ITEM 3 - PROPOSAL TO CONSIDER AND APPROVEAN OFFER BY THE COMPANY TO EXCHANGE ITS OUTSTANDING SHARES OF SERIES 1
PREFERRED STOCK FOR COMMON STOCK
THE COMPANY'S PROPOSAL TO AMEND ITS CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE SERIES 2 STOCK, AS DESCRIBED BELOW
IN ITEM 4 IS CONTINGENT UPON APPROVAL OF THIS ITEM 3. UNLESS BOTH
ITEMS ARE APPROVED, NEITHER THE EXCHANGE NOR THE SINKING FUND
CHANGES TO THE SERIES 2 CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS WILL OCCUR. THE COMPANY'S PURPOSE IN LINKING ITEMS 3
AND 4 IS TO AVOID A SITUATION WHERE THE COMPANY WOULD HAVE TO
CREATE A SINKING FUND FUNDED ANNUALLY WITH AN AMOUNT EQUAL TO
10% OF THE COMPANY'S PRIOR YEAR'S NET EARNINGS EVEN THOUGH
THERE MAY BE FEWER HOLDERS OF SERIES 2 STOCK PARTICIPATING IN THE
SINKING FUND THAN ORIGINALLY CONTEMPLATED.
General
As stockholders of the Company, you are being asked to approve the Company's proposed offer
to exchange the Series 1 Stock from its Series 1 Stockholders at the rate of two tenths (.2) share
of Common Stock for each share of Series 1 Stock tendered plus the Common Stock equivalent
of $1.00 as determined by computing the average closing price of the Common Stock on the
NASDAQ/NMS for the period from September 24, 1993 through October 7, 1993 ("Common
Stock Equivalent"). The closing price of the Company's Common Stock on September 21, 1993
was $11.00 per share.
Proposal
The Company is proposing to accelerate the conversion of Series 1 Stock into .2 share of
Common Stock from September 30, 1994 and to preclude the issuance of Series 2 Stock, which
could ultimately require redemption at the rate of $2.625 per share, at an uncertain date in the
future, in exchange for an offer to pay the Common Stock equivalent of $1.00.
Conversion of the Series 1 Stock at the rate of .2 share of Common Stock for each share of Series
1 Stock is presently included in the Company's earnings per share calculation. The incremental
$1.00 per share value of Common Stock has not been included, and, if approved, would dilute
earnings per share by 5.5%, assuming a share price of $10.00; however, the Company's
redemption obligation of $3,962,516 would be reduced proportionately by the number of Series
1 Shares tendered in response to the Company's offer.
Purpose of the Offer
The Board of Directors of the Company believes that it is in the best interest of the Company to
exchange the Series 1 Stock for Common Stock. Although such an exchange will have a short-
term dilutive effect on holders of Common Stock, it will minimize the need to make substantial
cash payments to Series 2 Stockholders in the future.
Back-ground
The capitalization of the Company includes Class B Preferred Stock, certain of which Stock is
designated as Series 1 . The relevant characteristics of the Series 1 Stock are as follows:
- Each share of Series 1 Stock is convertible into two-tenths (.2) share of Common Stock at
any time and from time to time, until September 30, 1994, at the option of the Series 1
Stockholder. Of the original shares of 1,664,581 Series 1 Stock issued in September 1989, 9% or
155,051 Shares have been converted or retired and 1,508,234 Shares remained outstanding at
May 31, 1993.
- The Series 1 Stock is redeemable at the Company's option prior to September 30, 1994 at
$2.625 per share in the event the closing bid price of the Common Stock is equal to or exceeds
$39.38 for thirty (30) consecutive trading days. The Company believes that this is unlikely prior'
to September 30, 1994.
- If prior to September 30, 1994 the Company has not redeemed all outstanding shares of
Series 1 Stock, or if stockholders have not elected to convert their Series 1 Stock into Common
Stock, on September 30, 1994, the holders of Series 1 Stock will receive in a recapitalization .2
share of Common Stock plus one (1) share of Class B Preferred Stock designated as Series 2.
The Series 2 Stock must then be redeemed by the Company from a sinking fund funded annually
at the rate of 10% of the Company's prior fiscal year's income.
- Assuming no further conversion between May 31, 1993 and September 30, 1994, the
1,508,234 Series 1 Shares outstanding on May 31, 1993 would then be converted into 301,647
shares of Common Stock. This conversion has been assumed in calculating the weighted average
Common Shares outstanding and Common Share equivalents used to determine earnings per
share for fiscal year 1993 and represents 11 % of the issued and outstanding shares of Common
Stock.
- The Series 2 Stock redemption obligation would then be 1,508,234 shares of Series 2
Stock at $2.625 per share for a cumulative redemption obligation of $3,959,114. During fiscal
year 1994 and thereafter, the Company would have to accumulate net income of $39,591,142 to
create a $3,959,114 sinking fund, which would represent a sufficient amount to redeem all of the
Series 2 Stock; however, the Company has no obligation to accumulate the aforementioned
amount nor does it have any obligation to redeem the Series 2 Stock unless the Company has
earned net income for the prior fiscal year and in the event the Company does not have sufficient
net income to allow for the redemption requirement, it is obligated only to redeem by lot. The
Company is not able to accurately predict how many years would be required to accumulate net
income of a magnitude sufficient to fully satisfy its redemption obligation. In the fiscal year
ended May 31, 1993, Alcide earned net income of $1,372,630.
Determination of Exchange Amount
The exchange amount of .2 per share of Common Stock plus the Common Stock Equivalent was
determined by the Company's Board of Directors based upon a variety of factors, including: the
present redemption rights of the Series 1 Stock; the present and historical price of the Company's
Common Stock; the financial condition of the Company; an assessment of the Company's
management; estimates of the Company's business potential; and the general condition of the
securities market. The Board of Directors holds an aggregate 500,295 shares of Series 1 Stock
representing 32.4% of the issued and outstanding shares of Series 1 Stock. Thomas L. Kempner,
the Chairman of the Board of Directors of the Company, holds 485,315 shares of Series 1 Stock
representing 31.5% of the issued and outstanding shares of Series 1 Stock either individually, as
managing partner, trustee, beneficiary or officer of entities which hold said Stock. Although, by
virtue of his significant ownership or control, Mr. Kempner has a direct and immediate beneficial
interest in the exchange offer contemplated by the Company, he participated in the decision to
approve the proposed offer solely in his capacity as a member of the Board and relied upon the
fairness opinion delivered to the Board by Carter Capital Corporation. In addition, the Company
has retained Carter Capital Corporation -of Stamford, Connecticut, an outside investment
banking firm experienced in securities and business valuations to render an opinion with respect
to the fairness of the redemption amount. A copy of the report is appended to this Proxy Report
as Exhibit 1. Carter Capital Corporation considered, among other things, the nature and history
of the Company's business, including its prospective sales, earnings and cash flow; the
Company's capacity to pay future dividends; the redemption payments of its Series 2 Class B
Preferred Stock; the historical stock market prices and trading volume of its Common Stock and
Series 1 Class B Preferred Stock; the value of the prospective Series 2 Class B Preferred Stock
redemption payments and the financial impact of the proposed offer to the Company's Common
Stockholders. Based on its analysis of the factors deemed relevant, it is Carter Capital
Corporation's opinion that the proposed offer by the Company is fair, from a financial point of
view, to its Common Stockholders and Series 1 Stockholders .
Transfer Fees
The Company will pay the initial transfer fees on behalf of Series 1 Stockholders who participate
in the Offer for one Common Stock certificate representing the redemption amount; however, if
more then one Common Stock certificate is requested, the Stockholder making such request will
be required to pay for any additional transfer fees.
Dilution
If all of the Series 1 Stock is exchanged in the Offer, each share of Common Stock will be
diluted by 5.5% in the short term; however, if it is assumed that future cash savings can be used
to purchase Common Shares on the open market, the exchange may be anti-dilutive in the long
term.
Ownership of Series 1 Stock by Officers and Directors
The directors of the Company hold Series 1 Stock in the amounts and percentages indicated on
page 2 of this Proxy Statement. All such persons have indicated an intention to tender such
Shares in response to the Offer.
Impact of the Offer
If 100 % of the shares of Series 1 Stock are tendered and the price of the Common Stock
averages $ 10.00 during the period September 24 through October 7, 1993, the Company's
balance sheet at September 30, 1994 will reflect the following:
- The Company's redemption liability will decrease by $3,959,114 to zero.
- Shareholders equity will increase by $3,959,114.
- The shares of Common Stock outstanding will increase by 452,270 shares.
- There will be no sinking fund.
- The number of shares outstanding and the earnings per share calculation of the Common
Stock will be diluted by 5.5%:
If 50% of the shares of Series 1 Stock are tendered, the Company's balance sheet at September
30, 1994 will reflect the following:
- The Company's redemption liability will decrease by $1,979,557 to $1,979,557.
- Shareholders equity will increase by $1,979,557.
- The Common Stock will increase by 226,135 shares.
- The sinking fund requirement will be reduced from its present 10% of prior year earnings to 5% of prior year earnings, a 50% reduction proportionate to the amount of shares
tendered.
- The number of shares outstanding and the earnings per share calculation of the Common Stock will be diluted by 2.7%.
Holders of a majority of shares of Common Stock and Series 1 Stock entitled to vote at the
Meeting must vote in favor of this Item 3. The Board recommends a vote FOR Item 3.
ITEM 4 - TO CONSIDER AND ACT ON A PROPOSAL
TO AMEND THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE SERIES 2
STOCK OF THE COMPANY
THE COMPANY'S OFFER TO EXCHANGE ITS SERIES 1 STOCK, AS DESCRIBED
IN ITEM 3 ABOVE IS CONTINGENT UPON APPROVAL OF THIS ITEM 4. UNLESS
BOTH ITEMS ARE APPROVED, NEITHER THE REDEMPTION NOR THE SINKING
FUND CHANGES TO THE SERIES 2 CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS WILL OCCUR.
General
Presently there is no Series 2 Stock outstanding; however, on September 30, 1994, holders of
Series 1 Stock must exchange such stock for Series 2 Stock and the number of shares of
Common Stock into which one share of Series 1 Stock could be converted immediately prior to
September 30, 1994. Among other rights and privileges of the Series 2 Stock, commencing
September 30, 1994 and annually thereafter, the Company is required to redeem the Series 2
Stock at a redemption price of $2.625 per share. On September 30, 1994 the Company must
create a sinking fund to be funded annually with an amount equal to 10% of the Company's
prior fiscal year's net earnings. By way of example, if the Company's net earnings for the fiscal
year ending May 31, 1994 are $1,372,630, the sinking fund requirement on September 30, 1994
would be $137,263. Currently, the number of shares of Series 2 Stock outstanding is not
relevant to the requirement that 10% of net earnings must be placed in the sinking fund account.
The Company is seeking approval from Series 1 Stockholders ONLY to amend the Series 2
Stock Certificate of Designations, Preferences and Rights to allow the sinking fund account to
adjust to the proportion of the Series 2 Stock outstanding, to be reduced by subsequent tenders
or conversions. Thus the net earnings available to redeem Series 2 Stock would be reduced by
the same proportion that the shares of Series 1 Stock are reduced by redemption pursuant to the
Offer. By way of example, if 50% of the shares of Series 1 Stock are tendered in 1994 and the
net earnings of the Company at May 31, 1994 are $1,372,630, $68,632 would be placed in a
sinking fund account to be used to partially redeem the remaining 754,117 shares at $2.625 per
share.
Purposes
The Board of Directors of the Company believes that for each share of Series 2 Stock redeemed
by the Company, there should be a reduction in the net earnings, which must be placed in the
sinking fund equal to that share's interest in the sinking fund. In this regard, assuming a
successful Offer in which the Company redeems a large portion of its Series 1 Stock, the
Company's net earnings can be directed toward working capital needs and expansion of the
Company's business. Those Series 1 Stockholders who choose not to participate in the Offer and
who exchanged their Series 1 for Series 2 Stock will be in the same position vis-avis their Series
2 redemption rights as they were prior to the redemption offer. See 'Item 3 Impact of the Offer."
Holders of two-thirds (2/3) of the Series 1 Stock outstanding must vote in favor of this Item 4.
The Board recommends a vote FOR Item 4.
Alcide Corporation
Proforma Balance Sheet
(5131/93 Assuming Series 1 Exchange Offer is
Approved and 100% of Shares are Tendered.)
May 31, 1993
Actual Preforms May 31, 1993
Adjustments as Adjusted
Assets $5,205,486 $ $5,205,486
Liabilities and Shareholders' Equity
Liabilities $ 830,989 $ 830,989
Commitments and Contingencies
Redeemable Series 1 Stock $3,771,682 (3,771,682) (a) -
Shareholders' Equity
Class A Preferred $135,307 - $135,307
Common Stock $23,876 4,525(a) $ 28,401
Treasury Stock (43,344) - (43,344)
Additional Paid in Capital $14,739,210 3,767,157 (a) $18,506,367
Deficit (14,252,234) (14,252,234)
Total Shareholders' Equity $602,815 3,771,682 $4,374,497
Total Liabilities and Shareholders Equity $5,205,486 $ - $5,205,486
Shares Outstanding Series 1 $1,508,234 $(1,508,234) -
Common $2,387,620 $452,270 $2,840,090
(a) 1,508,234 Series 1 Shares converted to Common Stock at a rate of .2 Common Shares for each Series 1
Share plus an additional $1.00 value in Common Stock, which at $10.00 per share is .1 shares of Common
Stock. 1,508,234 times .3 equals 452,470 shares of Common Stock. Par value is $.01 per share or $4,525.
ALCIDE CORPORATION
FAIRNESS OPINION REPORT
CARTER CAPITAL CORPORATION
6 LANDMARK SQUARE
STAMFORD, CONNECTICUT 06901
AUGUST 23, 1993
TABLE OF CONTENTS
FAIRNESS OPINION LETTER
INTRODUCTION------------------------------------------------ 1
ASSUMPTIONS AND LIMITATIONS---------------------- 3
THE COMPANY------------------------------------------------- 4.
THE PROPOSAL-------------------------------------------------9
THE SECURITIES----------------------------------------------11
VALUATION ANALYSIS------------------------------------13
APPENDIX
MEMBER CARTER CAPITAL CORPORATIONMICHAEL CARM
NASD 6 LANDMARK SQUARE, SUITE 400 MANAGING DIRECTOR
SIPC STAMFORD, CONNECTICUT 06901
August 2, 1993
Mr. Thomas L. Kempner
Chairman of the Board
Alcide Corporation
One Willard Road
Norwalk, CT 06851
Gentlemen: Carter Capital Corporation was retained by the Board of Directors of Alcide Corporation
("Alcide") to express an opinion with respect to fairness from a financial point of view to
Alcide's common stockholders and Series 1 Class B preferred stockholders of the proposed offer
to redeem the Series 1 Class B Preferred Stock at the rate of two tenths (.2) share of Alcide
Common Stock for each share of Series 1 Class B Preferred Stock tendered plus the Common
Stock equivalent of $1.00 as determined by computing the average closing price of the Alcide
Common Stock on the NASDAQ for the period from September 24, 1993 through October 7,
1993, (the "Proposed Offer") as of May 31, 1993 (the "Valuation Date").
Carter Capital Corporation is a regional investment banking firm founded in 1987, which raises
capital, provides merger and acquisition advisory services and values businesses and business
interests. Valuations are done for public and private companies, for purposes including mergers
and acquisitions, divestitures, fairness opinions, shareholder disputes, gift and estate taxes, and
divorces. These services are provided primarily to middle market companies based in southern
New England.
None of Carter Capital Corporation's employees has any present, past, prospective, direct or
indirect interest in any of the securities of Alcide.
In arriving at our opinion, we considered, among other things, the nature of the business, a
history of Alcide's business and operating results, the economic outlook in general, the outlook
for Alcide's business and industry, including its prospective sales, earnings and cash flow,
Alcide's capacity to pay future dividends and the redemption payments of its Series 2 Class B
Preferred Stock, the historical stock market prices and trading volume of its common stock and
Series 1 Class B preferred stock, the value of the prospective Series 2 Class B preferred stock
redemption payments and the financial impact of the Proposed Offer to Alcide's common
stockholders.
Specific documents relied upon in arriving at our opinion included a draft of Alcides 10-K report
for the fiscal year 1993, annual reports and 10-K reports for fiscal years 1992 and 1991,
Certificate of Designations, Preferences and Rights of the Class B Preferred Stock (Series 1) of
Alcide Corporation, Certificate of Designations, Preferences and Rights of the Class B Preferred
Stock (Series 2) of Alcide Corporation, Alcide financial projections, Proxy Statement, Alcide's
fiscal 1994 business plan, Alcide press releases between January, 1992 and July, 1993. NASD
reports summarizing trading activity of Common Stock and Series 1 Stock between January,
1992 and June, 1993, Hoards Dairyman Market Survey 1993, and Royalty and Consolidation
Agreements. In addition, we had various discussions with management, members of the board of
directors, corporate counsel and market makers, and toured the Norwalk facility.
In rendering this opinion, we have relied upon, without independent verification, upon the
accuracy and completeness of all financial and other information reviewed by us for purposes of
this opinion. With respect to the financial projections we examined, we have been advised by
Alcide senior management and we have assumed they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the management of Alcide.
In performing its analysis, Carter Capital Corporation made numerous assumptions with respect
to industry performance, general business and economic conditions and other and other matters,
many of which are beyond the control of Alcide. The analysis performed by Carter Capital
Corporation are not necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analysis. This opinion is based on the
information made available to us and the market, economic and other conditions as they existed
and were evaluated as of the date of this letter.Based on our analysis of the factors deemed relevant, it is our opinion as of the date hereof that
the Proposed Offer by Alcide is fair, from a financial point of view, to the Alcide common
stockholders and Series 1 Class B preferred stockholders at the Valuation Date.
Sincerely,
CARTER CAPITAL CORPORATION
cc: John P. Richards
Joseph A. Sasenick
INTRODUCTION
Description of AssignmentCarter Capital Corporation has been retained to conduct a valuation analysis of Alcide
Corporation's ("Alcide") Series 1 Class B Preferred Stock ("Series 1 Stock") and issue a fairness
opinion as of May 31, 1993 (the "Valuation Date") with respect to the purchase offer for any or
all of the outstanding shares of the Series 1 Stock by Alcide.
Description of Company
Alcide is engaged in the research, development and commercialization of chemical compounds
having microbiocidal activity. Although most of its present sales are from the dairy industry,
mastitis control for dairy farmers, Alcide's product development is focused on expanding
applications for its proprietary technology involving disinfectants and sterilants.
Capitalization and Ownership
The authorized capital of Alcide is 100,000,000 shares of $.01 par value Common Stock, 1,000
shares of no par value Class A Preferred Stock and 10,000,00.0 shares of $.01 par value Class B
Preferred Stock.
Common shares outstanding on the Valuation Date was 2,3 81,05 1.
The Class A Preferred Stock is non-voting with a stated value of $135,307 on the Valuation
Date, which receives preference in liquidation. Holders have the right to receive an annual
noncumulative dividend of 6% of the stated value amount, if a dividend is declared and paid on
the Common Stock. The stock is redeemable at anytime by Alcide.
The Class B Preferred Stock can be issued by the Board of Directors in one or more series and,
in connection with the creation of any such series, to fix or alter the dividend rights, dividend
rate, conversion rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price(s), liquidation preferences and the number and designation of shares
constituting any such series.
Series 1 Stock was designated as such from the Class B Preferred Stock. 1,664,581 shares of
Series 1 Stock were originally issued. On the valuation date 1,509,530 shares were outstanding.
Proposal
The Company is proposing to accelerate the conversion of Series 1 Stock into .2 shares of
Common Stock to preclude the issuance of Series 2 Stock, which requires redemption at the rate
of $2.625 per share, for a cumulative redemption obligation of $3,962,516 at an uncertain date in
the future, in exchange for an offer to pay the Common Stock equivalent of $1. 00, or an
additional. I share of Common Stock, based on current market price of Alcide common stock.
The Series 2 Stock is scheduled to be redeemed by Alcide with a sinking fund payment made
annually at the rate equal to 10% of Alcide’s prior fiscal years net income, if any. The
redemption proposal will be submitted for shareholder approval at Alcide's annual meeting
scheduled for October 7, 1993. (the "Proposed Offer")
Conclusion
Based on our analysis of the factors deemed relevant, it is our opinion that the Proposed Offer by
Alcide is fair, from a financial point of view, to the Alcide common stockholders and Series 1
Class B preferred stockholders at the Valuation Date.
ASSUMPTIONS AND LIMITATIONS
1. This analysis was done as of May 31, 1993, the Valuation Date. If circumstances change
that materially affect the outlook for Alcide and therefore its financial projections and security
prices, prior to the effective date of the Proposal Offer going into effect, the conclusions reached
in this opinion may be different.
2. This analysis assumed no further conversion of the Series 1 Stock between the Valuation
Date and September 30, 1994. If large conversions occur during this time frame the conclusions
reached in this opinion may be different.
3. Alcide will be subject to FASB 109 effective for its quarter ending August 31, 1993. The
fiscal year 1994 impact will be an increase in Assets of $5.1 million and a corresponding
increase in Net Worth. Projected income starting in FY-1994 will be taxed at the statutory rate
which is currently 43. 1%, which was computed by Deloitte Touche.
4. Carter Capital Corporation relied upon a draft of the Form 10-K report for the fiscal year
1993. It was assumed there will be no material changes to that report and the final report filed
with the Securities and Exchange Commission.
5. Carter Capital Corporation assumes that the financial forecast and projections prepared
by management were reasonably prepared on a biases reflecting the best currently available
estimates and judgments of the Alcide management.
6. Information, estimates, and opinions contained in this report are obtained from sources
considered reliable; however, no liability for such sources is assumed by Carter Capital
Corporation.
7. Alcide and its representatives warranted to Carter Capital Corporation that the
information supplied was complete and accurate to the best of their knowledge. Information
supplied by management has been accepted without further verification as correctly reflecting
Alcide's past results and current condition in accordance with general accounting principles,
unless otherwise noted.
8. Possession of this report, or a copy thereof, does not carry with it the right of publication
of all or part of it, nor may it be used for any purpose by anyone other than Alcide, without the
previous written consent of Carter Capital Corporation, in any event, only with proper
attribution.
9. Carter Capital Corporation is not required to give testimony in court, or be in attendance
during any hearings or depositions, with reference to Alcide, unless previous arrangements have
been made.
10. The fairness opinion is valid only for the Valuation Date or dates specified herein and
only for the purpose or purposes specified herein.
THE COMPANY
HistoryAlcide was founded in 1979 by Howard Aliger and Elliot Siff. It was formed to capitalize on a
patent, which covers an antimicrobial, lactic acid compound, producing a product which is fast-
acting, broad spectrum and safe in killing bacteria, fungi and viruses. Shortly thereafter, a limited
partnership was formed that raised $500,000 of seed capital from friends and business associates
of the founders. In 1981, the Loeb investment company indirectly invested $1,000,000, through a
second limited partnership. Alcide went public in June, 1983, raising $10,000,000 for
approximately 20% of the company. At that time sales were only from R&D activities. In 1987 a
rights offering was underwritten by Loeb Partners Corporation and Silberberg, Rosenthal & Co.
to existing shareholders, in which 1,664,581 shares of Series 1 Convertible Preferred Stock were
issued and Alcide received $3,643,337 in net proceeds. In 1991, new operating management was
hired by the Board of Directors. Alcide consolidated its R&D facility in Long Island with the
Norwalk headquarters in 1991.
Operations
Products
Dairy: The company's products are primarily sold to the dairy industry accounting for
approximately 92% of sales in fiscal year 1993. The product line includes: UDDERgold Teat
Dip, a product which prevents mastitis in dairy cattle, UDDERgold Pre Dip, silverQUICK Udder
Wash and 4XLA Teat Dip. 1993 fiscal year sales in this category were $5,974,742.
Health Care: Alcide markets a line of hard surface sterilants and disinfectants which kill
harmful micro-organisms and help reduce the potential for disease transmission via .
contaminated surfaces. 1993 fiscal year sales in this category were $371,333, or 6% of total
Alcide sales.
Automotive: Fiscal year 1993 sales of RenNew-A/C Air Conditioning System Disinfectant
were $125,332 or 2% of total Alcide sales.Alcide is developing new applications and products in the following areas: anti-infective oral
rinse, pre-surgical skin disinfectant, poultry disinfectant, contact lens disinfection system,
treatment of intrauterine infections and endometritis, and control of aquatic pathogens.
Sales
Alcide sells its dairy line Products in the United States, Canada, and Mexico, through an
exclusive distribution arrangement with American Breeders Service ("ABS"), a division of W.R.
Grace. Sales of dairy fine products by ABS accounted for approximately 71% of total sales in
fiscal year 1993. Alcide contributes an important portion of ABS's sales; it represents 15% of
ABS's revenues and even larger percentage of earnings. The ABS sales organization consists of
550 independent sales representatives in the United States that sell Alcide udder care products
and other ABS product lines directly to the dairy farmer. These representatives sell directly to the
dairyman, which covers 85% of the market. W.R. Grace recently announced they are considering
selling ABS.
According to the 1993 Hoards Dairyman, the primary source of purchase for Teat Dips or Sprays
were the following in 1992:
Milking machine dealer 42.7%
Direct to farm independent route man 27.0%
Fleet or dairy supply store 16.7%
Hauler or milk plant 14.9%
Feed Store or mill 6.6%
Mail order 2.0%
Veterinarian 5.8%
ABS is considered an independent route man. Most of Alcide's primary competitors utilize
milking machine dealers where they have an exclusive arrangement.
Alcide's international sales are made primarily to an exclusive distributor in a particular country.
Technology Alcide is currently the holder of seven U.S. patents covering various compositions and
applications of its proprietary technology. An eighth patent is approved and is expected to be
issued later in 1993. Foreign patents exist in certain countries. One additional patent was filed
during fiscal year 1993. Alcide's goal is to seek additional broader protection. Alcide has
vigorously defended its patent position.
Alcide has Royalty and Consolidation Agreements in effect, that obligates the company to pay
an 8% royalty on sales of products covered by certain patents. Royalty expense in
fiscal year 1993 was $433,060.
Suppliers
Various products include in their formulations chemical components available from few and in
some cases only one supplier. Most importantly, with respect to UNDERSOLD Teat Dip, a
product representing 7 1 % of sales, the product is presently formulated with polysulfonic acid, a
thickening agent available from only one source. However, formulation alternatives have been
developed for this ingredient and for the other single source materials.
ManufacturingManufacturing and packaging is done at Alcide's plant in Norwalk, Connecticut. Most of its
products are made, packaged and shipped from contract manufacturers, who have had solid
relations with Alcide. Most of the manufacturing involves mixing, filling, packaging, testing and
quality control. There is no reliance on any one subcontractor.
Competition
UNDERSOLD and 4XLA teat dips are part of the dairy hygiene market. The major specialty
chemical companies compete in this highly fragmented market. The major classes of products
sold in this market are iodophors and chlorhexidines
Market share statistics were from Hoards Dairyman's Market Survey 1993. The survey is
considered the most reliable one in the industry. The following is for teat dips and sprays in
1992:
Before Milking After Milking
Surge 24.8% 20.4%
Cleansed 11.5% 9.5%
EBA 10.6% 10.0%
DE Laval 10.1% 10.2%
ABS UDDERgold/4XLA 5.0% 8.6%
Bovadine/West Agro 9.6% 10.7%
ANTI 3.7% 2.9%
Diversey/Wyandotte 3.7% 2.4%
Monarch 1.4% 2.1%
Nolvasan 1.4% 4.8%
3M - 1.4%
Alcide is projecting an increase in its market share. It considers its product of superior quality
and prices its product with a slight premium to the market leaders.
Regulations
Alcide's products are regulated by the EPA- In addition to federal registration, state registration
is required in 48 states and Puerto Rico. California, in addition to EPA approval, requires a
thorough pesticide safety and efficacy review process in order to verify that a product provides
both a consumer benefit and is safe.
Alcide was recently notified by the U.S. Department of Health and Human Services that to the
degree its products are purchased to disinfect regulated medical devices, such products also
require FDA pre-market approval. Alcide is in the process of gathering test data necessary to
support the pre-market approval applications. Alcide does not expect a fine', but will need to
spend an estimated $100,000 on re-labeling certain products.
Alcide's fine of teat dips requires registration for sale in a number of international markets with
those countries equivalent of the U.S. FDA- UDDERgold has been registered in eight countries
and is legally sold without registration in four additional countries.
Employees and Management
Mr. Joseph Sasenick joined the company in February 1, 1991 and is presently the President and
Chief Executive Officer. Mr. Sasenick held top management positions at Abbott Laboratories,
where he was President of the Consumer Products Division and at The Gillette Company where
he started two businesses. Mr. Sasenick hired John Richards, formerly with Abbott, as Chief
Financial Officer; Dr. Kere Kemp, a veterinarian from Pfizer, as Director of Animal Health
Research and Development; and Tony Durazio, formerly, Cheseborough Ponds, who is in charge
of worldwide marketing.
The corporate office and production staff of 11 work in the facility in Norwalk, Connecticut. All
administrative, marketing and production staff operate in this facility. Alcide occasionally
engages the services of university professors and other qualified consultants to assist it in
technological research and development.
Ownership
The table below is as of June 1, 1993. It shows insider ownership of Alcide. In several cases the
individuals noted hold stock through related entities:
No. of Shares Percentage
Common Series 1 Common Series 1
Name: Stock Stock Stock Stock
T'homas Kempner 399,583 485,315 16.7 31.5
Mot Siff 160,584 133 6.7
Wilharn Spears 93,227 1,097 3.6 .07
Gerson Pakula 14,746 7,035 .6 .45
Don Chaifetz 115,380 1,715 4.8 .1
Aaron Stem 31,986 1.3
Norman Mintz 4,860 5,000 .2 .3
Joseph Sasenick 61,939 2.5
All Directors, Executive Officers
and key employees 882,305 500,295 37.0 32.4
THE PROPOSAL
Summary
The stockholders of Alcide are being asked to approve the company's offer to redeem the
Series 1 Stock from its Series 1 stockholders at the rate of .2 share of Common Stock for each
share of Series 1 Stock tendered plus the Common Stock equivalent of $1.00 as determined by
computing the average closing price of the Common Stock on the NASDAQ/NMS for the period
from September 24, 1993 through October 7, 1993 ("Common Stock Equivalent")
Background The capitalization of Alcide includes Class B Preferred Stock, certain of which is designated as
Series 1. The relevant characteristics of the Series 1 Stock are as follows:
