
Difference between basis of fixed
assets for book and tax purposes $ (586) $ (613)
Net deferred tax assets $ -- $ --
The change in the deferred tax valuation allowance was an increase of
$1,173,000 in Fiscal 1998 compared to an increase of $299,000 in Fiscal 1997,
and an increase of $1,017,000 in Fiscal 1996.
At June 30, 1998 and June 30, 1997, the amount of valuation allowance, which if
realized would result in a reduction of goodwill, aggregated $530,000, and
$583,000, respectively.
12. COMMITMENTS
The Company leases various real and personal property under non-cancelable
operating leases which expire through 2002. Rental expenses charged to
operations were $638,407, $614,321, and $465,000 for the years ended
June 30, 1998, 1997 and 1996, respectively. Future annual minimum
rentals are $573,915, $432,917, $181,506, $46,468, and $739, for Fiscal 1999
through 2003, respectively.
13. RELATED PARTIES
The Company has access to the Limagrain germplasm. The cost to access this
germplasm is paid to LG Corp. as royalties on corn and soybean units sold.
Costs incurred for corn royalties were approximately $87,000, $71,000, and
$94,000 for Fiscal 1998, 1997 and 1996, respectively. The Company accrued
or paid $31,000, $44,000, and $50,000 to LG Corp. for royalties on soybean
genetics for Fiscal 1998, 1997 and 1996, respectively.
The Company has agreements with affiliated companies that provide for certain
administrative and management services. Combined costs incurred under
these agreements were $400,000, $300,000, and $320,000 for Fiscal 1998, 1997
and 1996, respectively. Fees for these arrangements are negotiated annually
by management and approved by the Board of Directors.
The Company sells seed to various affiliated companies in Europe primarily
under production contracts. These contracts are negotiated annually and are
based on market pricing and quantities determined by the affiliates'
requirements. Export sales to affiliates amounted to $2,984,000 for Fiscal
1998, $2,977,000 for Fiscal 1997, and $1,489,000 for Fiscal 1996.
During Fiscal 1996, the Company repurchased 70,000 stock options from officers
and directors for $3,400. The repurchase of the options, with exercise prices
between $1.31 and $3.50 per share, resulted in a reduction of approximately
$66,000 in long-term liabilities. The net result was a reduction of general
and administrative expenses of $62,000.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest aggregated approximately $1,074,000, $880,000 and
$728,000 for Fiscal 1998, 1997, and 1996, respectively.
15. LIQUIDITY
The Company has incurred net operating losses and negative cash flow from
operations for Fiscal 1998, 1997, and 1996. The Company's current line of
credit expires on December 31, 1998, at which time management expects to
renew this credit facility.
Management believes that subsequent to the events described below in "Note 17.
Subsequent Events", that Limagrain and LG Corp. will recapitalize the Company
to make additional capital resources available and take steps to improve the
operations and cash flow. At this time, specific plans and actions are not
known.
16. OTHER INCOME AND EXPENSE
Included in other income and expense are $123,000, $95,000, and $68,000 in
finance charge income on customer accounts for Fiscal 1998, 1997, and 1996,
respectively. Also included in other income and expense for Fiscal 1996 is
$94,000 of gain on the disposal of AgriBioTech, Inc. common stock received
during Fiscal 1995 by the Company as part of the proceeds from the disposal
of its Scott Seed Company operations.
17. SUBSEQUENT EVENTS
On September 21, 1998, the Company received a letter from LG Corp. notifying
the Company of LG Corp.'s intention to cash out the minority stockholders of
the Company via a short form merger effected pursuant to Section 253 of the
General Corporation Law of the State of Delaware (the "DGCL"). The
consideration to be paid to the minority stockholders of the Company in such
merger is $0.05 per share.
Under the DGCL, because LG Corp. owns more than 90% of the Company, no action
will be required of the board of directors of the Company or the stockholders
of the Company (other than LG Corp. acting through its board of directors),
for the merger to become effective. Also, as a "short form" merger, the
board of directors of the Company had no right to a role, nor did they have a
role, in negotiating the cash-out price, and the Company's directors have made
no determination, nor are they required to make a determination, with
respect to the fairness of the cash-out price.
The merger is expected to be consummated prior to December 31, 1998, or as soon
as practicable thereafter. Under the DGCL, minority stockholders of the
Company who do not wish to accept the consideration of $0.05 per share and
who follow the procedures set forth in Section 262 of the DGCL will be
entitled to have their shares of common stock appraised by the Delaware Court
of Chancery and to receive payment in cash of the "fair value" of such shares.
Prior to the consummation of the merger, LG Corp. reserves the right to
cancel the merger for any reason, including without limitation if (i) any
stockholder of the Company seeks to enjoin the merger or (ii) in LG Corp.'s
judgment, the anticipated cost of the merger would be materially increased
by the number of stockholders of the Company seeking their appraisal remedy.