-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FmyKt49btwq5N/njtJqflovWyYAMNbfUS8W99pAW/NJJxK+Jw7eDkDlD7g3hNuHQ K8rxcCUSdkszDLPPHZcYvA== 0000950144-98-008884.txt : 19980803 0000950144-98-008884.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950144-98-008884 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NSA INTERNATIONAL INC CENTRAL INDEX KEY: 0000850036 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 621387102 STATE OF INCORPORATION: TN FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19487 FILM NUMBER: 98673264 BUSINESS ADDRESS: STREET 1: 4260 E RAINES RD CITY: MEMPHIS STATE: TN ZIP: 38118 BUSINESS PHONE: 9013669288 MAIL ADDRESS: STREET 1: 4260 E RAINES RD CITY: MEMPHIS STATE: TN ZIP: 38118 10-K405 1 NSA INTERNATIONAL INC. FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1998 ------------------------------------------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ----------------------- Commission file number 0-19487 --------------------------------------------------------- NSA INTERNATIONAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-1387102 ----------------------------- ------------------------------ State or other jurisdiction (I.R.S. Employer incorporation or organization Identification No.) 4260 East Raines Road, Memphis, Tennessee 38118 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (901) 541-1223 -------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value ---------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant: $2,342,312 computed by reference to a price of $1.50 per share, the last reported sales price of the registrant's Common Stock on July 22, 1998. 2 (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at July 22, 1998 ---------------------------- ---------------------------- Common Stock, $.05 par value 4,695,036 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the documents incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: None. PART I Item 1. Business. General NSA International, Inc. (the "Company") sells consumer products domestically and internationally through subsidiaries and third party distributors ("Master Distributors") primarily utilizing multi-level and/or direct selling marketing systems. In a limited number of international markets, the Company does sell its proprietary consumer products to Master Distributors for traditional retail distribution. The Company's products include nutritional products, air and water filtration systems, and a sparkling water system, all of which were designed principally for individual use. The Company's products are proprietary, and most were developed by or for the Company or an affiliated entity. In the United States, the Company sells its products to National Safety Associates, Inc. ("NSA"), an affiliated Tennessee corporation, for resale to NSA's dealers and distributors. Outside the United States, the Company sells its products to Master Distributors for retail distribution through local representative agents, dealers, and distributors in Canada, the United Kingdom, Ireland, The Netherlands, Belgium, Germany, Switzerland, Austria, Spain, Denmark, Sweden, the Russian Federation, Australia, New Zealand, Hong Kong, Taiwan, Philippines, Malaysia, Indonesia, Paraguay, Chile, Peru, and Costa Rica. The Company continues to maintain its own direct selling operations in France ("NSA France") and Italy ("NSA Italy") (NSA France and NSA Italy collectively the "Direct Selling Subsidiaries"). In May 1998, the Company closed the NSA France offices, although direct selling activities continue in that country. Currently, the Company serves those dealers and distributors residing in France through NSA Italy. The Company desires to convert its operations in Italy into a Master Distributorship, and the Company is actively seeking a suitable purchaser for the operations. Operations Since organization, the Company's philosophy has been to pursue increased revenues through new product lines and market expansion. In order to reduce the costs associated with product line expansion, the Company shifted the manufacturing of all of its products to unaffiliated manufacturing organizations. The Company adopted a similar approach with regard to market expansion and support through its Master Distributor Program. The Master Distributor Program enhances the Company's ability to expand into additional markets more quickly and efficiently and to transfer from the Company to a third party distributor the costs and other burdens associated with creating the corporate infrastructure required to open and support new markets. The Company intends to continue to enter into distribution agreements with Master Distributors pursuant to which the Company grants to the Master Distributor the exclusive right to purchase and resell the Company's products in a defined geographic area. These distribution agreements generally require that certain minimum purchase levels be maintained by the Master Distributor in order to continue their relationship with the Company. The distribution system or method utilized by the Master Distributors varies from 3 country to country. Depending on the final terms of the particular distribution agreement, the Company may provide a Master Distributor with computer support and management consulting services in addition to selling the Master Distributor products for resale. Likewise, the distribution agreement may entitle the Company to receive a separate distributorship fee which is calculated on the Master Distributor's product sales. During fiscal 1998, the Company expanded into many new markets. In July, 1997, and November, 1997, a Master Distributor commenced product sales in Malaysia and Indonesia, respectively. Likewise, in September, 1997, the Master Distributor for Paraguay began selling the Company's products in that country. Also in September, 1997, the Company expanded the territory of the Company's Master Distributor for Germany, Austria and Switzerland to include Poland. During October, 1997, the Company entered into a distribution agreement with a Master Distributor for Denmark (including Greenland and the Faroe Islands), Sweden, Norway, Finland, and Iceland (the "Scandinavian Distributor"). Pursuant to the agreement with the Scandinavian Distributor, the Company will provide computer support and management consulting services in addition to products. In March, 1998, the Scandinavian Distributor commenced sales of the Company's products in Denmark and Sweden. In December, 1997, the Company entered into a limited distribution agreement with a Master Distributor for Costa Rica, Panama, and Guatemala (the "Central American Distributor"), and the Central American Distributor immediately began sales of the Company's products in Costa Rica. The Company subsequently enlarged the Central American Distributor's territory to include the countries of El Salvador, Honduras and Nicaragua. In December, 1997, the Company entered into a distribution agreement with a new Master Distributor for Australia, New Zealand and Fiji (the "Australian Distributor"). The Australian Distributor commenced operations in Australia and New Zealand in March, 1998. Finally, the Company concluded a contract with a Master Distributor for Chile in May, 1998. That Master Distributor began selling Company products in Chile the same month. The Company is and will be involved in various stages of negotiations, including the execution of a distribution agreement, with regard to the appointment of new Master Distributors. However, the Company does not consider itself to enter a new market until such time as the Master Distributor commences product sales in that market. Principal Products Nutritional Products. The Company sells a line of nutritional products under its Juice Plus+(R) trademarks which includes an encapsulated, concentrated nutritional supplement product, a chewable version of the encapsulated product, a snack and energy bar called Juice Plus+(R) Snack Bars, a low calorie powdered drink mix called Juice Plus+(R) Lite, and a dietary food supplement called Juice Plus+(R) Thins. The principal ingredients of the Juice Plus+(R) product line are vegetable and fruit juices, fibers, plant enzymes, and food actives which are reduced to powder through a proprietary process by an unrelated manufacturer. A second manufacturer encapsulates the powder into Juice Plus+(R) capsules and prepares the chewable form of the capsules and the Juice Plus+(R) Thins. Another manufacturer utilizes the powder to produce the Juice Plus+(R) Snack Bars and Juice Plus+(R) Lite on a purchase order basis for the Company. In addition, the Company sells nutritional products for pets, Juice Plus +(TM) for Dogs and Juice Plus +(TM) for Cats. Each of these products is produced by unrelated manufacturers. In the event that any of the aforementioned manufacturers terminate their relationship with the Company for any reason, the Company will be forced to seek out alternative suppliers which the Company believes will be available. The Company obtained the rights to manufacture and distribute the Juice Plus+(R) product line pursuant to a manufacturing and licensing agreement with an unrelated third party. This agreement provides that the Company will pay a royalty fee from .5% to 1% of net sales revenues from the Juice Plus+(R) products, depending upon the volume of such sales. Sales of the Juice Plus+(R) product line constituted approximately 65% of the Company's revenues for the fiscal year ended April 30, 1998, compared with 56% of the Company's revenues for the fiscal year ended April 30, 1997, and 52% of the Company's revenues for the fiscal year ended April 30, 1996. 2 4 Air Filtration Systems. The Company sells five different types of air filtration systems, which systems are designed to remove a variety of airborne contaminants including smoke, pollen and dust. The Company sells three basic models which are suitable for general home or office use: the portable Models 1200 Personal Air Filter, the 692 AH Personal Air Filter with Heat, and the Model 7100 A/B Stationary Air Filter. The Company's Auto 600 Environmental Air System is designed for automobile use. The Model 1200 CS Personal Air Filter is designed for use in any area where hospital grade appliances are required. Sales of these air filtration systems constituted approximately 6% of the Company's revenues for the fiscal year ended April 30, 1998, compared with 11% of the Company's revenues for the fiscal year ended April 30, 1997 and 13% of the Company's revenues for fiscal year ended April 30, 1996. The Company's air filtration systems, as well as the water filtration systems and the Sparkling Water System described below, are manufactured for the Company by a third party pursuant to a five-year manufacturing agreement which has approximately four years remaining. In the event that the aforementioned manufacturer terminates its relationship with the Company for any reason, the Company will be forced to seek out alternative suppliers which the Company believes will be available. Water Filtration Products. The Company's water filtration product line includes eight water filtration systems which are designed to remove chlorine from, and improve the taste, odor and clarity of, drinking water. Although the most recently designed water unit, the CT-2000, utilizes replaceable cartridges, generally, the units utilize silver impregnated granular activated carbon to remove chlorine. Although most of these models are designed for use on treated drinking water, each model is designed for a specific application or water filtration problem. The cost of water filtration products sold by the Company which were purchased from NSA was approximately $288,000 for the fiscal year ended April 30, 1998. See "Certain Relationships and Related Transactions." Sales of the water filtration products constituted approximately 14% of the Company's revenues for the fiscal year ended April 30, 1998, compared to 21% of the Company's revenues for the fiscal year ended April 30, 1997, and 14% of the Company's revenues for the fiscal year ended April 30, 1996. Sparkling Water System. The Company sells an in-home counter top carbonation appliance (the "Sparkling Water System") which discharges carbon dioxide contained in a refillable tank into liquids such as water. Sales of the Sparkling Water System constituted approximately 5% of the Company's revenues for the fiscal year ended April 30, 1998, compared to 7% of the Company's revenues for the fiscal year ended April 30, 1997, and 5% of the Company's revenues for the fiscal year ended April 30, 1996. Marketing Plans. Since the origination of the Master Distributor Program, the Company has transferred the operations of all of its European direct selling subsidiary organizations, except the Direct Selling Subsidiaries, to independent Master Distributors. Likewise, the Company has expanded its product lines into new markets. Except for the Direct Selling Subsidiaries, resale and retail distribution of the Company's products will be accomplished by independent Master Distributors pursuant to contract. The marketing plans utilized by the various Master Distributors differ slightly by country for each Master Distributor. Some Master Distributors, for example, utilize a multi-level marketing system, while other Master Distributors simply sell the Company's products to retail locations located in the Master Distributors' territory. Distributors and dealers in a multi-level marketing system are independent contractors, not employees of the Master Distributors. Distributors and dealers sell products directly to consumers primarily through individual in-home demonstrations and trial use. Generally, an individual becomes a dealer by the execution of an application and the payment of a small processing fee. As a dealer, the individual is authorized to retail the products purchased from the Company. An individual becomes a distributor by attaining a set level of sales activity over a specific time period. Dealers and distributors may purchase products, at wholesale, directly from the Master Distributors for resale to other 3 5 dealers or directly to consumers. Master Distributors and certain of their local distributors hold training and orientation seminars in their respective countries. Master Distributors depend on their existing distributors and dealers to identify, sponsor and train new dealers. Specifically, new dealers are brought into the multi-level distribution networks by existing distributors and dealers. In turn, these new dealers are encouraged to identify other new dealers. The existing distributors benefit from the sponsorship of new dealers in that the sponsoring distributor receives a percentage commission on the products purchased for resale by those individuals sponsored directly by the distributor, as well as commissions on the products purchased by those distributors or dealers sponsored by such individuals. The commissions vary depending upon the level of sales activity attained by a distributor and the individuals such distributor has sponsored. Pursuant to the Company's existing multi-level marketing plan, the Direct Selling Subsidiaries continue to distribute the Company's products to consumers through a network of distributors and dealers in much the same manner as the Master Distributors that utilize the multi-level marketing system. Inventory and Backlog. The Company maintains significant inventory volumes and has no backlog due to the fact that it attempts to fill dealer, distributor, or Master Distributor orders within two (2) business days of the date on which the order was placed. The Company's sales return policy varies as a result of country-specific governmental regulations. Provision for estimated sales returns is recorded based on historical return rates and current business conditions. The Company provides limited warranties for all of its products. Costs related to warranties have been insignificant. Management Agreement with NSA. Pursuant to a written management agreement, NSA provides management, consulting and advisory services to the Company relating to accounting, data processing, legal and regulatory compliance, general management, administration of benefits, contract and lease negotiations, and other such matters for which the Company requests assistance. In consideration for these services, the Company paid NSA approximately $119,510 for the fiscal year ended April 30, 1998. In addition, the Company pays to NSA any and all amounts collected by the Company from the Company's Master Distributors in exchange for data processing services provided to Master Distributors as such services are in fact provided by NSA. The total amount paid to NSA for such services during the fiscal year ended April 30, 1998 was approximately $298,330. See "Certain Relationships and Related Transactions." The management agreements are renewable annually and may be terminated by either party by giving written notice of termination to the other party. 4 6 Reliance Upon a Few Customers. Sales to NSA constituted approximately 38% of the Company's revenues for the fiscal year ended April 30, 1998. See "Certain Relationships and Related Transactions." Sales to the Company's Master Distributor for Germany, Switzerland and Austria, and sales to the Company's Master Distributor in Hong Kong constituted approximately 17% and 10%, respectively, of the Company's revenues for the fiscal year ended April 30, 1998. The loss of any of these customers would have a material adverse effect on the Company. Competition. The products distributed by the Company are sold in highly competitive markets. Competitive products are sold by both retail sellers and other multi-level and direct selling organizations. In addition to competition relating to the products, the Company and the Master Distributors are subject to intense competition in the identification, sponsorship, and training of distributors and dealers from other multi-level direct selling organizations, whose specific product lines may or may not compete with the products distributed by the Company. Patents and Trademarks. The Company owns five domestic patents which relate to the production of the Sparkling Water System. The Company owns domestic trademark registrations for the trademark "Juice Plus+(R)", and has filed several additional domestic applications for these trademarks for various goods. The Company has also registered "Juice Plus+(R)" in a number of foreign jurisdictions, and currently has applications pending in various other foreign jurisdictions. In fiscal 1998, the Company acquired through assignment the domestic and foreign trademark applications and registrations for "NSA(R)" owned by NSA in order to improve efficiency in obtaining foreign trademark registrations. Regulation. The Company and the Master Distributors are subject to the laws and regulations of the countries in which they operate relating to the marketing, content, labeling and packaging of their products, the operation of their sales programs, and the sales, advertising, and recruiting practices of their distributors and dealers. Numerous foreign governmental authorities regulate selling activities of the Company and Master Distributors in their respective jurisdictions through complex regulatory schemes which are subject to constant change. Regulatory agencies previously have requested information regarding the products distributed by or the respective sales plans of the Company's remaining direct selling operations (and the Company's other European direct selling operations prior to their conversion to Master Distributorships). Although Company management believes that its products, sales materials, and sales plans are in substantial compliance with applicable laws and regulations, these laws and regulations are subject to change and interpretation which could adversely affect the Direct Selling Subsidiaries' operations or the Master Distributors' operations, which in turn could adversely affect the Company. Environmental. From May, 1993, through February, 1995, the Company manufactured a majority of its own water filtration products. In connection with its past manufacturing operations, the Company was subject to various federal, state, and local regulations regarding the discharge of materials into the environment. Management believes that the Company operated in substantial compliance with such provisions, and the Company's compliance with these provisions did not have a material impact upon the capital expenditures, earnings or competitive position of the Company. Employees. At April 30, 1998, the Company had 19 employees. None of the Company's employees are represented by a labor union or collective bargaining unit. The Company considers relations with its employees to be satisfactory. 5 7 Distributors and dealers participating in the marketing plan of the Direct Selling Subsidiaries are independent contractors of the Direct Selling Subsidiaries and are not employees of the Direct Selling Subsidiaries or the Company. Impact of Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify a year in the date field. If not corrected, upon the change of century this could result in a system failure or miscalculation causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar, normal business activities. The Company currently believes that Year 2000 compliance will not pose significant operational problems, and the Company does not anticipate such compliance to be material to its financial position or results of operations in any given year. However, there can be no assurance that the systems of other companies on which the Company may rely will be timely converted or that the failure to convert by another company will not have an adverse affect on the Company. Financial Information About Foreign and Domestic Operations and Export Sales. For Geographic Segment Financial Information as to the Company's operations, see Note 8 in the Notes to Consolidated Financial Statements included with this report. Item 2. Properties. The Company leases approximately 1,500 square feet of office space in Camberly, England. In addition, several of the Company's subsidiaries are parties to real property lease agreements. National Safety Associates of America (U.K.) Limited ("NSA UK") leases approximately 12,800 square feet of office space in Maidenhead, Berkshire, England pursuant to noncancellable leases. The NSA UK leases are guaranteed by NSA. See "Certain Relationships and Related Transactions." NSA UK has licensed the Company's Master Distributor in the United Kingdom to occupy approximately 4,000 square feet of the leased premises in Maidenhead, Berkshire, England. NSA UK has subleased the remaining 8,800 square feet of the leased premises in Maidenhead, Berkshire, England to an independent third party. NSA Italy leases approximately 530 square meters of office space in Milan, Italy. NSA Polymers, Inc. leases approximately 52,000 square feet of warehouse space in Lake Mary, Florida. In the event any of these leases are terminated, the Company anticipates that it will be able to locate and lease other premises, if needed, without a material adverse effect to the operations of the Company. Neither the Company nor any of its subsidiaries own any real estate. The Company believes that its properties are suitable and adequate for the Company's present and future needs. Item 3. Legal Proceedings. The Company is party to various claims and matters of litigation that arise in the normal course of its business. Management of the Company believes the resolution of these matters will not have a material adverse effect on the results of operations or the financial condition of the Company. On April 2, 1998, the United States District Court for the Middle District of Florida, Orlando Division, dismissed with prejudice an action filed against NSA Polymers, Inc., a wholly-owned subsidiary of the Company ("NSA Polymers"), as well as Polymers, Inc., Futuro, Inc., Tubmaster, L.C., Eckerd Corporation, Berger Brunswig Corp., Kendall Futuro, Inc., McKesson Corporation, and Mr. Rushton Bailey, individually. The complaint seeking injunctive relief and damages was filed originally by Safety Technologies, Inc. and Safetex International, Inc. in April 1997. However, pursuant to a Mediation Settlement Agreement dated March 13, 1998, the parties to the action agreed to the terms of a settlement. In the settlement, NSA Polymers agreed to pay $125,000 to plaintiffs, and each party agreed to be responsible to its own costs and attorneys' fees. A portion of the settlement amount and all costs and attorneys' fees incurred by NSA Polymers were paid ultimately by NSA Polymers' insurance carrier. 6 8 Item 4. Submission of Matters to Vote of Security Holders. None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Price Range of Common Stock and Dividend Policy The Company's Common Stock previously was quoted and traded on The Nasdaq Stock Market under the symbol "NSAI." On December 2, 1997, the Company's Board of Directors resolved to terminate the listing of the Company's Common Stock on The Nasdaq Stock Market and to approve listing on the NASD OTC Bulletin Board. Termination of the Company's listing on The Nasdaq Stock Market became effective on March 16, 1998. As such, an established public trading market currently does not exist for the Company's Common Stock, but a few brokers make a market from time to time over-the-counter. The following table sets forth the high and low bid quotations for the Common Stock as reported on The Nasdaq Stock Market and the NASD OTC Bulletin Board, as applicable, for the periods indicated.
High Low ---- --- FISCAL 1998 First Quarter.................................................................. 2 1 9/16 Second Quarter................................................................. 2 7/32 1 7/16 Third Quarter.................................................................. 2 1 1/4 Fourth Quarter................................................................. 1 1/2 1 FISCAL 1997 First Quarter.................................................................. 4 1/4 2 1/2 Second Quarter................................................................. 3 3/4 2 Third Quarter.................................................................. 2 1/4 1 1/2 Fourth Quarter................................................................. 2 1/8 5/8
On July 22, 1998 the last reported bid quotation of the Common Stock on the NASD OTC Bulletin Board was $1.50 per share. This quotation was taken from the National Quotation Bureau Report with the quote supplied by the National Association of Securities Dealers, Inc. through the NASD OTC Bulletin Board. The quotation represents an interdealer price without retail markup, markdown, or commission and may not necessarily represent an actual transaction. As of July 22, 1998, the Company had approximately 890 shareholders of record. The Company's dividend policy will depend on its earnings, financial condition, and other factors deemed relevant by the Board of Directors. The Board of Directors has never declared dividends on the Common Stock and does not anticipate declaring cash dividends on the Common Stock in the foreseeable future. The Board of Directors presently intends to retain future earnings, if any, to finance the growth of the Company's business. 7 9 Item 6. Selected Financial Data. The selected historical consolidated financial data set forth below for the fiscal years ended April 30, 1998, 1997, 1996, 1995, and 1994 have been derived from the consolidated financial statements of the Company for those years. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes and other financial data included elsewhere herein. The selected consolidated financial data also should be read in conjunction with the discussion set forth above in Part I, Item 1, under the heading "Operations." Income Statement Data:
(In thousands, except for per share data) For the Years Ended April --------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 (Historical) (Historical) (Historical) (Historical) (Historical) ---------- ---------- ---------- ---------- ---------- Net revenues $ 23,048 $ 36,107 $ 73,150 $ 108,689 $ 112,531 Costs and expenses 27,470 45,939 83,963 114,191 115,837 ------------ ------------ ------------ ------------ ------------ Income (loss) before taxes and minority interest and cumulative effect of change in accounting principle (4,421) (9,832) (10,813) (5,502) (3,306) Provision (benefit) for income taxes 65) (22) (103) (761) (892) ------------ ------------ ------------ ------------ ------------ Net income (loss) before minority interest and cumulative effect of change in accounting principle (4,156) (9,810) (10,709) (4,741) (2,414) Cumulative effect of change in accounting principles 264 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (4,156) $ (9,810) $ (10,709) $ (4,741) $ (2,150) ============ ============ ============ ============ ============ Earnings (loss) per common share: Before cumulative effect of change in accounting principle $ (.87) $ (2.02) $ (2.20) $ (.98) $ (.49) Cumulative effect of change in accounting principle .05 ------------ ------------ ------------ ------------ ------------ Net Income (loss) per common share $ (.87) $ (2.02) $ (2.20) $ (.98) $ (.44) ============ ============ ============ ============ ============ Weighted average number of common shares outstanding 4,763 4,858 4,858 4,858 4,858 Balance Sheet Data (at period end): (In thousands) Total assets $ 17,874 $ 22,365 $ 31,274 $ 44,643 $ 55,138 Note payable to bank -0- -0- -0- -0- -0- Current maturities of long term debt -0- -0- -0- -0- 1,006 Amounts due to NSA, Inc. 9,291 7,793 7,900 9,310 12,512 Long-term debt less current maturities -0- -0- -0- -0- -0- Total Shareholders' equity (deficit) 3,881 8,307 10,206 20,917 25,660
8 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Management's discussion should be read in conjunction with the Consolidated Financial Statements and the discussion of the Company's business and other detailed information appearing elsewhere herein. All information is based on the Company's fiscal years ended April 30. RESULTS OF OPERATIONS Net Revenues
Fiscal Year ------------------------------------------------- 1998 Change 1997 Change 1996 ---- ------ ---- ------ ---- (Dollars in thousands) Net Revenues $ 23,048 (36.17)% $ 36,107 (50.64)% $ 73,150 Cost and expenses $ 27,469 (40.21)% $ 45,939 (45.29)% $ 83,963 Percentage of net revenues 119.18% 127.23% 114.78% Net loss $ (4,156) $ (9,810) $ (10,709) Loss per share $ (.87) $ (2.02) $ (2.20)
The Company's declining revenues for fiscal 1998 and 1997 were primarily the result of the restructuring of its operations which began in 1997 and which included the sale of all of its European direct selling operations, except for NSA Italy and NSA France. Approximately 75% of the 1998 revenues decline resulted from the sales of the direct selling operations. The remaining decrease resulted from a decrease in sales to the Company's Asian Master Distributor as a result of the Asian economic and currency condition, coupled with prior year's initial inventory purchases by the European Master Distributors. The 1997 restructuring resulted in a 1997 decline in revenues attributable to the sale of the direct selling operations of approximately $40,719,000. This decline was partially offset by approximately $5,640,000 from increased sales to Master Distributors. Cost and Expenses
Fiscal Year ------------------------------------------------ 1998 Change 1997 Change 1996 ---- ------ ---- ------ ---- (Dollars in thousands) Dealer/Distributor commissions $ 2,626 (64.86)% $ 7,473 (73.39)% $28,082 and allowances Percentage of net revenues 11.39% 20.69% 38.39% Cost of products sold $17,017 (11.42)% $19,211 (32.32)% $28,385 Percentage of net revenues 73.83% 53.21% 38.80%
The decreases in the dealer/distributor commissions and allowances, as a percentage of net revenues, for 1998 and 1997 resulted primarily from the sale of direct selling operations and resulting restructuring of the Company's sales method. Due to these changes, dealer/distributor commissions which would formerly have been paid by the Company on such product sales are now paid directly by the Master Distributor. The 1998 and 1997 increases in the cost of products sold as a percentage of net revenues resulted from the Company's operational changes. The product sales to Master Distributors have lower margins than sales which were previously made through the Company's direct selling operations. 9 11
Fiscal Year ------------------------------------------------- 1998 Change 1997 Change 1996 ---- ------ ---- ------ ---- (Dollars in thousands) Operating Expenses $ 8,571 (48.17)% $16,537 (37.98)% $26,664 Percentage of net revenues 37.19% 45.80% 36.45%
The 1998 decline in operating expenses primarily resulted from the closure of the Company's European central office coupled with the 1997 second quarter sales of the European direct selling operations. This decline was partially offset by an additional $1,000,000 reserve for notes receivable. The 1997 decline in the Company's operating expenses is the result of expense reductions caused from the 1997 second quarter sale of several of its European direct selling operations and the April 30, 1996 sale of Canadian operations. This reduction was partially offset by a $2,000,000 reserve allowance for the Company's notes receivable.
Fiscal Year ------------------------------------------------- 1998 Change 1997 Change 1996 ---- ------ ---- ------ ---- (Dollars in thousands) Interest income, net $563 (18.99%) $695 (7.95%) $755
The 1998 decline in interest income resulted from lower interest from the re-negotiation of a note receivable and lower average balances of cash and cash equivalents. The decrease in the 1997 net interest income reflects lower average balances of cash and cash equivalents.
Fiscal Year ------------------------------------------------- 1998 Change 1997 Change 1996 ---- ------ ---- ------ ---- (Dollars in thousands) Licensing and management fees $120 (76.05)% $501 (68.65)% $1,598 to NSA, Inc. Percentage of net revenues .52% 1.39% 2.18%
The decreases in the 1998 and 1997 management fees are due to the sale of several of the Company's direct selling operations.
Fiscal Year ---------------------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Other income (expense), net $302 $89 $12 Percentage of net revenues 1.31% .25% .02%
The increase in the 1998 other income primarily resulted from recognition of deferred gains from the sale of the direct selling operations of $105,000 and from foreign currency translation gains. The 1997 increase in other income primarily resulted from gains in foreign currency translation. 10 12 Restructuring Costs
Fiscal Year ---------------------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Restructuring costs $ 0 $3,000 . $ 0 Percentage of net revenues N/A 8.31% N/A
The Company took a 1997 first quarter charge of $3,000,000 for expenses to be incurred with the restructuring of its direct selling operations and the closing of its European central office in Amsterdam. Benefit (Provision) for income taxes
Fiscal Year ---------------------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Benefit (provision) for income taxes $265 $ 22 $103 Effective tax rate 5.99% .22% .95%
The 1998 tax benefit resulted from the use of operating losses as a carry-back claim from the Company's foreign operations. The low effective tax rates for each year reflect the inability to utilize most of the operating losses of the Company and its subsidiaries.
Fiscal Year -------------------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Net loss $(4,156) $(9,810) $(10,709) Loss per share $ (.87) $ (2.02) $ (2.20)
The Company's net loss for 1998 resulted primarily from the decline in revenues from its Asian Master Distributor as a result of the economic and currency conditions during the past three operating quarters; losses in the Company's French direct selling operations of $721,182 (the Company closed its offices in France in May, 1998, although direct selling activities in the country are ongoing); certain relocation expenses of its current European operations; lack of sales increases of product sold to the European Master Distributors; and an additional $1,000,000 reserve to the Company's notes receivable. The 1997 net loss consists of a $3,000,000 ($.62 per share) restructuring charge, a note receivable allowance totaling $2,000,000 ($.48 per share), and approximately $2,674,000 ($.55 per share) of operating losses during the 1997 first and second quarters generated by the European direct selling operations which were sold during the 1997 second quarter. The 1996 net loss primarily reflects the Company's required direct selling operating costs and expenses which exceed its gross margin as a result of decreased revenues. 11 13 FUTURE OUTLOOK The Company has expanded its Master Distributor operations in Australia and the Scandinavian region, among other areas. Likewise, the Company is aggressively looking for new market expansion and hopes to add several new Master Distributors and/or expand geographically during fiscal 1999 and 2000. The Company is actively seeking a qualified Master Distributor to acquire the Company's Italian direct selling operations, and the Company is aggressively looking for new products to add to its current product line. The Company's management believes that the conversion of its sales and distributorship operations to the Master Distributor Program and new product introductions will provide the Company with long term favorable effects on its operating results. Although the ultimate effect of these changes cannot be determined, there could be continued adverse short-term results in operations caused by these changes before the Company realizes the long term success the changes were designed to create. LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year Ended April 30 --------------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Cash and cash equivalents $ 2,121 $ 5,772 $ 8,755 Short-term investments 1,509 11 13 Working capital 1,329 4,301 11,323 Cash provided (used) by operating activities (3,750) (10,609) (6,855) Cash provided (used) by investing activities (1,128) 745 495 Cash provided (used) by financing activities 1,228 6,881 (489)
On March 19, 1997, the Company's Board of Directors authorized the repurchase up to $1 million in shares of its common stock from time to time on the open market or in privately negotiated purchases. During the year ended April 30, 1998, the Company repurchased approximately 163,120 shares of common stock pursuant to this repurchase plan. The Company has sufficient cash on-hand to finance current operations, and does not anticipate requiring additional funding in excess of the current cash balances and cash flow generated from operations. If required, management believes additional funding will be available from financial institutions or NSA at satisfactory terms. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements of the Company, together with the Report thereon of Deloitte and Touche LLP, independent auditors, are set forth on pages F-1 to F-16 of this Annual Report on Form 10-K. 12 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The following table sets forth certain information regarding the directors and executive officers of the Company and its subsidiaries. Pursuant to the Company's Charter and Bylaws, members of the Board of Directors are elected for staggered two-year terms. Except for those executive officers with employment agreements, the executive officers of the Company and its subsidiaries serve at the discretion of the Company's Boards of Directors. See "Employment Agreements."
Director Term Name Age Position(s) Since Expires - ---- --- ----------- -------- ------- DIRECTORS: A. Jay Martin(1) 56 Chief Executive Officer 1989 1998 and President and Director Charles R. Evans, Jr. 54 Chief Operating Officer 1992 1998 and Executive Vice- President and Director J. Neil Rood 65 Director 1989 1998 George R. Poteet 50 Director 1989 1999 L.F. Swords 57 Director 1989 1999 William W. Deupree, Jr. 57 Director 1992 1999 William L. Gurner 52 Director 1996 1999 EXECUTIVE OFFICERS: Officer Since ----- Stan C. Turk 46 Chief Financial Officer and 1989 Secretary-Treasurer
- ------------ (1) Mr. Martin is also a director and executive officer of NSA. Mr. Martin devotes approximately 60% of his management time to the operations of the Company. A. Jay Martin has served as President and Chief Executive Officer and as a director of the Company since its inception in March 1989. Mr. Martin founded National Safety Associates, Inc., a Tennessee corporation ("NSA"), in 13 15 1969 and has served NSA in various capacities since its inception. Presently, Mr. Martin is a shareholder and serves as President and a director of NSA. Charles R. Evans, Jr. has served as a director as well as the Executive Vice-President and the Chief Operating Officer of the Company since August 1992. Mr. Evans joined NSA Polymers, Inc. in March 1989 and served as Vice President, Assistant Secretary and a director of NSA Polymers, Inc. until August 1992. From 1984 until March 1989, he was Treasurer of Florida Polymers, Inc., a Florida corporation, the assets of which were acquired by the Company in March 1989 and which was primarily engaged in the business of plastics injection molding and tool and die manufacturing. J. Neil Rood has been a director of the Company since its inception. In April 1992, Mr. Rood was elected President of NSA Holdings, Inc. and, in December 1992, Mr. Rood was elected Vice President-International Operations for the Company. In December 1993, Mr. Rood completed his tenure as Vice President-International Operations. Mr. Rood is a shareholder of NSA. In April 1982, Mr. Rood organized and became President of Jonfor Systems, Inc. In June 1975, Mr. Rood organized and became President of Jonfor, Inc. Both entities are privately-held Florida corporations which act as holding and operating companies, respectively, for various retail businesses and real estate properties. Mr. Rood is also active in various real estate ventures as a developer and an owner. L.F. Swords has been a director of the Company since its inception. Mr. Swords has been employed by NSA since 1971 in a variety of management positions. From 1989 until March 1, 1994, Mr. Swords served as Secretary-Treasurer and Chief Financial Officer of the Company and all of its subsidiaries. Presently, Mr. Swords is a shareholder, and serves as Vice President, Chief Financial Officer, Secretary-Treasurer, and a director of NSA. George R. Poteet has served as a director of the Company since its inception. Since 1971, Mr. Poteet has been employed by NSA and he presently is a shareholder and serves as Vice President-Manufacturing and a director of NSA. From 1989 until February 1994, Mr. Poteet served as the Vice President - Manufacturing of the Company. William W. Deupree, Jr., a director of the Company since October 1992, retired as President of Morgan Keegan & Company, Inc. and its parent company, Morgan Keegan, Inc., a New York Stock Exchange listed company, in 1996 after 10 years in such positions. Mr. Deupree joined Morgan Keegan & Company, Inc. in 1972. He is a past member of the Regional Firms Advisory Committee of the New York Stock Exchange as well as a past member of the Board of Directors for the Securities Industry Association. Mr. Deupree is a director of Morgan Keegan & Company, Inc. and Equity Inns, Inc. Mr. Deupree is a graduate of the University of the South. William L. Gurner has served as a director of the Company since December 1996. Mr. Gurner founded Sector Capital Management, L.L.C. in January 1995. That entity offers an equity product to public and corporate pension plans, Taft-Hartly plans and foundations. Prior to starting Sector Capital Management, L.L.C., Mr. Gurner was the pension officer for Federal Express from 1987 through 1994. Stan C. Turk was appointed Chief Financial Officer and Secretary-Treasurer of the Company on July 1, 1996. Mr. Turk was elected Assistant Treasurer of the Company in May 1991. Since August 1989, Mr. Turk has been employed as Assistant Treasurer of NSA. Prior to joining NSA in 1989, Mr. Turk served as the Chief Financial Officer of Barton Equipment Company and Barton Truck Center in Memphis, Tennessee, and he spent approximately 9 years employed as a certified public accountant. Board of Directors Committees. The Board of Directors has appointed three committees: the Compensation Committee, the Audit Committee, and the Options Committee. Messrs. Swords, Deupree and Gurner serve as the members of the Compensation and Audit Committees. Messrs. Martin and Poteet serve as the members of the Options Committee. 14 16 Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") requires the Company's officers and directors and persons who own more than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Such officers, directors and shareholders are required by SEC regulations to furnish the Company with copies of all such reports that they file. Based solely on a review of copies of reports and questionnaires furnished to the Company, the Company believes that, during the fiscal year ended April 30, 1998, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis. Item 11. Executive Compensation. The following table sets forth the aggregate compensation paid by the Company and its subsidiaries to the Chief Executive Officer of the Company and the three most highly compensated executive officers of the Company or its subsidiaries, for services rendered in all capacities during the fiscal years ended April 30, 1998, 1997, and 1996. SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------------------------------ Other Annual Securities Underlying Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#) - --------------------------- ---- ---------- --------- ---------------- ----------- A. Jay Martin 1998 159,439 3,028 -0- -0- Chief Executive Officer 1997 150,000 10,528 -0- -0- of the Company 1996 150,000 6,058 -0- -0- Charles R. Evans, Jr. 1998 167,410 78,181 8,400 (1) -0- Chief Operating Officer 1997 160,226 78,029 8,400 (1) 25,000 of the Company 1996 225,000 7,001 -0- -0- John Greenham 1998 152,845 25,000 13,540 (1) -0- Vice President - Europe 1997 120,750 25,000 31,704 (1) 25,000 1996 139,844 26,128 40,757 (1) -0- Stan C. Turk 1998 126,538 2,404 -0- -0- Chief Financial Officer 1997 40,865 (2) -0- -0- 25,000 of the Company 1996 -0- -0- -0- -0-
- ----------------- (1) Represents housing, school fees, expenses and/or car allowance. (2) Represents salary for the period January 1, 1997 through April 30, 1997. 15 17 The following table provides information with respect to the value of the unexercised options held by the executive officers named in the above table as of April 30, 1998. No such executive officer exercised any options during the fiscal year ended April 30, 1998. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Value of Unexercised Number of Unexercised In-the-Money Options Options at Fiscal Year End at Fiscal Year End(1) Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Charles R. Evans, Jr. -0- 25,000 -0- $35,500 John Greenham -0- 25,000 -0- $35,500 Stan C. Turk -0- 25,000 -0- $35,500
(1) Based upon a bid quotation of $1.42 taken from the National Quotation Bureau Report and supplied by the National Association of Securities Dealers, Inc. through the NASD OTC Bulletin Board. The non-employee directors of the Company currently receive $1,000 for each Board of Directors meeting and $1,000 for each committee meeting. The directors of the Company's subsidiaries do not receive any compensation for serving in such capacities. Employment Agreements. The Company has an employment agreement with Mr. A. Jay Martin. The employment agreement is renewable annually and provides for an annual salary of $150,000. The Company also has an employment agreement with Mr. Charles R. Evans, Jr. which provides for annual compensation equal to $225,000. Compensation Committee Interlocks and Insider Participation. The members of the Compensation Committee of the Company's Board of Directors are Messrs. L. F. Swords, William Deupree and William Gurner. From 1989 until March 1, 1994, Mr. Swords served as Secretary-Treasurer and Chief Financial Officer of the Company and all of its subsidiaries. Mr. Swords has not served as an officer of the Company since March 1, 1994. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth the number of shares beneficially owned as of July 17, 1998, by (a) each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (b) each director or executive officer of the Company, and (c) all directors and executive officers of the Company as a group. 16 18
Amount and Name Name and Address of of Beneficial Percent Beneficial Owner Ownership(1) of Class(2) ---------------- ----------- ---------- (a) National Safety Associates, Inc. 2,336,180(3) 49.8 4260 East Raines Road Memphis, Tennessee 38118 A. Jay Martin 2,755,135(4) 58.7 4260 East Raines Road Memphis, Tennessee 38118 L.F. Swords 2,474,266(5) 52.7 4260 East Raines Road Memphis, Tennessee 38118 (b) A. Jay Martin 2,755,135(4) 58.7 L.F. Swords 2,474,266(5) 52.7 George R. Poteet 164,041 3.5 4180 Pilot Memphis, TN 38118 J. Neil Rood 40,733 * 12192 Mandarin Road Jacksonville, FL 32223 William W. Deupree, Jr. 15,000 * 50 North Front Street, 21st Floor Memphis, TN 38103 Charles R. Evans, Jr. 8,800 * 4260 East Raines Road Memphis, TN 38118 William L. Gurner - 0 - * 40 South Main Street Memphis, TN 38103 John Greenham 7,000 * 80 Park Street Camberly GU15 3 PT Surrey, England Stan C. Turk 4,700 * 4260 East Raines Road Memphis, TN 38118 (c) Officers and directors 3,133,495(4) 66.7 as a group (9 persons)
- ------------------------- (1) Includes shares of Common Stock as to which such person, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares voting power and/or investment power. 17 19 Unless otherwise indicated, each listed shareholder possesses sole voting and investment power with respect to all of the shares shown opposite his name. Does not include shares of Common Stock underlying options which are not exercisable within 60 days. (2) Based upon 4,695,036 shares issued and outstanding. (3) Messrs. Martin and/or Swords, as the President and Secretary-Treasurer of NSA, respectively, acting separately or jointly, have the power to vote or to direct the vote, and to dispose of or to direct the disposition of, the shares owned by NSA, unless otherwise instructed by the Board of Directors of NSA. (4) Includes the 2,336,180 shares held by NSA for which Messrs. Martin and/or Swords have the power to vote or to direct the vote, and to dispose of or to direct the disposition of. Also includes the indirect beneficial ownership of 9,000 shares held by Mr. Martin's child for which Mr. Martin disclaims beneficial ownership. (5) Includes the 2,336,180 shares held by NSA for which Messrs. Martin and/or Swords have the power to vote or to direct the vote, and to dispose of or to direct the disposition of. * Indicates less than 1%. Item 13. Certain Relationships and Related Transactions. Sales of Juice Plus+(R) products to NSA totaled approximately $8,732,000 or approximately 38% of the Company's revenues for the fiscal year ended April 30, 1998. Messrs. Martin, Swords and Poteet are all directors and executive officers of NSA, serving in the respective capacities of President, Chief Financial Officer, and Vice President - Manufacturing. At April 30, 1998, the Company owed approximately $9,291,356 to NSA for cash advances for working capital, product purchases and management fees. The Company purchases certain water filtration and related accessory products from NSA. The cost of such purchases was approximately $288,000 for the fiscal year ended April 30, 1998. NSA provides certain management, consulting and advisory services to the Company. In consideration for these services, the Company paid to NSA approximately $119,510 for the fiscal year ended April 30, 1998. In addition, the Company pays to NSA any and all amounts collected by the Company from the Company's Master Distributors in exchange for data processing services provided to Master Distributors as such services are in fact provided by NSA. The total amount paid to NSA for such services during the fiscal year ended April 30, 1998 was approximately $298,330. NSA has guaranteed the obligations of National Safety Associates of America (U.K.) Limited ("NSA UK") under the lease agreements pursuant to which NSA UK leases approximately 12,800 square feet in Maidenhead, Berkshire, England. There have not been, and it is the Company's current intention that there will not be, loans or other financial transactions between the Company and its officers, directors or significant employees. However, to the extent such loans or financial transactions do occur in the future, they will be approved by the Company's disinterested and independent directors and will be on terms no less favorable to the Company than could be obtained from unaffiliated parties. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this Annual Report on Form 10-K: I. Financial Statements of NSA International, Inc. and Subsidiaries: 18 20 Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets as of April 30, 1998 and 1997 F-2 Consolidated Statements of Operations for the Years Ended April 30, 1998, 1997 and 1996 F-3 Consolidated Statements of Shareholders' Equity for the Years Ended April 30, 1998, 1997 and 1996 F-4 Consolidated Statements of Cash Flows for the Years Ended April 30, 1998, 1997 and 1996 F-5 Notes to Consolidated Financial Statements F-6 II. The following Financial Statement Schedule is filed as part of this Annual Report on Form 10-K: Schedule II Valuation and Qualifying Accounts Years Ended April 30, 1998, 1997 and 1996 F-16
III. Exhibits 3.1 Amended and Restated Charter of the Company(1) 3.2 Bylaws of the Company(2) 4.1 Form of Stock Certificate(1) 10.1 Amended and Restated Manufacturing License and Distribution Agreement between Smokey Santillo and the Company dated March 31, 1994.(3) 10.2 Manufacturing Agreement among the Company, NSA Polymers, Inc. and Polymers, Inc. dated September 1, 1997. 10.3 Lease Agreement between NSA UK and Crown Life Pensions Limited dated November 28, 1988.(1) 10.4 Lease Agreement between NSA Italy and Redilco dated June 1, 1994.(3) 10.5 Lease Agreement between NSA Polymers and Hodges Four Way Trust dated January, 1990.(3) 10.6 Management Agreement between NSA and the Company dated May 1, 1996(7) 10.7 Management Agreement NSA and the Company dated May 1, 1994.(3) 10.8 Distribution and License Agreement between NSA and the Company dated May 1, 1994.(3) 10.9 Exclusive Manufacturing License Agreement between NSA and the Company dated May 1, 1993.(3) 10.10 Sales Agreement between NSA and the Company dated May 1, 1994.(3) 10.11 Sales Agreement between NSA and NSA Polymers dated May 1, 1994.(3) 10.12 Warehousing Agreement between NSA B.V. and Expeditiebedrijf Frans Maas B.V. dated April 21, 1994.(3) 19 21 10.13 Manufacturing Agreement between the Company and Natural Alternatives International, Inc. dated April 1, 1993.(3) 10.14 First Amendment to the Exclusive Manufacturing License Agreement between the Company and NSA dated May 1, 1993.(3) 10.15 Employment Agreement between A. Jay Martin and the Company dated May 1, 1994.(3)** 10.16 Employment Agreement between Charles R. Evans and the Company dated August 1, 1994.(3)** 10.17 Distribution Agreement between the Company and Holzmann Holding AG dated as of September 1, 1996.(5) 10.18 Asset Purchase Agreement between National Safety Associates, Ltd. and National Safety Associates of Canada, Inc.(4) 10.19 Asset Purchase Agreement between NSA UK and Nova Vita Limited effective as of October 1, 1996.(6) 10.20 Company's 1997 Incentive and Non-Qualified Stock Option Plan.(7)** 10.21 Stock Purchase Agreement between NSA Polymers and Polymers, Inc. dated as of September 9, 1997. 21.1 List of Subsidiaries of the Company. 27 Financial Data Schedule (for SEC purposes only) (1) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form 10, Commission File No. 0-19487 (2) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form S-18 Registration No. 33-42158-A (3) Incorporated by reference to exhibits filed with the Company's Form 10-K for the year ended April 30, 1995. (4) Incorporated by reference to exhibits filed with the Company's 8-K on May 15, 1996. (5) Incorporated by reference to exhibits filed with the Company's 8-K on September 17, 1996. (6) Incorporated by reference to exhibits filed with the Company's 8-K on November 27, 1996. (7) Incorporated by referenced to exhibits filed with the Company's Form 10-K for the year ended April 30, 1997. ** Management Compensatory Plan (b) Reports on Form 8-K. None. 20 22 (c) Exhibits. See Item 14(a)(3) above. (d) Financial Statement Schedules. See Item 14(a)(2) above. 21 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NSA INTERNATIONAL, INC. By: /s/ A. Jay Martin ------------------------------------- A. Jay Martin, President and Chief Executive Officer Date: July 23, 1998 ------------------------------------------ Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ A. Jay Martin Chief Executive Officer, President and July 23, 1998 - ----------------------------- Director A. Jay Martin /s/ Stan C. Turk - ----------------------------- Secretary-Treasurer and Chief Financial July 23, 1998 Stan C. Turk Officer /s/ George R. Poteet - ----------------------------- Director July 23, 1998 George R. Poteet /s/ Charles R. Evans, Jr. - ----------------------------- Executive Vice-President, July 23, 1998 Charles R. Evans, Jr. Chief Operating Officer and Director /s/ William L. Gurner - ----------------------------- Director July 23, 1998 William L. Gurner /s/ L. F. Swords - ----------------------------- Director July 23, 1998 L. F. Swords
24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of NSA International, Inc. We have audited the accompanying consolidated balance sheets of NSA International, Inc. and Subsidiaries (the "Company") as of April 30, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended April 30, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule 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. As discussed in Note 7 to the financial statements, the Company is party to a significant number of transactions with National Safety Associates, Inc. ("NSA, Inc."), the shareholders of which own a majority of the Company's common stock. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NSA International, Inc. and Subsidiaries as of April 30, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Memphis, Tennessee July 17, 1998 F-1 25 NSA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 30, 1998 AND 1997 - --------------------------------------------------------------------------------
ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $ 2,121,058 $ 5,771,563 Short-term investments 1,509,004 10,754 Receivables, net 3,078,385 2,972,636 Refundable income taxes 304,000 690,000 Inventories, net 6,587,848 7,104,869 Deferred income taxes 15,000 32,000 Notes receivable - short-term 414,000 550,000 Other current assets 163,996 265,078 ------------ ------------ Total current assets 14,193,291 17,396,900 PROPERTY AND EQUIPMENT, At cost: Leasehold improvements 37,837 195,862 Manufacturing equipment 456,062 455,850 Office furniture and equipment 890,906 1,043,222 Data processing equipment 593,600 558,148 ------------ ------------ Total 1,978,405 2,253,082 Less accumulated depreciation and amortization (1,381,910) (1,326,684) ------------ ------------ Property and equipment, net 596,495 926,398 LONG-TERM NOTES RECEIVABLE AND PREFERRED STOCK 2,079,303 2,945,007 OTHER ASSETS 1,005,250 1,096,200 ------------ ------------ TOTAL ASSETS $ 17,874,339 $ 22,364,505 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Amounts due to NSA, Inc. $ 9,291,356 $ 7,793,387 Accounts payable, trade 913,567 913,452 Accrued sales commissions and allowances 116,631 246,603 Accrued compensation and expenses 2,005,484 2,834,976 Accrued sales returns 60,038 368,611 Advance payments by dealers/distributors 12,564 95,714 Income taxes payable 321,000 656,000 Other current liabilities 143,585 186,981 ============ ============ Total current liabilities 12,864,225 13,095,724 DEFERRED INCOME TAXES 15,000 32,000 OTHER LIABILITIES 1,114,608 929,518 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $.05 par value, 100,000,000 shares authorized, 4,695,036 and 4,858,156 shares outstanding at April 30, 1998 and 1997, respectively 234,752 242,908 Additional paid-in capital 28,844,804 29,106,950 Deficit (25,199,050) (21,042,595) ------------ ------------ Total shareholders' equity 3,880,506 8,307,263 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,874,339 $ 22,364,505 ============ ============
See notes to consolidated financial statements. F-2 26 NSA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED APRIL 30, 1998, 1997, AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 NET REVENUES: Net sales $ 22,213,226 $ 35,424,937 $ 70,831,868 Dealer/distributor fee income 835,116 682,374 2,318,464 ------------ ------------ ------------ Total 23,048,342 36,107,311 73,150,332 COSTS AND EXPENSES: Dealer/distributor commissions and allowances (2,626,047) (7,472,932) (28,082,083) Cost of products sold (17,017,759) (19,211,498) (28,385,494) Operating expenses (8,571,453) (16,536,955) (26,663,852) Licensing and management fees to NSA, Inc. (119,510) (500,873) (1,597,737) Restructuring costs (3,000,000) Interest income, net 563,070 694,506 754,835 Other income, net 301,902 88,913 11,514 ------------ ------------ ------------ Total (27,469,797) (45,938,839) (83,962,817) ------------ ------------ ------------ LOSS BEFORE INCOME TAX BENEFIT (4,421,455) (9,831,528) (10,812,485) INCOME TAX BENEFIT 265,000 22,000 103,000 ------------ ------------ ------------ NET LOSS $ (4,156,455) $ (9,809,528) $(10,709,485) ============ ============ ============ BASIC LOSS PER COMMON SHARE $ (0.87) $ (2.02) $ (2.20) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,763,335 4,858,156 4,858,156 ============ ============ ============ TRANSACTIONS WITH NSA, INC. INCLUDED IN THE ABOVE: Net sales to NSA, Inc. $ 8,774,000 $ 9,361,000 $ 11,588,030 Cost of products sold (purchased from NSA, Inc.) 288,000 45,596 1,162,501
See notes to consolidated financial statements. F-3 27 NSA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED APRIL 30, 1998, 1997, AND 1996 - --------------------------------------------------------------------------------
Common Stock ---------------------------- Additional Number Paid-in of Shares Amount Capital Deficit Total BALANCES AT APRIL 30, 1995 4,858,156 $ 242,908 $ 21,197,616 $ (523,582) $20,916,942 Repurchase of common stock warrants (1,186) (1,186) Net loss (10,709,485) (10,709,485) ---------- ------------ ------------ ------------ ----------- BALANCES AT APRIL 30, 1996 4,858,156 242,908 21,196,430 (11,233,067) 10,206,271 Net loss (9,809,528 (9,809,528) Forgiveness of debt by NSA, Inc. 7,910,520 7,910,520 ---------- ------------ ------------ ------------ ----------- BALANCES AT APRIL 30, 1997 4,858,156 242,908 29,106,950 (21,042,595) 8,307,263 Net loss (4,156,455) (4,156,455) Repurchase and retirement of common stock (163,120) (8,156) (262,146) (270,302) ---------- ------------ ------------ ------------ ----------- BALANCES AT APRIL 30, 1998 4,695,036 $ 234,752 $ 28,844,804 $(25,199,050) $ 3,880,506 ========== =========== ============ ============ ===========
See notes to consolidated financial statements. F-4 28 NSA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED APRIL 30, 1998, 1997, AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(4,156,455) $ (9,809,528) $(10,709,485) Adjustments to reconcile net loss to net cash used by operations: Non cash restructuring charges 475,000 Depreciation and amortization 265,570 562,441 977,014 Provision for uncollectible notes receivable 1,000,000 2,000,000 Loss on sale or disposal of property and equipment 141,420 214,473 132,401 (Gain) loss on sale of short-term investments 2,293 (6,902) Change in deferred income taxes (197,000) Recognition of deferred gain on notes receivable 105,000 Changes in assets and liabilities, net of the effects of the sale of significant assets of the Company, as discussed in Note 3: Receivables, net (105,749) (1,133,143) 187,528 Inventories 517,021 3,128,289 2,005,948 Other assets (147,968) 367,669 579,316 Accounts payable, trade 115 (1,643,079) 191,515 Accrued sales returns (308,573) (827,531) (589,466) Advance payments by dealers/distributors (83,150) (9,365) (274,317) Accrued expenses, other (959,464) (3,180,169) (2,368,413) Income taxes payable and refundable 51,000 (373,051) 2,137,400 Other current liabilities (43,396) (254,319) 79,427 Other liabilities 185,090 (129,144) 1,000,000 ----------- ------------ ------------ Net cash used in operating activities (3,749,539) (10,609,164) (6,855,034) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (1,498,250) Proceeds from sale of short-term investments 515,200 Purchase of property and equipment (77,087) (39,831) (532,941) Proceeds from sale of property and equipment 29,119 12,732 Proceeds from principal payments on notes receivable and redemption of preferred stock 446,704 755,912 500,000 ----------- ------------ ------------ Net cash provided by (used in) by investing activities (1,128,633) 745,200 494,991 CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common stock and warrants (270,302) (1,186) Advances from (to) NSA, Inc. 1,497,969 6,880,757 (487,317) ----------- ------------ ------------ Net cash provided by (used in) financing activities 1,227,667 6,880,757 (488,503) ----------- ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (3,650,505) (2,983,207) (6,848,546) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,771,563 8,754,770 15,603,316 ----------- ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,121,058 $ 5,771,563 $ 8,754,770 =========== ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ Nil $ Nil $ 3,381 Income taxes refunded, net 162,000 Nil 2,045,400 SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES: See discussion of non cash investing and financing activities at Notes 3 and 7.
See notes to consolidated financial statements. F-5 29 NSA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED APRIL 30, 1998, 1997, AND 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS - NSA International, Inc. and Subsidiaries (the "Company") sells products which include air and water filtration products, an in-home carbonation appliance, and a line of nutritional supplement products. The products are distributed through the Company's third-party licensees ("Master Distributors") and its direct multi-level marketing network outside the United States and through National Safety Associates, Inc.'s ("NSA, Inc.") United States direct multi-level marketing network. Also see Note 3. BASIS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries. All significant intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS - Certificates of deposit and other debt instruments with a maturity of three months or less from the date of purchase are considered to be cash equivalents. SHORT-TERM INVESTMENTS - Short-term investments consist of certificates of deposit, municipal bonds, and corporate bonds which are classified as trading securities. The investments are stated at market. CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash equivalents, short-term investments, foreign exchange forward contracts, receivables, including notes receivable, and preferred stock. Substantially all cash and cash equivalents were deposited with major banks covered with only a nominal amount of government provided insurance. Short-term investments are limited to investment grade bonds or to certificates of deposit with major banks. The counterparties to foreign exchange forward contracts are limited to major commodity exchanges. The Company continually evaluates the financial viability and reputation of each financial institution and exchange. Regarding receivables and preferred stock, management believes credit risk beyond that already provided for is limited due to geographic dispersion and, for notes receivable and preferred stock, collateral backing. Regarding the Company's financial instruments, management believes that their recorded value, after consideration of related allowances, approximates their fair value. INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out basis) or market and consisted of the following at April 30, 1998 and 1997: F-6 30
1998 1997 Raw materials $ 2,040,031 $ 1,784,662 Finished goods 5,778,977 5,615,235 Accessories 756,425 806,704 ----------- ----------- Total at cost 8,575,433 8,206,601 Reserve for excess and obsolete inventories (1,987,585) (1,101,732) ----------- ----------- Inventories, net $ 6,587,848 $ 7,104,869 =========== ===========
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost. Depreciation of property and equipment is principally computed by the straight-line method over the estimated useful lives of the assets, which range as follows: Office furniture and equipment 2 to 7 years Leasehold improvements 3 to 10 years Manufacturing equipment 3 to 7 years Data processing equipment 5 years
Maintenance and repairs are charged to expense as incurred; major renewals are capitalized. Gains or losses on retirement or disposition are charged to income and respective costs and accumulated depreciation are eliminated. FOREIGN CURRENCY TRANSLATION AND FOREIGN EXCHANGE FORWARD CONTRACTS - The Company's functional currency is the U.S. dollar; therefore, the foreign subsidiaries remeasure monetary assets and liabilities at year-end exchange rates and inventory, property, equipment, and non-monetary assets and liabilities at historical rates. Income and expense accounts are translated at the exchange rates in effect on the day of the transaction, except for depreciation, which is translated at historical rates. Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the U.S. dollar) are included in net income in the period incurred. The Company attempts to reduce the effects of fluctuations in foreign currency exchange rates associated with certain aspects of these investments, principally the monetary assets and liabilities of the Company's foreign subsidiaries, by buying or selling foreign exchange forward contracts in manners which will generally replicate the effects which would occur if related options had been purchased. The size of positions held vary based principally on the Company's net position of monetary assets and liabilities and on the duration and magnitude of the current foreign exchange trend in effect. Management believes this practice will partially hedge the effects of foreign currency fluctuations on the Company's financial statements, but of course cannot assure that this objective will be met. Fair values of the foreign exchange forward contracts are estimated using quoted market prices of these or comparable instruments; related gains and losses on these contracts, as well as the foreign exchange gains and losses resulting from translation of the financial statements of the Company's foreign subsidiaries, are recognized in other income or expense. Within the definitions contained in Statement of Financial Accounting Standards No. 119, management considers these contracts to be held for purposes other than trading. F-7 31 As discussed in Note 3, in fiscal 1997 the Company sold its remaining significant foreign operations to certain investor groups. Due to these sales, the Company's foreign subsidiaries now have substantially lower monetary asset and liability positions. Accordingly, the Company's positions taken with respect to foreign exchange forward contracts have been substantially reduced as well. At April 30, 1998, the Company had foreign currency contracts to sell forward the dollar equivalent of $1,138,000 of Swiss francs and Canadian dollars, and to buy forward the dollar equivalent of $1,869,000 of Deutsche marks and British pounds. These contracts generally mature within one year and have aggregate unrealized gains of approximately $17,000, which is included in net income. Margin deposits for these contracts total $41,000 and are included in other current assets. At April 30, 1997, the Company was not a party to any foreign exchange forward contracts and therefore had no unrealized gains or losses or margin deposits related thereto as of that date. The foreign currency translation gains, net of the effects of foreign exchange forward transactions, for the years ended April 30, 1998, 1997, and 1996 totalled approximately $100,000, $140,000, and $460,000, respectively. OTHER ASSETS - Other assets primarily represent the cash surrender value of officers' life insurance policies. OTHER LIABILITIES - Other liabilities principally represent amounts accrued for the excess of future rent expense over estimated sublease income for two leases, as discussed in Note 5. REVENUE RECOGNITION - Revenues from product sales are recognized upon shipment of product. Provision for estimated sales returns is recorded based on historical returns rates and current business conditions. INCOME TAXES - Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. LOSS PER SHARE - Basic loss per common share has been computed by dividing net loss by the weighted average number of common shares outstanding. The adoption of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," had no effect on amounts presented, as no potentially dilutive securities were outstanding for the years ended April 30, 1998, 1997, and 1996. NEW ACCOUNTING PRONOUNCEMENT - The Company has not yet adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," but will be required to do so for the fiscal year ending April 30, 1999. Management has not yet determined the effects, if any, adoption of this statement will have on information presented in Note 8. 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8 32 2. RECEIVABLES Accounts receivable, trade represents amounts due from the Company's third-party licensees and from customers of the Company's domestic subsidiaries. Receivables consisted of the following at April 30, 1998 and 1997:
1998 1997 Accounts receivable, trade $ 1,685,913 $2,779,995 Fees and interest due from Master Distributors 1,173,372 VAT and other miscellaneous taxes 299,100 Other accounts receivable 155,136 Amounts due under revolving credit agreements 82,767 Less amounts due to dealer/distributors (45,262) ----------- ---------- Total 3,158,385 2,972,636 Less allowance for doubtful accounts (80,000) ----------- ---------- Receivables, net $ 3,078,385 $2,972,636 =========== ==========
3. DISPOSALS, NOTES RECEIVABLE, AND PREFERRED STOCK During the second quarter of 1997, the Company completed two dispositions in which it sold its operating rights and certain fixed assets in Germany, Switzerland, and Austria to an unrelated group of investors and sold similar assets of Belgium, Holland, and the United Kingdom to a separate unrelated group of investors (collectively, the "Buyers"). Consideration was received in the form of notes receivable which provide for annual payments of principal and interest over the next six and seven years. As the rates on the notes are substantially less than current market rates, these notes were discounted to a present value of $1,510,000 using the then-current U.S. Prime rate of 8.25%. The gain on the sales of $630,000 is being deferred, as the Buyers did not make any payments to the Company as of the closing dates; this deferred gain is offset against the related notes receivable on the accompanying balance sheet and will be ratably recognized by the Company as the notes are collected. The notes receivable are secured by liens on substantially all fixed assets, inventories, and accounts receivable of the Buyers. These dispositions obligate the Buyers to assume responsibilities for future multi-level direct selling operations in these countries. As of the close of business on April 30, 1996, the Company sold certain inventories, fixed assets, and prepaid expenses of National Safety Associates, Ltd. (NSA Canada or the "Seller") to a group of investors (the "Buyer"), which included certain members of the Seller's management. In conjunction with the acquisition, the Buyer has assumed responsibility for future multi-level direct selling operations in Canada, with the Company continuing to sell certain goods at market prices and provide certain administrative and marketing support for a monthly fee. Consideration was received in the form of a note receivable totalling $740,495, which approximated the net book value of the assets sold. The note receivable bears interest at 8.25% per annum and is secured by liens on substantially all fixed assets, inventories, and accounts receivable of the Buyer. F-9 33 During the third quarter of fiscal 1998, the Company accepted preferred stock with a face amount of $2,190,000 and a note receivable with a face amount of $1,500,000 as consideration for its cancellation of a note receivable with outstanding principal and interest balances totalling $4,190,000. The cancelled note receivable, which bore interest at 8.5% per annum, originated in conjunction with an investor group's acquisition of substantially all assets of the Company's former manufacturing subsidiary, NSA Polymers, Inc. The Company obtained 4% cumulative non-voting preferred stock, redeemable at varying rates through 2005 based on certain criteria, including the Company's level of purchases, and obtained a note receivable bearing interest at 9% per annum and secured by certain inventories, receivables, and machinery and equipment of the investor group's company. The net book value, after consideration of amounts previously reserved as uncollectible, of the cancelled note receivable is considered to approximate the fair value of consideration received; therefore, no significant gain or loss resulted therefrom. Principal payments on notes receivable and redemptions on preferred stock relating to the above and prior dispositions are scheduled to be received as follows: 1999 $ 414,000 2000 434,798 2001 478,206 2002 445,906 2003 235,490 Thereafter 3,373,544 ----------- Total 5,381,944 Less: Allowance for uncollectible items (2,363,641) Deferred gain (525,000) Short-term notes receivable (414,000) ----------- Long-term notes receivable and preferred stock $ 2,079,303 ===========
Based on their rates of interest, security, and other characteristics, and after consideration of the recorded allowance for uncollectible items, management believes the recorded values of the notes receivable approximate their fair values. 4. INCOME TAXES The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company's foreign subsidiaries file separate returns in the respective countries of domicile. The components by region of loss before income taxes are as follows:
1998 1997 199 U.S. $(1,908,547) $(2,226,036) $ (208,892) Foreign (2,512,908) (7,605,492) (10,603,593) ----------- ----------- ------------ Total $(4,421,455) $(9,831,528) $(10,812,485) =========== =========== ============
F-10 34 The components of the income tax benefit are as follows:
1998 1997 1996 Current: Federal $ 22,000 $ (62,000) Foreign $265,000 (32,000) -------- -------- --------- Total 265,000 22,000 (94,000) Deferred - foreign 197,000 -------- -------- --------- Total $265,000 $ 22,000 $ 103,000 ======== ======== =========
A reconciliation of the Company's actual income taxes for the years ended April 30, 1998, 1997, and 1996 to that obtained by applying the U.S. federal statutory income tax rate against pre-tax income is as follows:
1998 1997 1996 Federal income tax benefit, at U.S. federal statutory rate $ 1,503,000 $ 3,342,720 $ 3,676,000 Effect of unused net operating losses (1,238,000) (3,265,867) (3,579,000) Other differences (54,853) 6,000 ----------- ----------- ----------- Income tax benefit $ 265,000 $ 22,000 $ 103,000 =========== =========== ===========
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's deferred taxes as of April 30, 1998 and 1997 are as follows:
1998 1997 Deferred tax assets: Reserves not currently deductible $ 826,000 $ 1,280,000 Uniform capitalization of inventory 54,000 69,000 Operating loss carryforwards 3,842,000 884,000 ----------- ----------- Total 4,722,000 2,233,000 Valuation allowance (4,707,000) (2,201,000) ----------- ----------- Total deferred tax asset 15,000 32,000 Deferred tax liabilities - net foreign currency translation gain 15,000 32,000 ----------- ----------- Net deferred tax asset (liability) $ NIL $ NIL =========== ===========
The Company has net operating loss carryforwards totalling approximately $10,977,000 which are available for future reductions of income taxes in the United States and which expire in 2017. The Company also has substantial net operating loss carryforwards available in various other countries. However, due to the sale of certain operating assets and operating rights as discussed in Note 3, management does not expect to be able to utilize the remaining foreign net operating loss carryforwards. Giving effect to this expectation, the Company now considers only operating loss carryforwards of the United States to qualify for deferred tax asset recognition. This change had the effect of reducing each of the deferred tax asset and the related offsetting valuation allowance by approximately $5,750,000 as of April 30, 1997. F-11 35 The valuation allowance of $4,707,000 and $2,201,000 in 1998 and 1997, respectively, has been provided because it is more likely than not that a substantial portion of the deferred tax assets will not be realized. The valuation allowance increased by $2,506,000 in 1998 and decreased by $4,825,000 in 1997. 5. LEASES The Company leases office and warehouse space in the U.K. under two noncancellable operating leases expiring in 2013 and 2016. In October 1995, the Company abandoned the locations and signed a sublease agreement with an unrelated party for one of the locations. The other location is subleased on a month-to-month basis. A loss of approximately $1,000,000, representing the excess of future rent expense over estimated sublease income discounted at 8%, was recognized in the second quarter of fiscal 1996. The Company is currently leasing warehouse and office space under numerous other non-cancelable operating leases. Lease terms generally range from one to twenty-five years with options to renew at varying terms. Rent expense under operating leases totalled approximately $1,386,928, $1,770,351, and $1,684,153 for the years ended April 30, 1998, 1997, and 1996, respectively. In 1998 and 1997, the Company received sublease rentals of $757,623 and $52,859, respectively. The future minimum lease payments and related sublease payments receivable under these agreements are as follows:
Minimum Sublease Lease Payments Year Ending April 30 Payments Receivable 1999 $ 1,315,752 $ 657,375 2000 1,090,801 513,031 2001 529,644 200,496 2002 529,644 200,496 2003 529,644 200,496 Thereafter 6,585,458 4,646,070 ----------- ---------- Total $10,580,942 $6,417,964 =========== ==========
6. EMPLOYEE BENEFITS PLAN The Company's domestic subsidiaries participate in NSA, Inc.'s defined contribution plan to provide full-time employees, with a minimum of 1,000 hours of service and who are employed at year-end, with additional income upon retirement or termination. The Company may elect to make annual contributions to the plan equal to a discretionary percentage of the participant's annual salary, to the extent the participant's salary does not exceed $150,000, as defined. The Company made no contributions to the plan during 1998, 1997, and 1996. F-12 36 7. TRANSACTIONS WITH NSA, INC. At April 30, 1998 NSA, Inc. owns 2,336,180 shares of the Company. Four of the shareholders of NSA, Inc. also serve as directors of the Company. The Company sells nutritional supplement products, air treatment systems, in-home beverage appliances, and certain water filtration product components to NSA, Inc. The Company purchases certain water filtration products and certain related accessory products from NSA, Inc. The Company is party to licensing and management agreements with NSA, Inc. that provide for fees payable to NSA, Inc. equal to a percentage of sales and/or allocation of certain costs incurred by NSA, Inc. in providing management and administrative services. Costs incurred by NSA, Inc. in providing management and administrative services include general management, financial reporting, benefits administration, insurance, information-systems, and other miscellaneous services. These allocations are based primarily on the percentage of sales of each company to total sales of both. Management believes that these allocations were made on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had the Company operated on a stand-alone basis. Management has not made a study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. NSA, Inc. has also provided funding on a payable upon demand and non-interest bearing basis for equipment purchases and working capital. NSA, Inc. also guarantees the terms and obligations of the Company's two U.K. operating leases which are discussed in Note 5. The annual rental payments total approximately $500,000, excluding the sublease rentals. On July 9, 1996, the Board of Directors of NSA, Inc. made a $7,910,520 capital contribution to the Company in the form of forgiveness of amounts due from certain direct selling subsidiaries of NSA International. 8. GEOGRAPHIC SEGMENT DATA AND MAJOR CUSTOMERS Financial information, summarized by geographic area, is as follows:
Year Ended April 30, 1998 United States Canada/Mexico Europe Eliminations Consolidated Total revenues: Unaffiliated customers $ 2,404,900 $ 11,870,395 $14,275,295 Sales to NSA, Inc. 8,773,047 8,773,047 Interarea sales 984,165 $ (984,165) ------------ ------------ ------------ ----------- Total $ 12,162,112 $ 11,870,395 $ (984,165) $23,048,342 ============ ============ ============ =========== Loss before income taxes $ 1,908,547 $ (53,390) $ 2,566,298 $ 4,421,455 ============ =========== ============ =========== Identifiable assets $ 23,562,802 $ 2,137,318 $ 8,120,646 $(15,978,003) $17,842,763 ============ =========== ============ ============ =========== Corporate assets 31,576 ----------- Total assets $17,874,339 =========== Depreciation and amortization expense $ 32,875 $ 232,695 $ 265,570 ============ ============ =========== Capital expenditures $ 3,567 $ 73,520 $ 77,087 ============ ============ ===========
F-13 37
Year Ended April 30, 1997 United States Canada/Mexico Europe Eliminations Consolidated Total revenues: Unaffiliated customers $ 5,406,373 $ 21,339,226 $ 26,745,599 Sales to NSA, Inc. 9,361,712 9,361,712 Interarea sales 2,126,976 $ (2,126,976) ------------ ------------ ------------- ------------ Total $ 16,895,061 $ 21,339,226 $ (2,126,976) $ 36,107,311 ============ ============ ============= ============ Loss before income taxes $ (2,226,036) $ 105,165 $ (7,710,657) $ (9,831,528) ============ ============= ============ ============ Identifiable assets $ 24,846,365 $ 2,746,729 $ 9,295,773 $ (14,809,078) $ 22,079,789 ============ ============= ============ ============= ============ Corporate assets 284,716 ------------ Total assets $ 22,364,505 ============ Depreciation and amortization expense $ 91,241 $ 471,200 $ 562,441 ============ ============ ============ Capital expenditures $ 2,169 $ 37,662 $ 39,831 ============ ============ ============
Year Ended April 30, 1996 United States Canada/Mexico Europe Eliminations Consolidated Total revenues: Unaffiliated customers $ 3,459,376 $ 4,805,151 $ 53,297,775 $ 61,562,302 Sales to NSA, Inc. 11,588,030 11,588,030 Interarea sales 3,455,008 $ (3,455,008) ------------ ----------- ------------ ------------ ------------ Total $ 18,502,414 $ 4,805,151 $ 53,297,775 $ (3,455,008) $ 73,150,332 ============ =========== ============ ============ ============ Loss before income taxes $ (208,892) $ 14,902 $(10,618,495) $(10,812,485) ============ =========== ============ ============ Identifiable assets $ 21,238,400 $ 2,174,434 $ 17,442,971 $ (9,807,542) $ 31,048,263 ============ =========== ============ ============ Corporate assets 225,728 ------------ Total assets $ 31,273,991 ============ Depreciation and amortization expense $ 134,714 $ 56,981 $ 785,319 $ 977,014 ============ =========== ============ ============ Capital expenditures $ 27,815 $ 505,126 $ 532,941 =========== ============ ============
In addition to NSA, Inc., the Company had one major customer in 1998, accounting for 17% of the Company's total revenue. Another major customer accounted for 10% of the Company's total revenue in 1997. 9. LITIGATION, COMMITMENTS, AND OTHER CONTINGENCIES The Company is party to various claims and matters of litigation that arise in the normal course of business. Management believes the resolution of these matters will not have a material adverse effect on the results of operation or the financial condition of the Company. The Company has an employment contract with certain officers. Remaining minimum commitments under the agreements total approximately $395,000 at April 30, 1998. The Company has an unused $5,000,000 line of credit at prime which expires August 31, 1998. F-14 38 10. RESTRUCTURING CHARGES During the first quarter of 1997, the Company announced its decision to close its European headquarters. Accordingly, a restructuring charge totalling $3,000,000 was reflected during the first quarter of fiscal 1997. As of April 30, 1997, the restructuring reserve was fully utilized as follows: $475,000 to writedown fixed assets to net realizable value; $1,125,000 to write-off certain sales materials which are obsolete as a result of the restructuring; $425,000 to recognize costs associated with early terminations of leases; $500,000 to recognize termination costs of certain employees; and $475,000 for salary and other shutdown expenses related to the restructuring. 11. STOCK OPTION PLAN On February 18, 1997, the Board of Directors of the Company approved the adoption of the NSA International, Inc. 1997 Incentive and Non-Qualified Stock Option Plan (the "Plan"). Under the terms of the Plan, options on up to 500,000 shares of the Company's common stock may be issued to eligible officers, directors, and key employees of the Company and its subsidiaries, as well as advisors and consultants thereto. Vesting provisions, exercise price, and duration of the options shall be as determined by the Plan committee, which will consist of at least two directors of the Company; in no event, however, will the exercise price be below fair market value of the Company's common stock at the date of grant, nor will the duration of the options exceed ten years from date of grant. No stock options may be issued under the Plan after the expiration of ten years from the date the Plan becomes effective, and in no event after November 30, 2007. Options on 250,000 of the Company's shares have been issued under the Plan as of April 30, 1998. No compensation expense resulted from the issuance of the options as their exercise price equaled the quoted market price of the Company's stock on the date of grant. These options are not potentially dilutive securities, as the Company has an arrangement with NSA, Inc. pursuant to which NSA, Inc. will sell shares to the Company at the option exercise price. 12. QUARTERLY RESULTS (UNAUDITED)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year ended April 30, 1998: Total revenues $ 6,546,608 $ 5,543,726 $ 5,237,708 $ 5,720,300 Gross margin 1,905,327 1,287,286 1,651,160 1,186,810 Net loss (487,081) (947,749) (632,309) (2,089,316) Basic loss per common share (0.10) (0.20) (0.13) (0.44)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year ended April 30, 1997: Total revenues $ 13,609,726 $ 9,441,997 $ 7,433,358 $ 5,622,230 Gross margin 7,645,498 4,400,138 2,523,467 2,326,710 Net loss (4,507,001) (854,312) (1,440,409) (3,007,806) Basic loss per common share (0.93) (0.17) (0.30) (0.62)
SIGNIFICANT FOURTH QUARTER ADJUSTMENTS - During the fourth quarters of fiscal 1998 and 1997, the Company wrote down the value of certain notes receivable by $1,000,000 and $2,000,000, respectively, to reflect the estimated collectible amounts. These writedowns were reflected as operating expenses in the accompanying financial statements. 13. SUBSEQUENT EVENT Effective May 31, 1998, the Company closed its offices in France. These operations had total revenues of less than $400,000 during the year ended April 30, 1998, and costs incurred relating to the closure were not significant. ******* F-15 39 SCHEDULE II NSA INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED APRIL 30, 1998, 1997, AND 1996 - --------------------------------------------------------------------------------
Charged to Charged Balance at Sales or to Other Balance 1998 Beginning Expenses Accounts Deductions at End Allowance for doubtful accounts $ 80,000 $ 80,000 Allowance for uncollectible notes receivable $2,000,000 1,000,000 $(636,359) 2,363,641 Accrued sales returns 368,611 48,870 (357,443) 60,038 1997 Allowance for doubtful accounts 95,880 (11,770) (84,110) Allowance for uncollectible notes receivable 2,000,000 2,000,000 Accrued sales returns 1,196,142 (10,454) (817,077) 368,611 1996 Allowance for doubtful accounts 745,145 (113,928) (535,337) 95,880 Accrued sales returns 1,785,608 32,447 (621,913) 1,196,142
(1) Accounts written off during the period. (2) Actual sales returns during the period consisted of:
Sales Inventory Commissions Net Sales Returns Returned Charged Back Returns 1998 $ (765,610) $ 17,706 $ 390,461 $(357,443) 1997 (1,919,213) 123,337 978,799 (817,077) 1996 (2,188,681) 450,541 1,116,227 (621,913)
F-16 EX-10.2 2 MANUFACTURING AGREEMENT 1 EXHIBIT 10.2 MANUFACTURING AGREEMENT THIS MANUFACTURING AGREEMENT dated September 1, 1997, is made by and among NSA POLYMERS, INC., a Florida corporation having a place of business at 1000 Sand Pond Road, Lake Mary, Florida 32746 and NSA INTERNATIONAL, INC., a Tennessee corporation having a place of business at 4260 East Raines Road, Memphis, Tennessee 38118 on the one hand (collectively the "Buyer") and POLYMERS, INC., a Florida corporation (hereafter referred to as "Polymers") having a place of business of 1000 Sand Pond Road, Lake Mary, Florida on the other hand. W I T N E S S E T H: WHEREAS, Buyer owns and controls technology and other assets required for the manufacture, marketing and sale of certain sparkling water systems, certain air filtration systems, and certain water filtration systems; WHEREAS, Buyer presently has no manufacturing facility of its own; WHEREAS, Buyer has determined that it is in the best interest of Buyer to close its manufacturing facilities and to contract with Polymers for the manufacturing and production of certain of its products; WHEREAS, Polymers wishes to manufacture certain of the products of Buyer for and on behalf of Buyer; WHEREAS, the Buyer has an existing inventory of Raw Materials which it desires to sell to Polymers; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: PART I. INTRODUCTION SECTION 1. DEFINITIONS 1.1 "Affiliate has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. 1.2 "Agreement" shall mean this document, including its Exhibits and Purchase Orders issued hereunder. 1.3 "Days" shall mean calendar days unless otherwise specified hereunder. 1.4 "Delivery" shall mean the delivery of Units in accordance with Section 9 hereof. 1.5 "OEM Business" means all sales made by Polymers to entities or individuals other than NSA International, Inc., or any of its affiliates. 1.6 "Purchase Price" shall mean the purchase price of the Units as set forth on EXHIBIT A. 1.7 "Raw Materials" means the Buyer's existing inventory of raw materials and component parts described on EXHIBIT B, which is attached hereto and incorporated herein by this reference. 1.8 "Section," "Sub-Section," and/or "Exhibits" shall mean Sections, Sub-Sections and/or Exhibits of this Agreement. 2 1.9 "Technical Information" shall mean any information, whether confidential or otherwise, which is applicable to or useful in the demonstration, testing, use, operation, maintenance, manufacture or repair of Units, including, by way of example only, engineering drawings, electrical or electronic schematics, specifications, equipment and parts lists, test procedures, and operating, maintenance, and repair procedures and instructions. 1.10 "Unit(s)" shall mean each individual product listed on EXHIBIT A and all future modifications, replacement parts or components thereto. The term "replacement parts," as used above shall be deemed to include, without limitation, replacement filters, but shall exclude the HEPA filter. PART II. PERFORMANCE SECTION 2. UNIT ORDERS 2.1 Purchase Order(s). The actual authorization to perform work under this Agreement will be given by Buyer in the form of a Purchase Order executed by the Authorized Purchasing Agent as communicated to Polymers by Buyer. Buyer will issue Purchase Orders to Polymers for Units required. Polymers shall deliver Units to the Buyer within thirty (30) days after receipt of a Purchase Order, subject to customary raw material and component part lead-in times and subject to the maximum production capacity of existing molds. Such Purchase Order(s) shall set forth a quantity of Units which Buyer requires from Polymers. The Purchase Order is the authorization by Buyer to order materials, allocate labor or equipment, or enter into any other commitments for the assembly of the Unit(s). Buyer shall not be liable for any costs incurred by Polymers in its anticipation of quantities in excess of the quantities set forth in the Purchase Orders or in performing work in excess of that authorized by Buyer in such Purchase Orders. Furthermore, Polymers shall fulfill such requests only when a valid Buyer purchase order number has been issued by Buyer. SECTION 3. DESCRIPTION OF WORK 3.1 During the term of this Agreement, Polymers agrees to manufacture and sell to Buyer and Buyer agrees to buy its and its Affiliates entire requirements of the Units from Polymers upon the terms and conditions set forth in this Agreement. In the event that Polymers is unable for any reason, including production capacity of molds, to produce a Unit or Units in sufficient volume to satisfy the Buyer's requirements for such Units and is unable to cure such inability within thirty (30) days plus reasonable mold development and applicable raw material lead-in times, Buyer shall have the option to utilize another manufacturer to manufacture the Units required in excess of Polymers production capacity if Polymers is unable or unwilling to within a reasonable period of time to subcontract out the manufacturing of any Units required in excess of Polymers production capacity. Polymers and Buyer shall discuss and agree upon mutually acceptable minimum amounts of Units to be purchased hereunder from time to time during the term hereof. 3.2 The Units to be purchased under this Agreement are specifically detailed and described in EXHIBIT A, which is attached hereto and incorporated herein by reference. In the event the provisions of Section 17 hereof are satisfied, such new product shall be added to EXHIBIT A, and shall become a "Unit" as such term is used in this Agreement. 3.3 Polymers shall produce the Units in accordance with Section 6. 3.4 Polymers shall conduct in-process inspections, final inspection and perform functional testing as needed to insure that the quality control levels specified pursuant to Section 6 are satisfied. 3.5 Polymers shall package the Units in accordance with the Buyer packaging specifications and drawings. 3 SECTION 4. PRICE 4.1 The prices to be paid by Buyer for the Units are as described in Exhibit A. 4.2 Polymers agrees and acknowledges to take all customary reasonable steps to maintain manufacturing costs at levels consistent with or below such costs as of the date of this Agreement. Buyer acknowledges that the prices set forth in EXHIBIT A as of the date hereof are reasonable. However, in the event that manufacturing costs increase as a result of increased labor costs, materials costs, rent, custom charges, state taxes, import or export fees, freight costs, or utility rates, Polymers shall provide Buyer documentation supporting such cost increases in a form reasonably satisfactory to Buyer. Upon Buyer's reasonable satisfaction and confirmation of the increased manufacturing costs, not to exceed thirty (30) days from Buyer's receipt of such documentation, the increased costs shall be "passed through" to Buyer on a per Unit basis to be determined by Buyer and Polymers, with such increase to reflect a direct pass through of such increased manufacturing costs. For the purpose of this Section 4.2, manufacturing costs shall be examined on six (6) month intervals, with the first such examination to occur on August 1, 1995. 4.3 In the event manufacturing costs decrease, Polymers shall inform Buyer of such decrease and shall negotiate with the Buyer, in good faith, a reduction in the Purchase Price of each Unit. The decreased costs shall be "passed through" to Buyer on a per Unit basis to be determined by Buyer and Polymers, with such decrease to reflect a direct pass through of such decreased manufacturing costs. For the purposes of this Section 4.3, manufacturing costs shall be reviewed on six (6) month intervals with the first such examination to occur on August 1, 1995. 4.4 All prices are expressed and all payments shall be made in U.S. Dollar currency. SECTION 5. ORDERING 5.1 Buyer shall issue Purchase Order(s) for delivery of Units in accordance with the delivery schedules set forth in EXHIBIT A, which is attached hereto and incorporated herein by this reference. Units will be delivered within thirty (30) days after receipt of a Purchase Order and subject to customary lead-in times which occur as a result of raw material or component part ordering and the maximum production capacity of existing molds. In the event that such lead-in times change, the delivery schedule set forth in EXHIBIT A, shall automatically, without required action by either party, be modified to indicate the change in such lead-in times. 5.2 Buyer shall not be responsible for work performed, material purchased or other commitments or expenses incurred by Polymers other than as stated in the Purchase Order provided by Buyer, unless otherwise agreed to in writing by both parties. SECTION 6. MANUFACTURING 6.1 Polymers shall provide all parts, labor, and materials necessary to perform Polymers' obligations. 6.2 Polymers shall manufacture each Unit to meet an outgoing quality level which is in accordance with the specifications historically maintained by NSA Polymers, Inc. which will be attached hereto as EXHIBIT A. It is agreed and acknowledged by the parties hereto that current specifications are not reduced to writing at the time of this Agreement and will be developed jointly by the parties. Upon completion of the specifications, they will be attached hereto as EXHIBIT A and become a part of this Agreement as if they had been attached at the date hereof. Until such time as such specification are attached hereto, Polymers shall manufacture the Units to maintain quality control levels consistent to those which have been historically maintained by NSA Polymers, Inc., on a per Unit basis. 6.3 Buyer may review Polymers' performance of the work under this Agreement including development, fabrication and tests of the Units, the design of the tools used to produce them, and their operation. 4 6.4 To review the work, Buyer may visit the sites where Polymers performs it. Buyer shall visit the sites during normal business hours, with reasonable notice to Polymers. 6.5 Polymers shall notify Buyer promptly of any errors found in drawings and specifications for any new products manufactured for Buyer in accordance with the provisions of Section 17. SECTION 7. PACKAGING 7.1 Packaging shall conform to the existing drawings and specifications and any future drawings and specifications of Buyer provided that Buyer pays any expenses and costs associated with changes to its packaging. Polymers shall be responsible for procurement of materials, any testing required and obtaining Buyer's approval of packaging. 7.2 All labeling and packing lists containing the purchase order number, Unit part numbers and quantity shipped shall accompany each shipment. SECTION 8. WARRANTIES 8.1 Polymers warrants that Units delivered to Buyer by Polymers hereunder shall conform in every respect to all specifications described in Section 6.2 or on EXHIBIT A and be free from defects in material and workmanship under normal use and operation for a period of two (2) years from the date of initial shipment to Buyer, and, provided, further, that with respect to replaceable air filters, Polymers warrants that such replaceable filters delivered to Buyer by Polymers hereunder shall conform in every respect to all specifications described in Section 6.2 or on EXHIBIT A and be free from defects in material and workmanship for a period of twelve (12) months from the date of initial shipment to Buyer. After a period of two (2) years from the date hereof, Polymers and Buyer shall negotiate, in good faith, a new warranty period for each Unit, such warranty period not to be less than one (1) year. 8.2 In the event that a new product is added to the definition of "Unit" pursuant to the terms of Section 17, such new product will not fall within the terms and conditions of Section 8.1 and the parties will negotiate in good faith and reasonably agree on a warranty for such new products which is acceptable to both parties. 8.3 During the warranty periods set forth herein, Polymers shall, at Polymers' option, either replace or repair Units manufactured in breach of the warranties contained herein, with Units which conform to the specifications which are part of this Agreement and in force at the time the defective Units were originally delivered. In the case of replacement, Polymers shall deliver to Buyer replacement Units within sixty (60) days from the date Polymers receives the defective Units from Buyer. 8.4 If the Units are returned to Polymers for a suspected breach of warranty, Buyer shall bear the shipping costs of returning the Units to Polymers. If the returned Unit(s) are in breach of Polymers' warranty then Polymers shall pay the costs of shipping repaired or replaced Units back to Buyer's designated destination. If the returned Unit(s) are not in breach of Polymers' warranty, Buyer shall bear the cost of shipping the returned Unit(s) back to Buyer's designated destination. 8.5 Polymers shall not be responsible and shall have no liability for any design or specification defect in products produced for the Buyer or arising out of defects of tooling, molds or other equipment provided by the Buyer to Polymers unless such defect is the result of Polymers failure to maintain the molds, tooling, or equipment in accordance with the terms of this Agreement. 8.6 Polymers sole obligation in the event of a breach of the warranties contained in this Section 8 is to repair or replace at Polymers' option any defective product and to indemnify and hold harmless the Buyer from any liability, loss, damages, costs and expenses (including, without limitation, any court costs and attorneys' fees, both at trial and on appeal) incurred by reason defects in violation of Polymers' warranty. 5 8.7 THE WARRANTIES DESCRIBED IN THE FOREGOING SECTION 8 ARE THE SOLE WARRANTIES OF POLYMERS AND POLYMERS HAS NOT MADE, AND HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES REGARDING FITNESS FOR A PARTICULAR PURPOSE OR A PARTICULAR USE. SECTION 9. DELIVERY 9.1 Polymers shall deliver Units to Buyer F.O.B. Buyer's warehouse at 1050 Sand Pond Road, Lake Mary Florida 32746. In the event Buyer's warehouse is no longer leased by either Buyer or Polymers, delivery shall be F.O.B. Polymers' dock. It is the responsibility of Polymers to schedule production and delivery of all Units ordered under this Agreement by the scheduled delivery date contained in the Buyer Purchase Order subject to the other provisions in this Agreement. SECTION 10. TITLE 10.1 The risk of loss and title to the Units shall pass to Buyer upon delivery to Buyer's warehouse in Lake Mary, Florida. SECTION 11. ACCEPTANCE OR REJECTIONS 11.1 Polymers shall provide and maintain an inspection procedure and quality assurance program for Units and their production processes. This procedure shall permit Polymers to meet the level of quality described in Section 6.3. Inspection records maintained by Polymers, including gauge inspection, tool inspection, and equipment calibration, shall be made available to Buyer, at a reasonable time, upon request. 11.2 Buyer may inspect and test all Units prior to acceptance or rejection, and may refuse to accept Units which do not conform to the specifications in this Agreement. All Units shall be subject to preliminary and final inspection by Buyer. If, after thirty (30) working days from Delivery of Units, Buyer has not notified Polymers of rejection, the Units shall be deemed to be accepted by Buyer. In the event that Units are delivered to Buyer's European subsidiaries, Buyer shall have thirty (30) working days from delivery of the goods to such European subsidiaries' warehouse to give notice of rejection to Polymers. The act of payment for Units shall not of itself signify Buyer's acceptance. 11.3 If Buyer rejects any Units, Polymers shall, at Polymers' discretion, repair, adjust, replace or refund any monies paid for any Units which fail to meet the specifications set forth in this Agreement. 11.4 The rights granted to Buyer pursuant to this Section 11 are in addition to and shall not be construed as a limitation upon the Warranties given by Polymers to the Buyer in Section 8 of this Agreement. SECTION 12. PAYMENT 12.1 Buyer will not pay Polymers for Units or charges for Units unless the Units are produced, and the charges were incurred to fill an authorized Purchase Order previously submitted to Polymers by Buyer. 12.2 Polymers shall submit invoice(s) to Buyer upon shipment of Units. Invoice(s) shall be sent to: NSA International, Inc. 4180 Pilot Drive Memphis, Tennessee 38118 Attention: Joy Lewis 12.3 Terms of payment shall be as follows: Invoices received between the 1st and 15th of any month will be paid by Buyer on the last business day of such month. Invoices received between the 16th and the end of 6 any month will be paid by Buyer prior to the 15th day of the next month. Any amounts owed for Units purchased hereunder which are not paid when due shall bear interest at a rate of ten percent (10%) per annum. 12.4 The following information is required to be clearly stated on the invoice: Buyer Purchase Order Number Quantity Terms of Payment Unit Price 12.5 The payments described in this Section 12, fully compensate Polymers for all work performed under this Agreement. 12.6 The Buyer shall pay to Polymers any sales or use tax which may be assessed on any sale of the Units, and any freight, transit, handling and insurance costs of the Units. Said payment shall be made at the time of payment of the invoices for the Units who sale gives rise to such costs and taxes. 12.7 Cost of any services other than manufacturing which Buyer requests Polymers to perform including without limitation, marketing, research and development, engineering, testing and obtaining certifications from Underwriters Laboratories for any product, shall be born by the Buyer and shall only be performed if a mutually acceptable written work order establishing the price for, and scope of, such services is signed by the Buyer and Polymers. SECTION 13. UNIT REPAIR POLYMERS SHALL REPAIR OR REPLACE THE DEFECTIVE UNITS WHICH DO NOT MEET THE SPECIFICATION REQUIREMENTS OR ARE OTHERWISE DEFECTIVE, AND RETURN THEM TO THE ADDRESS SPECIFIED BY BUYER. PART III. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY SECTION 14. CONFIDENTIAL INFORMATION 14.1 Polymers agrees and acknowledges that as a result of this Agreement, it shall receive and have access to information, including, without limitation, information regarding the Unit specifications, costs of manufacture, and pricing, and information regarding the customers of the Buyer, which is proprietary to and a trade secret of Buyer and which is governed by this Section 14.1. Buyer agrees and acknowledges that all financial information received from Polymers, all costs of manufacture and pricing of products which Polymers produces, and the identity of customers and all information regarding customers of Polymers shall be considered confidential information, which is proprietary to and a trade secret of Polymers and which is governed by this Section 14.1. Polymers covenants and warrants to Buyer that Polymers shall not, and Buyer covenants and warrants to Polymers that Buyer shall not, disclose or divulge confidential information except to the extent: (a) required by law, (b) to protect its interests in any dispute or litigation, (c) necessary to perform its obligations under this Manufacturing Agreement, or (d) if such information becomes publicly available without breach of this Section 14.1. 14.2 The parties hereby acknowledge that breach of the covenants contained in Section 14.1 will cause irreparable harm to the party whose trade secret or confidential information is disclosed. Notwithstanding any other provision of this Agreement, the parties may enforce the above-described covenants and warranties by injunction, both preliminary and permanent, it being agreed that the posting of an injunction bond of no more that $5,000 shall be sufficient to indemnify the parties against costs of damages which might be incurred by virtue of any temporary injunction. Nothing herein shall be construed as prohibiting any party from pursuing any other legal or equitable remedy available due to the breach of the provisions of this Section 14. 7 14.3 Nothing in this Section 14 shall be interpreted or construed in any manner which prevents Buyer from having its products produced by any third party manufacturer in the event that this Agreement is terminated for any reason or such manufacture does not violate the terms of this Agreement. SECTION 15. INTELLECTUAL PROPERTY 15.1 The Buyer warrants and represents to Polymers that the Units produced pursuant to this Agreement will not be a violation of, or infringement on, any trademark, patent, trade secret or other proprietary right of any third party. 15.2 Polymers will promptly advise Buyer if it, and Buyer will promptly advise Polymers if it, develops a reasonable basis for believing that the delivered material and/or items may violate any intellectual property rights of a third party. 15.3 Buyer agrees to notify Polymers promptly in writing of any such claim. 15.4 Buyer hereby warrants that it has the right to manufacture or have manufactured the Units that are the subject of this Agreement. 15.5 Polymers acknowledges Buyer's exclusive ownership of the trademarks affixed to and any patents embodied in the Units and will do nothing at any time, during or after the term of this Agreement, which could adversely affect their validity or enforceability, including any modification or obliteration of the trademark or patent markings on the Units as sold. This Agreement shall not give Polymers any right to use the NSA name and marks, or any other trademarks of Buyer, except as specifically authorized by Buyer. Promptly following the termination of this Agreement for any reason, Polymers agrees to discontinue use of the NSA marks, and any other Buyer names and trademarks and to remove, or dispose of, as Buyer shall direct, any signs or other indicia relating to Buyer's name and trademarks to Buyer and further to return any molds belonging to Buyer. Following termination of the Agreement, Polymers shall not be permitted to use the NSA name or marks or any other Buyer name or trademark in connection with any product. Polymers shall not have any right to register any trademarks identical with or similar Buyer's trademarks. All use of Buyer's trademarks by Polymers in connection with this Agreement shall be subject to Buyer's control and shall inure to the benefit of Buyer. 15.6 The Buyer hereby licenses during the terms of this Agreement to Polymers the use of the NSA trademark and NSA patents and other intellectual property rights solely for Polymers' use in the manufacture and sale of products to the Buyer. Any and all improvements, modifications, inventions or discoveries by Buyer or its employees relating to the Units shall be the sole and exclusive property of Buyer. All discoveries, improvements, inventions or modifications relating to the Units made by Polymers shall be the sole and exclusive property of Polymers, provided, however, that Polymers hereby grants to Buyer an irrevocable, non-exclusive, world-wide, royalty-free license to manufacture or have manufactured and to sell to end consumers such improvements, inventions, or modifications. 15.7 The Buyer will, at its cost, during the term of this Agreement, provide the following to Polymers at the manufacturing facility of Polymers located at 1000 Sand Pond Road, Lake Mary, Florida or any future manufacturing facility of Polymers; (i) molds for all Units to be manufactured and sold under this Agreement; (ii) tooling for all Units to manufactured and sold under this Agreement; (iii) assembling and testing apparatus and equipment for the Units to manufactured and sold under this Agreement. Polymers shall have possession of the tooling, testing equipment, assembly equipment and molds owned by Buyer listed on SCHEDULE 15.6 which is attached hereto. Polymers acknowledges that these molds are the property of Buyer and will hold such molds in trust for the benefit of Buyer and use such molds only pursuant to the terms of this Agreement. Polymers shall be responsible for any and all routine maintenance required to be performed on the molds consisting of cleaning, lubrication, and any other customary routine maintenance required to be performed on the molds. In the event that a mold is damaged as a result the misuse of the mold or Polymers' failure to properly maintain such mold. Polymers shall repair or replace such mold at no cost to Buyer. If a mold is damaged as a result of ordinary wear 8 and tear that could not be prevented by routine maintenance, Polymers shall have no obligation to repair or replace the mold. PART IV. NEW PRODUCTS SECTION 16. NEW PRODUCTS 16.1 During the term of this Agreement, in the event the Buyer identifies a potential product in Polymers' area of expertise (hereinafter defined) not yet in existence which the Buyer feels that could be desirable or profitable then the Buyer will provide in writing to Polymers its price, manufacturing and other requirements with respect to that product (the "New Idea Notice"). Polymers shall have sixty (60) days after delivery to it of the New Idea Notice to elect to manufacture the potential product under the terms of the New Idea Notice or other terms to which the parties are mutually agreed with such election made by Polymers only by written election delivered to the Buyer within the above-described sixty (60) day period. In the event of such election, the parties shall mutually agree upon designs and specifications which shall be attached hereto as a part of EXHIBIT A and that product shall thereafter be considered a Unit, as such term is defined in this Agreement. 16.2 During the term of this Agreement and to the extent not prohibited by applicable patent or other law or any applicable agreement, Buyer hereby grants to Polymers a right of first refusal to manufacture (i) new air and water filter products which are not set forth on EXHIBIT A, (ii) new products similar in nature to those products set forth on EXHIBIT A, and (iii) all other products within the following areas: plastic product manufacturing and assembly, plastic molding, manufacture and assembly of fragrance products, chemical sales and manufacture, and sparkling water product manufacture and assembly (hereinafter all of the foregoing shall be considered collectively "Polymers Area of Expertise" and each such product shall be a "New Product." Provided, however, that nothing in this right of first refusal shall be construed or interpreted in any way to prevent the Buyer from obtaining competitive bids from third party manufacturers to produce any New Product. 16.3 In the event Buyer wishes to manufacture a New Product, after obtaining competitive bids on the New Product from third party manufacturers Buyer shall provide a written notice (the "New Product Notice") to Polymers. The New Product Notice will contain design and product specifications and all price, manufacturing, delivery and other material terms agreed to or offered in writing by any third party manufacturer who has offered to manufacture that New Product for Buyer. Polymers shall have a period of sixty (60) days from the date upon which the New Product Notice is received to determine whether or not to exercise its right of first refusal. If Polymers exercises its right of first refusal, it must have the ability to produce the New Product in quality, quantity, and at costs competitive with those specified in New Product Notice. If Polymers does not exercise its right of first refusal, Buyer shall have the right to have the New Product produced by a third party manufacturer on the terms specified in the New Product Notice. If Buyer is unable to have the New Product manufactured upon the terms set forth in the New Product Notice, Buyer shall be required to resubmit and New Product Notice to Polymers and Polymers shall have an additional thirty (30) days from the date of resubmittal to exercise its right of first refusal. 16.4 If Polymer is granted the right to produce any new products for Buyer pursuant to Sections 17.1 or 17.2, such new products shall be listed EXHIBIT A, and shall fall within the definition of a Unit subject to the terms of this Agreement. 16.5 During the term of this Agreement, if Polymers develops a new product, other than products developed under contract for third parties, Buyer shall have the right of first refusal to purchase such product. Polymers shall submit a product description and term sheet to Buyer. Buyer shall have sixty (60) days during which to determine whether or not it desires to purchase such product from Polymers. If Buyer agrees to purchase such product, it will be added to EXHIBIT A and become a Unit hereunder. If Buyer does not agree to purchase the product as provided herein, Polymers shall not offer such product at a lower price to any individual or entity unless it first offers such product to Buyer at such lower price. 9 SECTION 17. RAW MATERIALS 17.1 Buyer shall sell to Polymers and Polymers shall purchase from Buyer the entire requirements of Raw Materials from Buyer's now existing inventory which Polymers shall require for use in Polymers' business from the date hereof until such time as Buyer's existing inventory of Raw Materials is depleted. Buyer is not required to sell Raw Materials in excess of Polymers' own requirements. 17.2 The price for the Raw Materials shall be Buyer's invoice cost. The Raw Materials will be sold and billed to the Polymers F.O.B. Buyer's warehouse. 17.3 Polymers shall pay the purchase price to Seller in the following manner: invoices received by the Polymers between the 1st and 15th of any month will be paid no later than the last business day of the month in which such invoices were received. Invoices received between the 16th and the end of a month shall be paid no later than the 15th of the next month. In the event any amounts due under this paragraph are unpaid when due, they shall bear interest at a rate of ten percent (10%) per annum. 17.4 THE RAW MATERIALS ARE BEING SOLD AS IS AND SELLER DOES NOT WARRANT THAT THE RAW MATERIALS ARE MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE. HOWEVER, POLYMERS SHALL HAVE THE RIGHT TO REJECT ANY RAW MATERIALS WHICH ARE DEFECTIVE, IN THE REASONABLE OPINION OF POLYMERS NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY. PART V. TERM AND TERMINATION SECTION 18. TERM OF THE AGREEMENT 18.1 The term of this Agreement shall commence on September 1, 1997 and shall expire on August 31, 2002, provided that Buyer shall have the option to renew this Agreement for five additional periods of one year each. Buyer shall provide Polymers one hundred eighty (180) days notice of its intention to exercise the extension option. 18.2 Either Buyer or Polymers may end this Agreement at any time without further obligation to the other party pursuant to Section 20, "CANCELLATION FOR DEFAULT." SECTION 19. CANCELLATION FOR DEFAULT 19.1 Upon the Buyer delivering to Polymers written notice specifying the nature of Polymers' default and the expiration of ninety (90) days following that delivery of that notice of default without Polymers curing that default then, and only then, shall Buyer have the right to terminate or cancel this Manufacturing Agreement. A "default" with respect to Polymers, shall mean that Polymers: (a) Becomes insolvent or has a petition in bankruptcy, reorganization or similar action filed by or against it; (b) Is unable to produce the Units in sufficient volume as required by this Agreement or maintain the quality control levels specified pursuant to Section 6 of this Agreement. (c) Has all or a substantial portion of its capital stock or assets expropriated or attached by any government entity; (d) Is dissolved or liquidated or has a petition for dissolution or liquidation filed with respect to it; 10 (e) Is subject to property attachment, court injunction, or court order materially affecting its operations under this Agreement; or (f) Materially breaches any representation, warranty, covenant or other agreement contained in that certain Asset Purchase Agreement by and among NSA Polymers, Inc., NSA International, Inc. and Polymers dated of even date herewith or any document which is an exhibit thereto or defaults in the payment of any amounts owed to NSA Polymers, Inc. as a result of such Asset Purchase Agreement or any document which is an exhibit thereto. 19.2 Upon Polymers delivering to Buyer written notice specifying the nature of Buyer's default and the expiration of ninety (90) days following that delivery of that notice of default without Buyer curing that default then and only then shall Buyer have the right to terminate or cancel this Manufacturing Agreement. A default with respect to Buyer shall mean that NSA International, Inc.: (a) Becomes insolvent or has a petition in bankruptcy, reorganization or similar action filed by or against it; (b) Has all or a substantial portion of its capital stock or assets expropriated or attached by any government entity; (c) Is dissolved or liquidated or has a petition for dissolution or liquidation filed with respect to it; (d) Is subject to property attachment, court injunction, or court order materially affecting its operations under this Agreement; or (e) Fails to pay any amount due pursuant to the terms of this Agreement, provided, however that if Buyer is in good faith contesting any amount owed to Polymers as a result of this Agreement through appropriate proceedings, such failure to pay shall not be considered an event of default under this Agreement; 19.3 In the event of a default and the lapse of any applicable cure period, the non-defaulting party may agree to continue the Agreement rather than cancelling it. To do so, that party shall send a notice to the defaulting party specifying the conditions under which the non-defaulting party will agree to continue the Agreement. By agreeing to continue the Agreement in this manner, the non-defaulting party does not waive its right to later cancel the Agreement for default based on the event of default that is the subject of the notice. 19.4 If Polymers cancels this Agreement for default by Buyer, Buyer shall pay Polymers all payments for work completed, if it was in response to a Purchase Order, on the effective date of cancellation. In the event of such a cancellation, Polymers shall have the right to offset, against payments due pursuant to those certain promissory notes between Polymers and the Buyer in the principal amounts of $500,000 and $4,000,000 the amounts of liquidated damages, calculated in accordance with the provisions of Section 16 which are due from the Buyer to Polymers, on the dates that such liquidated damages accrue pursuant to the terms of Section 16. 19.5 If Buyer cancels this Agreement for default by Polymers Buyer shall pay Polymers the Purchase Price for all Units and work completed in accordance with this Agreement. Additionally, Buyer shall pay to Polymers, Buyer's actual costs for any raw materials or components ordered in response to a purchase order or work-in-process. Polymers shall deliver to Buyer all documents, information, and work in process produced in performance of this Agreement. In the event that Buyer cancels this Agreement for default by Polymers, Buyer shall have no obligation to pay any amounts of liquidated damages to Polymers, other than those liquidated damages which have accrued prior to the date upon which this Agreement is terminated. SECTION 20. CANCELLATION OF PURCHASE ORDERS 20.1 Buyer may cancel Purchase Order(s) or any portions thereof for any reason by notifying Polymers in writing fifteen (15) days prior to the scheduled delivery date. Cancellation shall be effective upon Polymers 11 receipt of the written cancellation notice from Buyer, or thereafter upon the date specified in such cancellation notice. Polymers shall cease operation on subject Purchase Orders in accordance with the cancellation notice and shall make every reasonable effort to cancel commitments for, resale of or divert materials and/or work-in-process (with the exception of the case such resale or diversion infringes Buyer's rights under this Agreement). 20.2 In the event of a cancellation of a Purchase Order under this Section, Buyer will pay Polymers the Purchase Price for completed Units and shall reimburse Polymers for its actual costs for raw materials, components, and work-in-process as a result of the cancelled purchase order. Polymers will deliver to Buyer all completed Units and work-in-process procured on account of the cancelled Purchase Order(s). SECTION 21. EXCUSABLE DELAYS 21.1 Neither party shall be in default or liable to the other for any failure to perform directly caused by events beyond that party's reasonable control, such as acts of nature, labor strikes, war, insurrections, riots, acts of governments, embargoes and unusually severe weather provided the effected party notifies the other party within ten (10) days of the occurrence. Such an event is an Excusable Delay. THE PARTY EFFECTED BY AN EXCUSABLE DELAY SHALL TAKE ALL REASONABLE STEPS TO PERFORM DESPITE THE DELAY. If the party is unable to perform within a reasonable period, this Agreement shall end without any further obligation of the unaffected party. SECTION 22. RETURN OF MATERIALS AND RIGHT OF ENTRY 22.1 Unless otherwise notified by Buyer, within one month of the date of expiration, termination or cancellation of this Agreement, upon payment of all amounts owed to Polymers other than any liquidated damages accruing in the future, Polymers shall return to Buyer all materials containing Buyer Confidential Information or Technical Information, documents produced in the performance of this Agreement, work-in-process, molds, parts, tools and test equipment paid for, owned or supplied by Buyer at Buyer's expense. 22.2 In the event of termination of this Agreement by either party, upon payment of all amounts owed to Polymers other than any liquidated damages accruing in the future, Buyer shall have the immediate right to enter Polymers premises and take possession of all Buyer owned tooling or property, to file a security interest in such tooling or property or to invoke any other legal or equitable remedy available to protect its interest in the tooling or property. PART VI. LIABILITY AND INSURANCE SECTION 23. LIENS, CLAIMS, AND ENCUMBRANCES 23.1 Polymers shall deliver Units, free and clear of all Liens, Claims, or Encumbrances. SECTION 24. LIABILITY FOR ACTS OF EMPLOYEES 24.1 Each party is solely responsible for the acts of its employees and agents, including any negligent acts. Each party shall hold harmless, defend and indemnify the other against all claims based on acts of its employees or agents. 24.2 Polymers shall maintain comprehensive general liability insurance for claims for damages because of bodily injury or death and property damage caused by or arising out of acts or omissions of its employees. Polymers shall not cancel the insurance without notifying Buyer in writing in advance. 12 SECTION 25. INSURANCE 25.1 Polymers will, at Polymers' expense, maintain product liability insurance in such amounts, against such risks, in such form as historically maintained by NSA Polymers, Inc. 25.2 Each such policy shall (a) name Buyer and Polymers as additional insured parties thereunder (without any representation or warranty by or obligation upon Buyer) (b) and provide that at least thirty (30) days prior written notice of cancellation, amendment, or of lapse shall be given to Buyer by the insurer. 25.3 Polymers will deliver to Buyer original or duplicate policies of such insurance, or satisfactory certificates of insurance. SECTION 26. RELATIONSHIPS WITH EMPLOYEES 26.1 Neither party's employees shall be considered employees or agents of the other party. Each party shall be solely responsible for paying, supervising, and directing the manner of work of its employees. PART VII. GENERAL SECTION 27. NONEXCLUSIVE AGREEMENT 27.1 This Agreement does not preclude either party from entering similar agreements with others, or from developing, manufacturing, buying or selling any product or service, except to the extent that the terms and conditions of this Agreement would indicate otherwise. SECTION 28. AMENDMENTS TO THE AGREEMENT 28.1 This Agreement may only be changed or supplemented by a written amendment, signed by authorized representatives of each party. SECTION 29. ASSIGNMENT OR DELEGATION 29.1 Neither party may assign its rights or delegate its obligations under this Agreement without the prior written approval of the other party. Any attempted assignment or delegation without such an approval shall be void. Provided, however, that Buyer may assign this Agreement to NSA International, Inc. or any subsidiary thereof, without being released from its obligations hereunder. SECTION 30. GOVERNING LAW 30.1 This Agreement shall be governed by the laws of the State of Florida. SECTION 31. FORUM 31.1 All disputes arising under or in connection with this Agreement shall be determined by actions filed in the courts within the State of Florida. SECTION 32. SEVERABILITY 32.1 If any provision of this Agreement is held to be illegal, invalid or unenforceable, the remaining provisions shall not be affected. 13 SECTION 33. EFFECT OF TITLE AND HEADINGS 33.1 The title of the Agreement and the headings of its Sections are included for convenience, and shall not affect the meaning of the Section. SECTION 34. NOTICE 34.1 All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:
If to the Seller: Copy to: NSA Polymers, Inc. G. Robert Morris, Esq. 4260 East Raines Road Baker, Donelson, Bearman & Caldwell Memphis, Tennessee 38115 165 Madison Avenue, Suite 2000 Attention: Charles R. Evans, Jr. Memphis, Tennessee 38103 If to the Buyer: Copy to: Polymers, Inc. Robert S. MacDonald, Esq. 1000 Sand Pond Road Subin, Shams, Rosenbluth, Moran Lake Mary, Florida 32746 Losey & Brennan, P.A. Attention: J. Rushton Bailey 111 North Orange Avenue, Suite 900 Orlando, Florida 32801
SECTION 35. WAIVER 35.1 Failure of either party to insist in any strict conformance to any term herein, or in Purchase Orders issued hereunder or failure by either party to act in the event of a breach or default shall not be construed as a consent to or waiver of that breach or default or any subsequent breach or default of the same or any other term contained herein. SECTION 36. INDEMNITY 36.1 Indemnification of Polymers by Buyer. Buyer shall indemnify, defend, and hold harmless, Polymers, its officers, directors, shareholders and agents against and in respect of, any and all claims, losses, expenses, costs, obligations, and liabilities, including reasonable attorney fees, incurred by Polymers as a result of any injury to or death of any person, or damage to property caused by any design defect or product specification in any Unit manufactured pursuant to this Agreement or in tooling, molds or other equipment provided by Buyer, provided, however, that Buyer shall not be required to indemnify Polymers for any liability incurred by Polymers as a result of its failure to maintain such tooling, molds, or other equipment as provided in this Agreement or Polymers improper use or operation of such tooling, molds, or other equipment. 36.2 Notice to Buyer; Opportunity to Defend. Polymers agrees to give prompt notice to Buyer of the assertion of any claim, or the commencement of any suit, regulatory investigation, action or proceeding in respect of which indemnity may be sought under PARAGRAPH 38.1. Buyer may participate in, or at its election assume the defense of any such suit, action or proceeding at Buyer's expense. Buyer shall not be liable under PARAGRAPH 38.1 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, which consent shall not be unreasonably withheld. 14 36.3 Indemnification of Buyer by Polymers. Polymers shall indemnify, defend, and hold harmless, the Buyer, its officers, directors, shareholders and agents against and in respect of, any and all claims, losses, expenses, costs, obligations, and liabilities, including reasonable attorney fees, incurred by Buyer as a result of (a) any injury to or death of any person, or damage to property caused by a Unit manufactured in breach of Polymers' Warranties contained in Section 8 or resulting from an individual's use of any Unit manufactured in breach of Polymers' Warranties in Section 8, or (b) the actual withdrawal and recall costs and expenses and any incidental and consequential damages incurred by Buyer due to Polymer's manufacture of the Units in breach of its Warranties contained in Section 8 or if a recall of Units manufactured in breach of Section 8 is ordered by a court of competent jurisdiction or governmental agency. 36.4 Notice to Polymers; Opportunity to Defend. Buyer agrees to give prompt notice to Polymers of the assertion of any claim, or the commencement of any suit, regulatory investigation, action or proceeding in respect of which indemnity may be sought under PARAGRAPH 38.3). Polymers may participate in, or at its election assume the defense of any such suit, action or proceeding at Polymers' expense. Polymers shall not be liable under PARAGRAPH 38.1 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, which consent shall not be unreasonably withheld. SECTION 37. AGENCY 37.1 Nothing contained herein shall be deemed to authorize or empower Polymers or its Subsidiaries to act as an agent for Buyer or to conduct business in the name of Buyer. SECTION 38. SURVIVAL OF TERMS 38.1 All obligations and duties that by thus nature survive the expiration, cancellation, or termination of this Agreement shall remain in effect after expiration, cancellation or termination, including Section 8 (Warranties), 13 (Unit Repair Section), 14 (Confidential Information), and 15 (Intellectual Property) and shall bind the parties and their legal representatives, successors and assigns. SECTION 39. COMPLETE AGREEMENT 39.1 This Agreement including its Exhibits and Purchase Orders issued under it is the complete statement of the parties' agreement, and supersedes all previous and contemporaneous written and oral communication about its subject. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. NSA POLYMERS, INC. By: ---------------------------------------- Title: ------------------------------------- NSA INTERNATIONAL, INC. By: ---------------------------------------- Title: ------------------------------------- POLYMERS, INC. By: ---------------------------------------- Title: ------------------------------------- EX-10.21 3 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.21 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th day of September, 1997, by and between NSA POLYMERS, INC., a Florida corporation ("NSA"), and POLYMERS, INC., a Florida corporation ("Polymers"). NSA and Polymers occasionally are collectively referred to herein as the "parties," and individually as a "party." W I T N E S S E T H: WHEREAS, Polymers is the maker of that certain promissory note dated February 1, 1994, payable to NSA in the original principal amount of Four Million Dollars ($4,000,000) (the "Original Note"); WHEREAS, the current outstanding balance of principal and interest under the Original Note is Four Million One Hundred Ninety Thousand Dollars ($4,190,000); WHEREAS, Polymers desires to restructure the indebtedness owed to NSA as evidenced by the Original Note and to obtain a working capital revolving line of credit from United American Bank ("UAB"), or another third party lender satisfactory to Polymers and NSA; WHEREAS, NSA has agreed to restructure such indebtedness owed by Polymers, subject, however, to the consummation of the above-described financing arrangement between Polymers and UAB or such other third party; WHEREAS, pursuant to the debt restructuring, Polymers has agreed to issue, and NSA has agreed to accept, shares of Polymers' preferred stock in exchange for the cancellation of a portion of the indebtedness evidenced by the Original Note and the execution by Polymers of a revised, replacement promissory note in the original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) (the "Polymers Note"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Preferred Stock. Polymer shall adopt and file with the Secretary of State of Florida on or before the Closing (as hereinafter defined) Amended and Restated Articles of Incorporation in the form attached hereto as EXHIBIT A (the "Amended Articles"). Subject to the terms and conditions of this Agreement, NSA agrees to purchase,and the Company agrees to sell and issue to NSA at the Closing 2,190,000 shares of Polymers' preferred stock (the "Preferred Stock") having the rights, preferences, privileges and designations set forth in the Amended Articles. NSA shall purchase, and Polymers shall sell, such Preferred Stock at a price of One Dollar ($1.00) per share, such amount to be paid by NSA by the exchange of $2,190,000 of the aggregate outstanding indebtedness owed by Polymers to NSA as evidenced by the Original Note. 1.2 Closing. The purchase and sale of the Preferred Stock shall be consummated at such time and location as NSA and Polymers shall mutually agree in writing (which time and location are designated as the "Closing"); provided, however, that the Closing shall not be later than December 1, 1997. At the Closing, Polymers shall deliver to NSA a certificate representing the Preferred Stock. 2. Representations and Warranties of Polymers. Polymers hereby represents and warrants to NSA that: 2.1 Organization; Good Standing; Qualifications. Polymers is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida, has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be 1 2 conducted, to execute and deliver this Agreement, to issue and sell the Preferred Stock (upon filing of the Amended Articles), and to carry out the provisions of this Agreement. Polymers is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business, properties, prospects or financial condition. 2.2 Authorization. All corporate action on the part of Polymers, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of Polymers hereunder, and the authorization, issuance, sale, and delivery of the Preferred Stock being sold hereunder has been taken or will be taken prior to the Closing, and this Agreement constitutes the valid and legally binding obligation of Polymers, enforceable in accordance with its terms. 2.3 Valid Issuance of Preferred Stock. The Preferred Stock, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully-paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer imposed under applicable state and federal securities laws. 2.4 Governmental/Third Party Consents. No consent, approval, qualification, order or authorization of, or filing with, any local, state or federal governmental authority or any third party is required on the part of Polymers in connection with Polymers' valid execution, delivery or performance of this Agreement, or the offer, sale or issuance of the Preferred Stock, except the filing of the Amended Articles with the Secretary of State of the State of Florida. 2.5 Capitalization. The authorized capital of Polymers will consist prior to the Closing of: (i) Preferred Stock. Two Million One Hundred Ninety Thousand (2,190,000) shares of preferred stock, without par value, all of which will be sold and issued pursuant to this Agreement. The rights, privileges, preferences and designations of the Preferred Stock will be as provided in the Amended Articles. (ii) Common Stock. 1,000,000 shares of common stock, no par value, of which three (3) shares are issued and outstanding. The issued and outstanding shares of common stock are owned by the shareholders in the amounts specified on SCHEDULE 2.5(II) hereto. (iii) There are not outstanding any options, warrants, rights (including conversion or preemptive rights and rights of first refusal) or agreements for the purchase or acquisition from Polymers of any shares of its capital stock. Polymers is not a party or subject to any agreement or understanding, and there is no agreement or understanding between any persons, that affects or relates to the voting or giving of written consents with respect to any security or the voting by a director of Polymers. 2.6 Subsidiaries. Polymers does not own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The company is not a participant in any joint venture, partnership, or other similar arrangement. 2.7 Financial Statements; Undisclosed Liabilities. Attached hereto as EXHIBIT B are the unaudited financial statements of Polymers as of August 31, 1997, as prepared by the Company (collectively the "Polymers Financial Statements"). The Polymers Financial Statements present fairly the financial condition of Polymers as of such date. As of the date of the Polymers Financial Statements, Polymers had no material liabilities (matured or unmatured, fixed or contingent) which are not fully reflected or provided for on the Polymers Financial Statements. 2.8 Events Subsequent to Polymers Financial Statements. Since the date of the Polymers Financial Statements, there has not been any Material Adverse Change in the business, financial condition, operations, results of operations, or future prospects of Polymers. "Material Adverse Change" means any occurrence or omission the 2 3 effect of which reduces the value of the assets of Polymers, or reduces the gross sales by Polymers, in an amount equal to or greater than ten percent (10%). 3. Representations and Warranties of NSA. NSA hereby represents and warrants to Polymers that: 3.1 Organization; Authorization. NSA is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida. NSA has full power and authority to enter into this Agreement, and, subject to approval by the Board of Directors of NSA, to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of NSA, subject, however, to approval by the Board of Directors of NSA. 3.2 Purchase for Own Account. The Preferred Stock will be acquired for investment for NSA's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. NSA has no present intention of selling or granting any participation in, or otherwise distributing, the Preferred Stock. NSA does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Preferred Stock. 3.3 Holder of Original Note. NSA currently is the holder of the Original Note, and NSA has not negotiated, assigned, sold, disposed of or otherwise transferred the Orginal Note. 4. Pre-Closing Covenants. The parties agree as follows with respect with the period between the execution of this Agreement and the Closing: 4.1 General. Each of the parties will use its best efforts to take all actions and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in SECTION 5 below). 4.2 Operation of Business. Except as contemplated pursuant to this Agreement, Polymers will not engage in any practice, take any action, or enter into any transaction outside its ordinary course of business consistent with past practice. Without limiting the generality of the foregoing, Polymers will not declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase or otherwise acquire any of its capital stock. 4.3 Preservation of Business. Polymers will keep its business properties substantially intact, including its present operations, physical facilities, working conditions and relationships with lessors, licensors, suppliers and employees. 4.4 Full Access. Polymers will permit representatives of NSA to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Polymers, to all premises, properties, personnel, books, records, contracts and documents of or pertaining to Polymers. 4.5 Notice of Developments. Polymers will give prompt written notice to NSA of any material adverse development causing a breach of any of the representations and warranties in SECTION 2 above or any of the covenants set forth in this SECTION 4. No disclosure pursuant to this SECTION 4.5, however, shall be deemed to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 5. Conditions Precedent to Obligation to Close. 5.1 Conditions to Obligation of NSA. The obligation of NSA to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: 3 4 (i) The representations and warranties of Polymers set forth in SECTION 2 shall be true and correct in all material respects at and as of the Closing; (ii) Polymers shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) Those certain shareholders of Polymers identified on SCHEDULE 2.5(II) hereto shall have made an additional capital contribution to Polymers of at least $200,000 in the aggregate; (iv) Polymers shall have delivered to NSA an officer's certificate to the effect that the conditions specified above in this SECTION 5.1(I)-(III) are satisfied in all respects; (v) Polymers shall have filed with the Secretary of State of the State of Florida the Amended Articles in the form attached hereto as EXHIBIT A, which Amended Articles shall be in effect at and as of the Closing; (vi) Polymers shall have consummated its financing from UAB, or such other third party lender satisfactory to NSA, to provide Polymers with a minimum $1,500,000 revolving line of credit to fund the working capital requirements of Polymers; (vii) The Board of Directors of NSA shall have approved this Agreement, as well as all transactions contemplated herein and hereby; and (viii) All actions to be taken by Polymers in connection with the consummation of the transactions contemplated herein and all certificates, opinions, and instruments, and other documents required to effect the transactions contemplated herein shall have been taken or executed and delivered, as applicable, and shall be satisfactory in form and substance to NSA. NSA may waive any conditions specified in this SECTION 5.1 in its sole discretion if it executes a writing so stating at or prior to the Closing. 5.2 Conditions to Obligation of Polymers. The obligation of Polymers to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) The representations and warranties of NSA set forth in SECTION 3 above shall be true and correct in all material respects at and as of the Closing; (ii) NSA shall have conformed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) NSA shall have delivered to Polymers a certificate to the effect that the condition specified above in this SECTION 5.2(I) is satisfied in all respects; (iv) All actions to be taken by NSA in connection with the consummation of the transactions contemplated herein and all certificates, instruments and other documents required to effect the transactions contemplated herein shall have been taken or executed and delivered, as applicable, and shall bereasonably satisfactory in form and substance to Polymers. Polymers may waive any conditions specified in this SECTION 5.2 if it executes a writing so stating at or prior to the Closing. 4 5 6. Deliveries at Closing. 6.1 Deliveries by Polymers. At the Closing, Polymers shall deliver the following instruments and documents to NSA: (i) The Polymers Note in the form attached hereto as EXHIBIT C in the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000); (ii) The Amended and Restated Security Agreement in the form attached hereto as EXHIBIT D; (iii) The stock certificate representing 2,190,000 shares of the Preferred Stock of Polymers; (iv) A copy of the "Filed-stamped" Amended Articles as filed with the Secretary of State of the State of Florida; (v) Evidence of the consummation of the bank financing described in SECTION 5.1(V) above; (vi) An opinion of Polymers' counsel in a form reasonably satisfactory to NSA and its legal counsel; (vii) The certificate described in SECTION 5.1(IV) above; (viii) Such UCC-1 and UCC-3 financing statements as may be reasonably requested by NSA; and (ix) Such other documents as NSA may reasonably request to effect the transactions contemplated by this Agreement. 6.2 Deliveries by NSA. At the Closing, NSA shall deliver the following instruments and documents to Polymers: (i) The certificate described in SECTION 5.2(III) above; (ii) Such certificates, instruments or documents set forth in SECTION 6.1 above that require execution by NSA; and (iii) Such other documents as Polymers may reasonably request to effect the transactions contemplated by this Agreement. 7. Termination. 7.1 Termination of Agreement. This Agreement may be terminated by the parties as provided below: (i) NSA and Polymers may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) NSA may terminate this Agreement by giving written notice to Polymers at any time prior to Closing if the Closing shall not have occurred on or before December 1, 1997, by reason of the failure of any condition precedent under SECTION 5.1 hereof (unless the failure results primarily from NSA itself breaching any representation, warranty, or covenant contained in this Agreement); and (iii) Polymers may terminate this Agreement by giving written notice to NSA at any time prior to the Closing if the Closing shall not have occurred on or before December 1, 1997 by reason of the failure 5 6 of any condition precedent under SECTION 5.2 hereof (unless the failure results primarily from Polymers itself breaching any representation, warranty, or covenant contained in this agreement). 7.2 Effect of Termination. If any party terminates this agreement pursuant to SECTION 7.1 above, all rights and obligations of the parties hereunder shall terminate without any liability of any party to any other party (except for any liability of the party then in breach). 8. Idemnification. 8.1 Survival of Representations and Warranties. All of the representations and warranties of Polymers contained in this Agreement shall survive the Closing for a term of two (2) years. The representations and warranties of NSA contained in this Agreement shall not survive the Closing. 8.2 General Indemnification Provisions for Benefit of NSA. In the event Polymers breaches any of its representations, warranties, and covenants contained herein, then Polymers shall indemnify NSA from and against the entirety of any loss, liability or expense NSA may suffer through and after the date of claim for indemnification (including any loss, liability or expense NSA may suffer after the end of the applicable survival period) resulting from, arising out of, relating to, in the nature of or caused by the breach. 9. Miscellaneous. 9.1 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties and their respective successors and permitted assigns. 9.2 Entire Agreement. This Agreement (specifically including all documents referred to herein) constitutes the entire agreement between the parties and supersedes any prior understandings, agreements, or representations by or between the parties, written or oral, to the extent they related in any way to the subject matter hereof. 9.3 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other party. 9.4 Relationship between the Parties. This Agreement shall not create the relationship of principal and agent between the parties. NSA shall have no authority to make any commitment on behalf of Polymers and Polymers shall have no authority to make any commitment on behalf of NSA. 9.5 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 9.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 9.7 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: 6 7
If to the Seller: Copy to: Charles Evans G. Robert Morris, Esq. NSA Polymers, Inc. Baker, Donelson, Bearman & Caldwell, P.C. 4260 E. Raines Road 165 Madison Ave., Suite 2000 Memphis, Tennessee 38118 Memphis, Tennessee 38103 Fax: (901) 541-1335 Fax: (901) 577-2303 If to the Buyer: Copy to: J. Rushton Bailey Emery Rosenbluth Polymers, Inc. Subin, Rosenbluth, Losey, Brennan, 1000 Sand Pond Road Bittman & Moore Lake Mary, Florida 32746 Suite 900, 111 North Orange Ave. Fax: (407) 333-7317 Orlando, Florida 32802 Fax: (407) 648-0660
Any party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above, using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, facsimile, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it is actually received by the intended recipient. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder or to be delivered by giving the other party notice in the manner herein set forth. 9.8 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by NSA and Polymers. NSA may consent to any such amendment at any time prior to the Closing subject to authorization of its Board of Directors. No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 9.9 Severability. Any term or provision of this Agreement that is adjudged to be invalid or unenforceable by a court of competent shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 9.10 Expenses. NSA and Polymers will bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. 9.11 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. 9.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by this reference and made a part hereof. The parties agree and acknowledge that the Exhibits and Schedules will be prepared jointly by the parties. 7 8 9.13 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Florida without giving effect to any choice or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida. 9.14 Mediation. Should any dispute, controversy, difference or claim arise among the parties concerning the interpretation, performance or enforcement of this Agreement, the parties shall use their best efforts to settle such disputes amicably between themselves. However, if such efforts fail to resolve the dispute within thirty (30) days from the date written notice of the dispute was given by one party to the other party, the parties agree that such dispute will be submitted to mediation in accordance with the Commercial Mediation Rules of the American Mediation Association (the "Rules") before a panel of three (3) mediators appointed in accordance with the Rules (the "Mediation Panel"). The mediation will be held as promptly as possible at such time as the Mediation Panel may determine. * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NSA: NSA POLYMERS, INC. By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- POLYMERS: POLYMERS, INC. By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- 8 EX-21.1 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES NSA N.V. (Belgium) National Safety Associates, Ltd. (Ontario, Canada) National Safety Associates of America (U.K.) Limited (England) National Safety Associates of America (Ireland) Limited (Ireland) NSA International GmbH (Germany) NSA Polymers, Inc. (Florida) NSA Direktverkauf A.G. (Switzerland) NSA B.V. (The Netherlands) NSA S.A.R.L. (France) NSA s.r.1. (Italy) EX-27 5 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF NSA INTERNATIONAL, INC. FOR THE YEAR ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR APR-30-1998 APR-30-1998 1 2,121 1,509 3,158 80 6,588 14,193 1,978 1,382 17,874 12,864 0 0 0 234 3,646 17,864 22,213 835 17,018 19,643 8,691 1,080 0 (4,421) (265) (4,156) 0 0 0 (4,156) (.87) (.87)
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