<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VITAQUEST INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2096 22-3437624
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
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100 LEHIGH DRIVE
FAIRFIELD, NEW JERSEY 07004
(201) 575-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
EDWARD M. FRANKEL
CHAIRMAN AND PRESIDENT
VITAQUEST INTERNATIONAL INC.
100 LEHIGH DRIVE
FAIRFIELD, NEW JERSEY 07004
(201)575-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS REGARDING THIS REGISTRATION STATEMENT SHOULD BE
SENT TO:
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MORRISON COHEN SINGER & WEINSTEIN, LLP KRAMER, LEVIN, NAFTALIS & FRANKEL
750 LEXINGTON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
ATTN: STEPHEN I. BUDOW, ESQ. ATTN: THOMAS E. CONSTANCE, ESQ.
(212) 735-8600 (TELEPHONE) (212) 715-9100 (TELEPHONE)
(212) 735-8708 (FACSIMILE) (212) 715-8000 (FACSIMILE)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $.01 par value..... 8,280,000 shares $17.00 $140,760,000 $48,537.93
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(1) Includes 1,080,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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VITAQUEST INTERNATIONAL INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
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ITEM NO. LOCATION IN PROSPECTUS
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1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Facing Page, Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus......... Inside Front Cover Page, Outside Back Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price... Outside Front Cover Page; Risk Factors; Underwriting
6. Dilution.......................... Risk Factors; Dilution
7. Selling Security Holders.......... Principal and Selling Stockholders
8. Plan of Distribution.............. Outside Cover Page; Underwriting
9. Description of Securities to be
Registered........................ Outside Cover Page; Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization; Description of Capital
Stock; Shares Eligible for Future Sale; S Corporation
Distributions
10. Interests of Named Experts and
Counsel........................... Experts, Legal Matters
11. Information with Respect to the
Registrant........................ Outside Cover Page; Prospectus Summary; Risk Factors;
Dividend Policy; S Corporation Distributions; Dilution;
Selected Consolidated Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain Relationships and
Related Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible for Future
Sale; Consolidated Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
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SUBJECT TO COMPLETION, DATED MAY 13, 1996
PROSPECTUS
7,200,000 SHARES
VITAQUEST INTERNATIONAL INC.
COMMON STOCK
------------------------------
Of the 7,200,000 shares of Common Stock (the "Common Stock") of Vitaquest
International Inc. (the "Company") being offered hereby, 2,400,000 shares are
being issued and sold by the Company and 4,800,000 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders". The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. After giving effect to the offering made hereby (the "Offering"),
the Company will have 16,566,000 shares of Common Stock outstanding.
Prior to the Offering, there has been no public market for the Common
Stock. It is estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for information relating
to the determination of the initial public offering price. The Company has
applied for its Common Stock to be approved for quotation and trading on the
Nasdaq National Market under the Symbol VITQ. There can be no assurance that
such approval will be granted.
THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS SELLING
TO PUBLIC COMMISSIONS(1) TO COMPANY(2) STOCKHOLDERS
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Per Share................... $ $ $ $
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Total(3).................... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting certain offering and related expenses payable by the
Company, estimated to be $ .
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase, on a pro rata basis, up to an additional 360,000
shares and 720,000 shares, respectively, to cover over-allotments, if any.
If such option is exercised in full, the Total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting".
------------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part,
and to certain other conditions. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167 on or
about , 1996.
------------------------------
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BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 4
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited summary consolidated financial information for the first
three quarters of each fiscal year.
2
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PROSPECTUS SUMMARY
Vitaquest International Inc. (the "Company" or "Vitaquest") was
incorporated on April 16, 1996 and prior to the effective date of this Offering
will be the successor by merger to Garden State Nutritionals, Inc., Windmill
Marketing Services, Inc. and Cel-Mark International, Inc. (collectively the
"Predecessor Companies"). The following summary is qualified in its entirety by
the more detailed information and consolidated financial statements (including
the Notes thereto) appearing elsewhere in this Prospectus. Unless otherwise
noted, the information contained in this Prospectus does not give effect to the
exercise of the Underwriters' over-allotment option and reflects the completion
of the merger referred to above and of a 96.67808219-for-1 stock split prior to
the date hereof. Unless the context indicates otherwise, references in this
Prospectus to the "Company" or "Vitaquest" mean Vitaquest International Inc.,
its subsidiary and the Predecessor Companies. In 1993, Garden State
Nutritionals, Inc. and Windmill Marketing Services, Inc. elected to be treated
as S corporations for Federal income tax purposes and, accordingly, to change
their fiscal year end from August 31, to December 31. The financial information
presented herein relates to the fiscal years ended December 31, 1995 and 1994
("Fiscal 1995" and "Fiscal 1994", respectively), the fiscal years ended August
31, 1993, 1992 and 1991 ("Fiscal 1993", "Fiscal 1992" and "Fiscal 1991",
respectively) and the four month period ended December 31, 1993.
THE COMPANY
The Company is a custom developer, manufacturer and marketer of vitamins
and nutritional supplements, as well as specialty nutritional systems. The
Company focuses on adding value for its customers through innovative product
development and brand creation. Currently, the Company manufactures a wide
variety of products which are sold (i) to over 100 marketers of vitamins,
nutritional supplements and specialty nutritional systems who sell to their
customers through many different channels of distribution, (ii) to various
companies who reach their customers and sell their products through electronic
media (such as the Home Shopping Network) and (iii) under its own brand names to
over 3,000 independent pharmacies, as well as drug store, supermarket and
discount department store chains and to health food stores (such as GNC, which
has over 2,000 stores). In Fiscal 1995, more than 50% of the Company's net sales
resulted from products which were custom formulated by the Company specifically
for its customers. In addition, the Company assists a significant number of
these customers with value added services, such as product development, package
design and marketing support services. These value added services are considered
by the Company to be key components of its strategy to attract customers in the
direct marketing and electronic media distribution channels, which accounted for
approximately 35% of the Company's net sales in Fiscal 1995.
The Company operates its business in three divisions: the Garden State
division, the Celebrity Marketing division and the Windmill Marketing division.
THE GARDEN STATE DIVISION
The Garden State division ("Garden State") manufactures and packages
vitamins and nutritional supplements for distribution by the Company's customers
as well as by the Celebrity Marketing and Windmill Marketing divisions. The
Company believes that Garden State differentiates itself from many of its
competitors by providing value added services to its customers. In addition to
product development, package design and marketing support services, these
services include initial market research, as well as technical and compliance
support. For direct selling companies, Garden State also provides various
consulting services such as assistance in product presentations by Garden State
sales and marketing executives to the selling representatives of these
companies.
In Fiscal 1995, Garden State produced several thousand custom formulations
of vitamins and nutritional supplements for over 100 companies in more than 25
countries. Garden State's customers sell such products through a variety of
distribution channels including independent pharmacies, discount department and
health food stores, electronic media, direct selling and direct response. Garden
State's customers are primarily branded vitamin companies (such as GT
Merchandising & Licensing Corp., a marketer of Richard Simmons
3
<PAGE> 6
endorsed products), direct selling companies (such as Avon (Malaysia) and
BeautiControl), health food retailers (such as Hi-Health Supermarket Corp.),
specialty retailers (such as Allison Andrews Corporation d/b/a Vitamin Health
Centers) and direct response including mail order companies (such as Montgomery
Ward Enterprises Inc.). In Fiscal 1995, less than 5% of this division's sales
were to retailers for sale under their private label. Net sales in this division
were $39.6 million in Fiscal 1995 and represented 65.4% of the Company's
aggregate net sales.
THE CELEBRITY MARKETING DIVISION
The Celebrity Marketing division ("Celebrity Marketing") develops and
markets custom nutrition and health related products for sale by its customers
through various forms of electronic media, including television home shopping
networks and infomercials, as well as other direct response media, using
endorsements of celebrities and health and nutrition authorities. In addition to
product development, package design and marketing support services, value added
services offered by Celebrity Marketing to its customers include training and
supervision of celebrities and health and nutrition authorities, promotional and
merchandising assistance, and technical and compliance support. In Fiscal 1995,
most of this division's products were manufactured by Garden State. The
principal customers of the Celebrity Marketing division are the Home Shopping
Network, Frankie Avalon Products, Value Vision and Telebrands. Over the past
three years this division has experienced substantial sales growth of products
marketed through electronic media (such as the Home Shopping Network). Net sales
in this division were $9.6 million in Fiscal 1995 and represented 15.8% of the
Company's aggregate net sales.
THE WINDMILL MARKETING DIVISION
The Windmill Marketing division ("Windmill Marketing") primarily sells the
Company's own branded products such as Windmill(R) and Foods Plus(R) products to
over 3,000 independent pharmacies generally located in the Northeast, Southeast,
Mid-Atlantic and Midwest regions of the United States. The Company expanded
Windmill Marketing's target market in Fiscal 1994 by introducing branded
specialty nutritional supplements to drug store, supermarket and discount
department store chains including Walgreens, Osco, Revco and Pathmark, as well
as to health food stores including GNC. These new products include
Hi-Ener-G(TM), a ginseng based energy enhancing product, Citri-Life(TM), a
weight loss nutritional supplement, and Super Juice(TM), a phyto-nutrient
product derived from fruits and vegetables. The Windmill Marketing division
distributes over 500 branded products including a full line of multi- and single
vitamins and nutritional supplements, as well as function-specific products. As
part of its strategy, this division has targeted specialty nutrition markets
through sales of its herbal formulations and weight management products. For
example, the Windmill Marketing division recently launched a new line of
specialty weight management products called Diet Works(TM) to be sold through
GNC, other health food stores and independent pharmacies. This line includes
products marketed under the Company's Lipo-Stat(TM), ZeroFat(TM) and Seven Day
Cleansing Diet(TM) trademarks. Net sales in this division were $11.4 million in
Fiscal 1995 and represented 18.8% of the Company's aggregate net sales.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates in a 1994 survey conducted
by Packaged Facts, an independent consumer market research firm (the "Packaged
Facts Survey"), the retail market for vitamins, minerals and other nutritional
supplements has grown at a compounded annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. The Company believes these figures
exclude sales through electronic media and direct selling and marketing
companies, which the Company views as important market segments. The Company
believes several factors account for the growth of the vitamin and nutritional
supplements market, including increasing interest by many individuals in taking
better care of themselves, increased consumer awareness of the health benefits
of vitamins and nutritional supplements, emphasis on the promotion of
preventative care strategies by health officials to address rising health care
costs and favorable demographic trends toward older Americans who are more
likely to consume vitamins and mineral supplements. In addition, over the past
several years, a number of successful targeted nutritional products and systems
have been introduced, including function specific products for weight loss,
sports nutrition, menopause, energy and mental function.
4
<PAGE> 7
These products and systems use a number of innovative nutritional ingredients,
such as ginseng, ginkgo biloba and chromium picolinate.
The Company's aggregate net sales and operating earnings have grown from
$26.9 million and $2.9 million in Fiscal 1991 to $60.6 million and $12.6 million
in Fiscal 1995, resulting in compounded annual growth rates of 20.6% and 40.4%,
respectively.
The Company's strategy for growth incorporates the following key aspects:
(i) targeting profitable growth across several channels of distribution; (ii)
broadening its product line and expanding value added services; (iii)
maintaining technologically advanced manufacturing facilities; (iv) leveraging
its product line across a diverse customer base; and (v) making strategic
acquisitions. The Company has no current arrangements or agreements with respect
to any particular acquisition. The Company believes that its experienced
management group, including four of its most senior operations executives who
have an average of 20 years of experience in the vitamin and nutritional
supplements industry, will continue to be instrumental in implementing the
Company's growth strategy.
Prior to the merger of the Predecessor Companies with and into the Company,
Windmill Marketing Services, Inc., Garden State Nutritionals, Inc. and Cel-Mark
International Inc. had been in business since 1977, 1979 and 1990 respectively.
The Company's principal executive offices are located at 100 Lehigh Drive,
Fairfield, New Jersey 07004, and its telephone number is (201) 575-9200.
THE OFFERING
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Common Stock offered
By the Company.......................... 2,400,000 shares
By the Selling Stockholders............. 4,800,000 shares
Total................................ 7,200,000 shares
Common Stock outstanding after the 16,566,000 shares(1)
Offering................................
Use of proceeds........................... To fund capital expenditures associated with the
build-out of the Company's new production,
distribution and office facility, to purchase
certain machinery and equipment and for general
corporate purposes. A portion of the net proceeds
may be used by the Company for strategic
acquisitions. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
Proposed Nasdaq National Market symbol.... VITQ
</TABLE>
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(1) Excludes 1,300,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which shares are subject to
options issued prior to the date hereof, exercisable at the initial public
offering price per share. See "Management -- 1996 Stock Option Plan".
Includes 51,000 shares of Common Stock to be issued by the Company to
certain employees prior to the date of this Offering. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company for Fiscal 1993, Fiscal 1994, Fiscal 1995 and the four month period
ended December 31, 1993, and at December 31, 1995. Such data should be read in
conjunction with the "Selected Consolidated Financial Data" and the Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus.
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FISCAL YEAR FOUR MONTHS FISCAL YEAR ENDED
ENDED ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, -------------------
1993 1993 1994 1995
----------- ------------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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OPERATING DATA
Net sales....................................... $35,584 $ 13,617 $50,192 $60,633
Costs of goods sold............................. 20,525 7,675 27,392 31,728
------- ------- ------- -------
Gross profit.................................. 15,059 5,942 22,800 28,905
Selling, general and administrative expenses.... 11,465 4,070 13,992 16,343
------- ------- ------- -------
Operating earnings............................ 3,594 1,872 8,808 12,562
Other income (expense).......................... 64 (62) 134 83
------- ------- ------- -------
Earnings before income taxes.................. 3,658 1,810 8,942 12,645
Income taxes.................................... 1,575 180 268 224
------- ------- ------- -------
Net earnings.................................. $ 2,083 $ 1,630 $ 8,674 $12,421
======= ======= ======= =======
PRO FORMA DATA
Historical earnings before income taxes....... $ 1,810 $ 8,942 $12,645
Compensation differential(1).................. -- -- 1,791
Income taxes(2)............................... 733 3,612 5,926
------- ------- -------
Net earnings.......................... $ 1,077 $ 5,330 $ 8,510
======= ======= =======
Net earnings per share(3)..................... $ 0.60
=======
Weighted averaged number of common shares
outstanding................................ 14,166,000
</TABLE>
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DECEMBER 31, 1995
-------------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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BALANCE SHEET DATA
Working capital........................................ $12,740 $ 10,657 $ 45,757
Total assets........................................... 28,454 26,489 61,589
Long-term debt......................................... 8,960 8,960 8,960
Stockholders' equity................................... 10,411 8,328 43,428
</TABLE>
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(1) The Company has entered into employment agreements with Messrs. Edward and
Keith Frankel which provide that their salaries and bonuses will not be
greater than $500,000 each in 1996. Had those agreements been in place in
Fiscal 1995 and, assuming that the full amount of the bonuses had been paid,
the Company would have paid $1.8 million less in compensation. Aggregate
compensation to Messrs. Edward and Keith Frankel in Fiscal 1993 and 1994 was
$2.5 million and $2.8 million greater than the maximum aggregate salary and
bonuses to be paid to these executives pursuant to such agreements in 1996.
Such agreements provide that for 1997 and 1998 base salary is subject to
annual increases of the greater of 5% or the percentage increase in the
Consumer Price Index and that the bonus shall not be more than $150,000 for
each executive unless the Compensation Committee determines otherwise on the
basis of operating results. See "Management -- Employment Agreements".
6
<PAGE> 9
(2) For the four month period ended December 31, 1993 and Fiscal 1994 and 1995,
the Predecessor Companies were S corporations for Federal income tax
purposes and, accordingly, were not subject to Federal income taxes. For the
four month period ended December 31, 1993 and Fiscal 1994 and 1995, Garden
State Nutritionals, Inc. and Windmill Marketing Services, Inc., and for
Fiscal 1995, Cel-Mark International, Inc., were S corporations for state
income tax purposes. The pro forma data have been presented as if the
Company were subject to corporate income taxes for all periods, based on the
tax laws in effect during such periods. See Note A of Notes to Consolidated
Financial Statements.
(3) Earnings per share reflects the effect of issuing 51,000 shares of Common
Stock to certain employees prior to this Offering. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
(4) The Company's presentation of unaudited pro forma balance sheet data at
December 31, 1995 reflects the effect of a $2.0 million S corporation
distribution to the stockholders at such date of all previously
undistributed S corporation earnings as well as the recording of a deferred
tax liability as if the S corporation status of the Company terminated
immediately prior to December 31, 1995 and reflects the effect of issuing
51,000 shares of Common Stock to certain employees prior to this Offering.
In connection with the issuance of shares to such employees, the Company
will recognize aggregate deferred compensation expense of $765,000 which
will be amortized over five years beginning in fiscal 1997. All earnings of
the Company and the Predecessor Companies from January 1, 1996 to a date
prior to the date of this Offering, up to $10.0 million, will be distributed
to those persons who were stockholders of the Company and the Predecessor
Companies at such date. See "S Corporation Distributions",
"Management -- Non-Competition, Confidentiality and other Employee
Arrangements" and Notes A and M of Notes to Consolidated Financial
Statements.
(5) Adjusted to give effect to this Offering and the application of the net
proceeds therefrom and to the pro forma adjustments described in footnote
(4) above. See "Use of Proceeds".
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<PAGE> 10
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, in addition to the other information in
this Prospectus, before making an investment in the Common Stock.
RECENT ADVERSE PUBLICITY REGARDING CERTAIN PRODUCTS
For certain of its contract manufacturing customers, the Company
manufactures products containing a Chinese herb known as "ma huang", a source of
naturally-occurring ephedrine, a stimulant. Such products accounted for 10.2% of
the Company's net sales in Fiscal 1995, including one product which accounted
for 6.2% of the Company's net sales in such year. Ma huang and ephedrine have
been the subject of certain adverse publicity in the United States and other
countries, including a statement issued by the Federal Food and Drug
Administration (the "FDA") on April 10, 1996 warning consumers not to purchase
or consume dietary supplements containing ephedrine that are labeled as
alternatives to illicit street drugs, because these products pose significant
health risks. For this reason, certain states and foreign jurisdictions have
required appropriate warnings on product labels, or prohibited the sale of
products containing ma huang or ephedrine as energy enhancing products other
than by licensed pharmacists. Certain state and other local governments,
including Florida and Nassau County, New York, have recently proposed a ban on
the sale of dietary supplements that contain ephedrine or have banned the sale
of products that contain high levels of ephedrine. Products manufactured by the
Company containing ma huang are labeled either for weight loss or energy
enhancement, not as alternatives to illicit street drugs. However, there can be
no assurance that ma huang will not become subject to further regulation, which
could require the reformulation of the Company's ma huang-containing products
and/or their relabeling. While the Company believes that the products it
manufactures that contain ma huang could be reformulated and relabeled if
required, there can be no assurance in that regard, or that either reformulation
or relabeling would not have a material adverse effect on the Company. There
also can be no assurance that the Company will not be subject to private civil
actions with respect to products that contain ma huang. The loss by the Company
of revenues generated by products containing ma huang, if not replaced by other
revenues, could have a material adverse effect on the Company. See
"Business -- Government Regulation".
GOVERNMENT REGULATION
The manufacturing, packaging, labeling, advertising, distribution and sale
of the Company's products are subject to regulation by one or more governmental
agencies, the most active of which is the FDA, which regulates the Company's
products under the Federal Food, Drug, and Cosmetic Act (the "FDCA") and
regulations promulgated by the FDA to implement this statute. The Company's
products are also subject to regulation by the Federal Trade Commission (the
"FTC"), the Consumer Products Safety Commission (the "CPSC"), the United States
Department of Agriculture (the "USDA") and the Environmental Protection Agency
(the "EPA"). The Company's activities are also regulated by various agencies of
the states, localities and foreign countries to which the Company distributes
its products and in which the Company's products are sold. The FDCA has been
amended several times with respect to dietary supplements, most recently by the
Nutrition Labeling and Education Act of 1990 (the "NLEA") and the Dietary
Supplement Health and Education Act of 1994 (the "DSHEA").
The enactment of the DSHEA introduced a new statutory framework governing
the composition and labeling of vitamins and nutritional supplements. With
respect to composition, the DSHEA creates a new class of "dietary supplements",
dietary ingredients consisting of vitamins, minerals, herbs, amino acids and
other dietary substances for human use to supplement the diet, as well as
concentrates, metabolites, extracts or combinations of such dietary ingredients.
Generally, under the DSHEA, dietary ingredients that were on the market before
October 15, 1994 may be sold without FDA pre-approval and without notifying the
FDA. On the other hand, a new dietary ingredient (one not on the market before
October 15, 1994) requires proof that it has been used as an article of food
without being chemically altered, or evidence of a history of use or other
evidence of safety establishing that it is reasonably expected to be safe. The
FDA must be supplied with such evidence at least 75 days before the initial use
of a new dietary ingredient. There can be no assurance that the
8
<PAGE> 11
FDA will accept the evidence of safety for any new dietary ingredients the
Company may decide to use, and the FDA's refusal to accept such evidence could
result in regulation of such dietary ingredients as food additives requiring FDA
pre-approval prior to marketing.
As for labeling, the DSHEA permits "statements of nutritional support" for
dietary supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A
company making a statement of nutritional support must possess substantiating
evidence for the statement, disclose on the label that the FDA has not reviewed
the statement and that the product is not intended for use for a disease, and
notify the FDA of the statement within 30 days after its initial use. However,
there can be no assurance that the FDA will not determine that a given statement
of nutritional support that the Company decides to make is a drug claim rather
than an acceptable nutritional support statement. Such a determination would
require deletion of the drug claim or the Company's submission and the FDA's
approval of a new drug application ("NDA"), which would entail costly and
time-consuming clinical studies. In addition, the DSHEA allows the dissemination
of "third party literature", publications such as reprints of scientific
articles linking particular dietary ingredients with health benefits. Third
party literature may be used in connection with the sale of dietary supplements
to consumers at retail or by mail order. Such a publication may be so
distributed if, among other things, it is not false or misleading, no particular
manufacturer or brand of dietary supplement is mentioned, and a balanced view of
available scientific information on the subject matter is presented. There can
be no assurance, however, that all pieces of third party literature that may be
disseminated in connection with the Company's products will be determined by the
FDA to satisfy each of these requirements, and any such failure to comply could
subject the product involved to regulation as a new drug.
In December 1995, the FDA proposed regulations to implement certain DSHEA
labeling provisions, which are expected to be finalized in late 1996 and to
become effective by January 1, 1997 (although the FDA has indicated that it may
delay the effective date until January 1, 1998). These regulations will require
the Company to revise the labeling for a substantial number of its products at
an undetermined expense to the Company which the Company does not believe will
be material to its financial condition or its results of operations.
The DSHEA also requires that dietary supplements be prepared, packed and
held under conditions which meet good manufacturing practice ("GMP") regulations
to be promulgated by the FDA with respect to dietary supplements. The FDA has
not yet proposed GMP regulations for dietary supplements. Therefore, there can
be no assurance that the Company's current production facilities will meet GMP
regulations for dietary supplements when issued by the FDA, and the Company may,
in the future, be required to expend resources to upgrade its facilities or take
other appropriate action to comply with such regulations.
The NLEA prohibits the use of any health claim (as distinguished from
"statements of nutritional support" permitted by the DSHEA) for foods, including
dietary supplements, unless the health claim is supported by significant
scientific agreement and is pre-approved by the FDA. To date, the FDA has
approved the use of health claims for dietary supplements only in connection
with the use of calcium for osteoporosis and the use of folic acid for neural
tube defects. The FDA has broad authority to enforce the provisions of the FDCA
applicable to dietary supplements, including the power to seize adulterated or
misbranded products or unapproved new drugs, to request their recall from the
market, to enjoin their further manufacture or sale, to publicize information
about a hazardous product, to issue warning letters and to institute criminal
proceedings.
The FTC, which exercises jurisdiction over the advertising of dietary
supplements, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees and the payment of fines by the companies involved. In addition,
the FTC has increased its scrutiny of infomercials. While the Company has not
been the target of FTC enforcement action for the advertising of its products,
there can be no assurance the FTC will not question the Company's advertising in
the future.
9
<PAGE> 12
The Garden State division manufactures certain products pursuant to
contracts with customers who distribute the products under their own or other
trademarks. Such customers are subject to the governmental regulations discussed
in this section in connection with their purchase, marketing, distribution and
sale of such products, and the Company is subject to such regulations in
connection with the manufacture of such products and its delivery of services to
such customers. However, the Garden State division's contract manufacturing
customers are independent companies, and their labeling, marketing, and
distribution of such products is beyond the Company's control. The failure of
these customers to comply with applicable laws or regulations could have a
material adverse effect on the Company. Governmental regulations in foreign
countries where the Company sells or plans to sell products may prevent or delay
entry into the market or prevent or delay the introduction, or require the
reformulation, of certain of the Company's products. Compliance with such
foreign governmental regulations is generally the responsibility of the
Company's customers in these countries. These customers are independent
companies over which the Company has no control.
The Company may be subject to additional laws or regulations administered
by the FDA or other regulatory authorities, the repeal of laws or regulations
which the Company considers favorable, such as the DSHEA, or more stringent
interpretations of current laws or regulations, from time to time in the future.
The Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however, require the
reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling, and/or scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's results of operations and financial condition. See
"Business -- Recent Legislation" and "-- Government Regulation".
EFFECT OF PUBLICITY
The Company believes the nutritional supplement market has benefitted from
national media attention in medical journals, magazines, newspapers and
television programs regarding recent scientific research suggesting potential
health benefits from regular consumption of certain vitamins and other
nutritional products. There can be no assurance that future scientific research
or publicity will not be unfavorable to the nutritional supplement market or any
particular product, or inconsistent with earlier research or publicity. Future
reports of research which are perceived as less favorable or which question such
earlier research could have a material adverse effect on the Company.
ABSENCE OF CLINICAL STUDIES AND SCIENTIFIC REVIEW
The Company does not conduct or sponsor clinical studies on its products.
The Company's products consist of vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as recommended. However,
because the Company is highly dependent upon consumers' perception of the safety
and quality of its products as well as similar products distributed by other
companies (which may not adhere to the same quality standards as the Company),
the Company could be adversely affected in the event it is proved or asserted
that any of the Company's products or any similar products distributed by other
companies are harmful to consumers. In addition, because of the Company's
dependence upon consumer perceptions, adverse publicity associated with illness
or other adverse effects resulting from consumers' failure to consume the
Company's products as recommended or other misuse or abuse of the Company's
products or any similar products distributed by other companies could have a
material adverse effect on the Company.
LACK OF DIVERSIFICATION; FLUCTUATIONS IN CUSTOMER AND CONSUMER DEMAND
The Company's operations are limited primarily to the manufacturing and
marketing of vitamins and nutritional supplements. The Company's lack of
diversification may subject the Company to economic fluctuations within the
vitamin and nutritional supplement industry, and, therefore, increases the risks
associated with the Company's operations. The Company's products are subject to
fluctuating demand for different vitamins, nutritional supplements and specialty
nutritional systems. Such demand may vary
10
<PAGE> 13
significantly from time to time, in particular as a result of changing consumer
tastes and positive or negative publicity about products as a result of safety
and efficacy studies by health and medical authorities or consumer testing
groups, or publication of research findings.
Demand from the Company's customers who resell its products is also subject
to fluctuations from time to time. Independent pharmacies face direct and
substantial competition from national chains which may have significantly
greater financial and other resources as well as certain economies of scale.
Contracts pursuant to which the Company manufactures products for customers,
some of whom the Company assists to formulate and market products, are generally
not long term and such customers may seek other companies to manufacture such
products. In addition, such contract customers may reduce their demand for the
Company's products as a result of negative developments in their own businesses
from time to time. A significant drop in customer demand for its products could
have a material adverse effect on the Company.
A significant portion of the revenues of the Company is derived from sales
to direct selling companies. The direct selling industry is highly volatile as a
result of factors such as changing consumer demand, regulatory scrutiny and the
ability to attract, retain and motivate capable sales representatives. Because
of this volatility, such companies may purchase significant quantities of
product during one fiscal period and greatly reduced quantities or none of such
product in subsequent fiscal periods. Therefore, the Company's success is
dependent upon adding new customers for its products or increasing orders from
existing customers to supplement or replace reduced purchases from such direct
selling companies from time to time. The failure of the Company to so supplement
or replace such purchases could have a material adverse effect on the Company.
See "Business -- Customers".
PRODUCT LIABILITY
Because the Company manufactures products designed to be ingested, it faces
the risk that materials used or the final products may be contaminated with
substances that may cause sickness or other injury to persons who have used the
products or that may otherwise be defective. Although the Company maintains
production and operating standards designed to prevent such events, certain
portions of the process of product development, including the production,
harvesting, storage and transportation of raw materials, along with the
handling, transportation and storage of finished products delivered to end
users, are not within the control of the Company. Furthermore, sickness or
injury to persons may occur if products manufactured by the Company are ingested
in dosage amounts which exceed the dosage recommended on the product label. The
Company cannot control misuse of its products by consumers or the marketing,
distribution and resale of its products by its customers. The Company currently
maintains product liability insurance policies which provide a total of $6.0
million of coverage per occurrence and $6.0 million of coverage in the
aggregate. The Company believes that its current level of product liability
insurance coverage is adequate. However, there can be no assurance that such
insurance will continue to be available, or if available, will be adequate to
cover potential liabilities. Although in some instances the Company obtains
indemnification from entities or persons supplying raw materials, handling,
storing, marketing, transporting or selling its products, it does not do so in
all instances and in any event, such indemnifications are generally limited by
their terms and, as a practical matter, by the creditworthiness of the
indemnifying party. In the event that the Company does not have adequate
insurance or contractual indemnification, product liabilities relating to
defective products could have a material adverse effect on the Company. See
"Business -- Legal Proceedings" and "-- Product Liability Insurance".
IMPORTANCE OF KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management, marketing and other skills of Messrs. Edward and Keith
Frankel, as well as its ability to retain other key employees and to attract
skilled personnel in the future to manage the growth of the Company. While the
Company considers the compensation and other benefits offered to its key
employees and skilled personnel to be attractive, there is no assurance that the
Company will be able to continue to hire and retain personnel of high business,
product development and marketing abilities. Although the Company has entered
into
11
<PAGE> 14
employment agreements with Messrs. Edward and Keith Frankel, the loss or
unavailability of the services of either of such executives could have a
material adverse effect on the Company. See "Management".
COMPETITION
The vitamin, nutritional supplement and specialty nutritional systems
industry is highly competitive. Numerous companies compete with the Company in
the manufacturing, distribution and sales of its products. Certain of the
Company's competitors, including large pharmaceutical companies, have greater
financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than those of
the Company. Competition from such companies could have a material adverse
effect on the Company. See "Business -- Competition".
RAW MATERIALS
The Company obtains all of its raw materials for the manufacture of its
products from other sources. The Company does not have contracts with any
entities or persons committing such suppliers to provide the materials required
for the production of its products. There can be no assurance that suppliers
will provide the raw materials needed by the Company in the quantities requested
or at a price the Company is willing to pay. Of the 20 items most heavily used
by the Company, the Company believes that only natural vitamin E and beta
carotene have had unusual price fluctuations during the last three years, as a
result of short supply or increases in demand. Since the Company does not
control the actual production of these raw materials, it is also subject to
delays caused by interruption in production of materials based on conditions not
wholly within its control. Such conditions include job actions or strikes by
employees of suppliers, weather, crop conditions, transportation capacity, and
interruptions and natural disasters or other catastrophic events. The Company
also has historically obtained a significant amount of its raw materials through
brokers dealing with companies overseas. Accordingly, the Company is subject to
potential fluctuations in price in connection with changes in the value of the
dollar and foreign currencies, as well as changes in international trade
regulations and military disruptions. The Company believes that other suppliers
for the raw materials would be available if necessary. However, the inability of
the Company to obtain adequate supplies of raw materials for its products at
favorable prices, or at all, as a result of any of the foregoing factors or
otherwise could have a material adverse effect on the Company. See
"Business -- Raw Materials".
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws,
rules, regulations and policies relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
wastes. While the Company believes that it is currently in material compliance
with those laws and regulations, there can be no assurance that the Company will
not incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or the enforcement thereof). Such
costs could have a material adverse effect on the Company.
TRANSPORTATION AND DISTRIBUTION
Except with respect to local deliveries, the Company does not own or
operate its own transportation or distribution network or equipment. It must,
therefore, rely upon common commercial carriers to deliver its products to its
non-local customers. Since the Company does not maintain or control this segment
of its distribution and delivery, it is subject to delays caused by interruption
of service. Such conditions include job actions or strikes by employees of
transportation carriers, inclement weather, mechanical failures and natural
disasters or other catastrophic events. The Company believes that other common
carriers will be available if it becomes necessary to rely upon carriers other
than those currently used by the Company.
ABSENCE OF DIVIDENDS
Except for certain distributions declared prior to this Offering, the
Company does not anticipate that it will pay any cash or other dividends on its
Common Stock in the foreseeable future. See "Dividend Policy" and "S Corporation
Distributions".
12
<PAGE> 15
CERTAIN CHARTER, BY-LAWS AND STATUTORY PROVISIONS
The Company's Certificate of Incorporation and By-laws provide that the
Company's Board of Directors (the "Board of Directors") shall be classified,
restrict the ability of stockholders to call special meetings or take
stockholder action by written consent and include advance notice requirements
for stockholder proposals and nominations as well as special voting requirements
for the amendment of the Company's Certificate of Incorporation and By-laws.
These provisions could delay or hinder the removal of incumbent directors and
could discourage or make more difficult a proposed merger, tender offer or proxy
contest involving the Company. The Company is subject to provisions of Delaware
corporate law that restrict the Company from engaging in certain business
combinations with a person who, together with affiliates and associates, owns
15% or more of the Company's common stock (an "Interested Stockholder") for
three years after the person became an Interested Stockholder, unless certain
conditions are met or the business combination is approved by the Company's
Board of Directors and/or its stockholders in a prescribed manner. These
provisions also could discourage or make more difficult a merger, tender offer
or other similar transactions.
The Certificate of Incorporation of the Company authorizes the issuance of
a maximum of 5,000,000 shares of Preferred Stock, par value $.01 per share,
which may be issued in the future without stockholder approval and upon such
terms and conditions, and with such rights, privileges and preferences, as the
Board of Directors may determine in the exercise of its business judgment. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings and other corporate transactions, could have
the effect of discouraging, or making more difficult, a third party's
acquisition of a majority of the Company's outstanding voting stock. The Company
has no present plans to issue any shares of preferred stock. See "Description of
Capital Stock".
CONTROL BY MANAGEMENT
After completion of the Offering, Messrs. Edward and Keith Frankel, the
Chairman of the Board and Chief Executive Officer of the Company, respectively,
will own or control a majority of the outstanding Common Stock. Such
stockholders, if acting together, could elect all of the members of the
Company's Board of Directors and, therefore, exert significant influence on the
affairs and management of the Company. In addition, such stockholders, if acting
together, would also have significant voting power in approval of actions
requiring stockholder approval and significant influence with respect to any
decision regarding a change in ownership of the Company. Such concentration of
the ownership of Common Stock may therefore have the effect of delaying,
deferring or preventing a change in control of the Company. See "Principal and
Selling Stockholders" and "Description of Capital Stock".
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock has been determined
solely by negotiations among the Company and representatives of the Underwriters
based on several factors. See "Underwriting" for a description of the factors
considered in determining the initial public offering price. There can be no
assurance that an active trading market will develop for the Common Stock or, if
developed, that such market will be sustained. The market price for shares of
the Common Stock may be significantly affected by such factors as
quarter-to-quarter variations in the Company's results of operations, new
announcements or changes in general market conditions. See "Underwriting".
Although the Company has applied for its Common Stock to be approved for
quotation and trading on the Nasdaq National Market under the symbol VITQ, there
can be no assurance that such approval will be granted.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices of the Common Stock. Upon the closing of
this Offering, there will be 16,566,000 shares of Common Stock outstanding. The
7,200,000 shares of Common Stock sold in the Offering will be freely tradeable
13
<PAGE> 16
without restriction or further registration under the Securities Act, unless
held by an "affiliate" of the Company as that term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), which shares will be subject
to the resale limitations of Rule 144. Of the shares outstanding upon the
closing of the Offering, 9,366,000 will be deemed "restricted securities" under
Rule 144 and may not be sold unless they are registered under the Securities Act
or unless an exemption from registration, such as the exemption provided by Rule
144, is available. Of such restricted securities, 9,315,000 shares are currently
eligible for sale under Rule 144, subject to certain volume and other
limitations, and 51,000 shares will be eligible for sale under Rule 701(c)
promulgated under the Securities Act 90 days after the date of this Offering,
subject to certain limitations relating to the manner of sale of those shares.
No prediction can be made as to the effect, if any, that future sales, or
the availability of Common Stock for future sales, will have on the market price
of the Common Stock from time to time. Sales of substantial amounts of Common
Stock by the Company or by stockholders who hold restricted securities, or the
perception that such sales may occur, could adversely affect market prices for
the Common Stock. See "Shares Eligible for Future Sale".
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share from
the public offering price of the Common Stock purchased in this Offering. See
"Dilution".
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNIDENTIFIED STRATEGIC ACQUISITION
CANDIDATES
A substantial portion of the net proceeds of this Offering will be used for
general corporate purposes and, accordingly, the Company will have broad
discretion as to the application of such proceeds. Although the Company has
determined that a portion of the net proceeds of this Offering may be used for
strategic acquisitions of complementary or related lines of business, it has not
identified any particular acquisition candidates. Prospective investors will
therefore be dependent on the ability of the Company to identify appropriate
acquisition candidates and to allocate and use a substantial portion of the net
proceeds of this Offering. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
USE OF PROCEEDS
The net proceeds after expenses to the Company from this Offering are
estimated to be $35.1 million ($39.9 million if the Underwriters' over-allotment
is exercised in full). Of this amount, approximately $3.0 million will be used
to pay for the capital expenditures associated with the build-out of the
Company's new 140,000 square foot production, distribution and office facility
located in West Caldwell, New Jersey. In addition, the Company is considering
expanding the dosage forms in which it manufactures products to include forms
such as effervescent, liquid and powdered vitamins and nutritional supplements.
The Company may use approximately $2.0 million of the net proceeds of this
Offering to purchase equipment primarily for manufacturing these new dosage
forms. See "Business -- Manufacturing and Production" and "-- Properties".
A portion of the net proceeds may be used by the Company for strategic
acquisitions of complementary or related product lines and businesses.
Acquisition opportunities will be evaluated based on strategic fit, anticipated
return on capital invested, and the ability of the Company to improve the
profitability of the acquired operations through cost reduction and other
synergies with existing operations. The Company has no current arrangements or
agreements with respect to any particular acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
The Company intends to use the balance of the net proceeds for general
corporate purposes. Pending such uses, the net proceeds will be invested in
short-term, investment-grade, interest-bearing securities.
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<PAGE> 17
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
Except for certain dividends paid by the Company prior to becoming an S
corporation and certain distributions made and to be made of earnings after
becoming an S corporation and prior to the date of this Offering, the Company
has not paid any cash or other dividends on the Common Stock. The Company
presently intends to retain its earnings after the date of this Offering to
finance the development of its business for the foreseeable future. Any future
determination to pay dividends will be made by the Board of Directors in light
of the Company's earnings, financial position, capital requirements, business
strategies, credit agreements and such other factors as the Board of Directors
deems relevant at such time. See "S Corporation Distributions".
S CORPORATION DISTRIBUTIONS
Cel-Mark International, Inc. elected to be treated as an S corporation for
Federal income tax purposes for the period which began on March 29, 1990 and for
state income tax purposes for the period which began on January 1, 1995. Garden
State Nutritionals, Inc. and Windmill Marketing Services, Inc. elected to be
treated as S corporations for Federal and state income tax purposes for the
period which began on September 1, 1993. The Company elected to be an S
corporation shortly following its organization. As a result, the Company and the
Predecessor Companies, from the effective date of their elections until shortly
prior to the date of this Offering were not required to pay Federal or state
income tax on their income during such period, but such income was subject to
Federal and state taxation directly at the stockholder level. As S corporations,
the Predecessor Companies' practice had been to distribute to stockholders
amounts sufficient to allow the stockholders to pay taxes on their proportional
share of the Predecessor Companies' taxable income as well as a portion of
undistributed earnings in excess thereof. The amount of $4.9 million was
distributed to the stockholders of the Predecessor Companies in Fiscal 1994 in
respect of earnings of the Predecessor Companies during the four month period
ended December 31, 1993 and a portion of Fiscal 1994 earnings. Earnings in
excess of those amounts had been retained by the Predecessor Companies for use
as working capital during Fiscal 1994. In Fiscal 1995, the Predecessor Companies
distributed $14.7 million, representing previously undistributed earnings in
respect of Fiscal 1994 and a portion of Fiscal 1995 earnings. A portion of such
distribution was financed by a $7.0 million term loan agreement entered into in
1995 by the Predecessor Companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
As of December 31, 1995 the Predecessor Companies had undistributed S
corporation earnings of $2.0 million, all of which has been distributed to those
persons who were stockholders as of such date of the Predecessor Companies. All
earnings of the Company and the Predecessor Companies from January 1, 1996 to a
date prior to the date of this Offering, up to $10.0 million, will be
distributed to those persons who were stockholders of the Company and the
Predecessor Companies at such date. As of April 30, 1996, $2.4 million of such
earnings have been distributed to such stockholders. The remaining amount of
earnings, up to $7.6 million, will be distributed to such stockholders in cash
and pursuant to the Company's promissory notes. The cash payments will be made
prior to the date of this Offering to the extent that the Company has sufficient
cash. The Company's promissory notes, which will be issued prior to the date of
this Offering, will provide for 36 equal monthly payments with interest at Chase
Manhattan Bank's prime rate on the date of issuance. Beginning shortly prior to
the date of this Offering the Company will no longer be treated as an S
corporation and will be subject to Federal and state income taxes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Purchasers of Common Stock in this Offering will not receive any portion of
the S corporation distributions described in the preceding paragraphs.
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<PAGE> 18
DILUTION
At December 31, 1995, the Company had a net tangible book value of $9.7
million (or approximately $0.69 per share). "Net tangible book value" per share
of Common Stock represents the total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding
(14,115,000 at December 31, 1995).
The pro forma net tangible book value of the Company at December 31, 1995,
was approximately $7.6 million, or $0.54 per share of Common Stock. "Pro forma
net tangible book value" per share (i) reflects the effect on historical
retained earnings of an S corporation distribution to the then stockholders of
all previously undistributed S corporation earnings, as well as the recording of
a deferred tax liability as if the S corporation status of the Company
terminated immediately prior to December 31, 1995, (ii) reflects the effect of
issuing 51,000 shares of Common Stock to certain employees prior to this
Offering, and (iii) does not give effect to the receipt of any proceeds from
this Offering. See "S Corporation Distributions," "Management --
Non-Competition, Confidentiality and Other Employee Arrangements" and Notes A
and M of Notes to Consolidated Financial Statements. After giving effect to
the sale by the Company of 2,400,000 shares of Common Stock offered
hereby (after deducting the estimated underwriting discounts and commissions and
offering expenses) at an assumed initial public offering price of $16.00 per
share, the pro forma net tangible book value of the Company at December 31, 1995
would have been $42.7 million, or $2.58 per share. This represents an immediate
increase in pro forma net tangible book value of $2.04 per share to existing
stockholders and an immediate dilution of $13.42 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $16.00
Pro forma net tangible book value before this Offering......... $0.54
Increase attributable to new investors......................... 2.04
-----
Pro forma net tangible book value after this Offering............... 2.58
------
Dilution to new investors........................................... $13.42
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1995, the differences in the total consideration paid and the average price per
share paid by stockholders of the Company immediately prior to this Offering and
the new investors with respect to the 2,400,000 shares of Common Stock to be
sold by the Company. The calculations in this table with respect to shares of
Common Stock to be purchased by new investors in this Offering reflect an
assumed initial public offering price of $16.00 per share:
<TABLE>
<CAPTION>
SHARES
PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Stockholders immediately prior to
this Offering.................. 14,166,000 85.5% $ 58 0.2% $ 0.004
New investors.................... 2,400,000 14.5 38,400 98.8 16.000
---------- ------ ------- ------
Total.................. 16,566,000 100.0% $38,458 100.0%
========== ====== ======= ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this Offering will reduce the number of
shares held by those persons who are stockholders of the Company immediately
prior to this Offering to 9,366,000, or 56.5%, (8,646,000, or 51.1% if the
Underwriters' over-allotment is exercised in full), and will increase the
number of shares held by new investors to 7,200,000, or 43.5% (8,280,000, or
48.9%, if the Underwriters' over-allotment option is exercised in full), of
the total number of shares of Common Stock outstanding after this Offering.
See "Principal and Selling Stockholders".
The foregoing computations exclude 1,300,000 shares of Common Stock
reserved for issuance under the Company's 1996 Stock Option Plan, of which
shares of Common Stock are subject to options issued prior to the date hereof,
exercisable at the initial public offering price per share. See
"Management -- 1996 Stock Option Plan".
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1995, (i) on an actual basis, (ii) on a pro forma basis
to reflect the effect of an S corporation distribution to the then stockholders
of all previously undistributed S corporation earnings as well as the recording
of a deferred tax liability as if the S corporation status of the Company
terminated immediately prior to December 31, 1995 and to reflect the effect of
issuing 51,000 shares of Common Stock to certain employees shortly prior to this
Offering (See "S Corporation Distributions," "Management -- Non-Competition,
Confidentiality and Other Employee Arrangements" and Notes A and M of Notes to
Consolidated Financial Statements), and (iii) on an as adjusted basis to reflect
the sale of the 2,400,000 shares of Common Stock being offered by the Company
hereby at an assumed initial public offering price of $16.00 per share and the
application of the estimated net proceeds of $35.1 million. The table should be
read in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 3,838 $ 1,873 $36,973
======= ======= =======
Total long-term debt(2)................................. $ 8,960 $ 8,960 $ 8,960
Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares
authorized, none issued and outstanding............ -- -- --
Common stock; $.01 par value; 50,000,000 shares
authorized; 14,115,000 shares issued and
outstanding, actual; 14,166,000 shares issued and
outstanding, pro forma; 16,566,000 shares issued
and outstanding, as adjusted(3).................... 141 142 166
Additional paid-in capital............................ -- 816 35,892
Retained earnings..................................... 10,254 8,119 8,119
Unrealized gain on marketable securities.............. 16 16 16
Unearned compensation................................. -- (765) (765)
------- ------- -------
Total stockholders' equity......................... 10,411 8,328 43,428
------- ------- -------
Total capitalization.......................... $19,371 $17,288 $52,388
======= ======= =======
</TABLE>
- ---------------
(1) Does not reflect distributions of earnings of the Company and the
Predecessor Companies from January 1, 1996 to a date prior to the date of
this Offering, up to $10.0 million, to those persons who were stockholders
of the Company and the Predecessor Companies at such date. See "S
Corporation Distributions".
(2) For a description of the Company's long-term debt, see Note F of Notes to
Consolidated Financial Statements.
(3) Excludes 1,300,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which shares of Common
Stock are subject to options issued prior to the date hereof, exercisable at
the initial public offering price per share. See "Management -- 1996 Stock
Option Plan".
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
consolidated financial data set forth below at the end of and for Fiscal 1995
and 1994, the four months ended December 31, 1993 and Fiscal 1993 have been
derived from financial statements audited by Grant Thornton LLP, independent
certified public accountants. The consolidated financial data at the end of and
for Fiscal 1992 and 1991 have been derived from financial statements audited by
other certified public accountants.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOUR MONTHS FISCAL YEAR ENDED
AUGUST 31, ENDED DECEMBER 31,
------------------------------- DECEMBER 31, ----------------------
1991 1992 1993 1993 1994 1995
------- ------- ------- ------------ ------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales......................... $26,938 $28,835 $35,584 $13,617 $50,192 $ 60,633
Cost of goods sold................ 15,008 16,972 20,525 7,675 27,392 31,728
------- ------- ------- ------- ------- ----------
Gross profit.................... 11,930 11,863 15,059 5,942 22,800 28,905
Selling, general and
administrative expenses......... 9,040 10,014 11,465 4,070 13,992 16,343
------- ------- ------- ------- ------- ----------
Operating earnings.............. 2,890 1,849 3,594 1,872 8,808 12,562
Other income (expense)............ 196 384 64 (62) 134 83
------- ------- ------- ------- ------- ----------
Earnings before income taxes.... 3,086 2,233 3,658 1,810 8,942 12,645
Income taxes...................... 1,246 968 1,575 180 268 224
------- ------- ------- ------- ------- ----------
Net earnings.................... $ 1,840 $ 1,265 $ 2,083 $ 1,630 $ 8,674 $ 12,421
======= ======= ======= ======= ======= ==========
PRO FORMA DATA
Historical earnings before
income taxes.................. $ 1,810 $ 8,942 $ 12,645
Compensation differential(1).... -- -- 1,791
Income taxes(2)................. 733 3,612 5,926
------- ------- ----------
Net earnings.................. $ 1,077 $ 5,330 $ 8,510
======= ======= ==========
Net earnings per share(3)....... $ .60
==========
Weighted average number of
common shares outstanding..... 14,166,000
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
AUGUST 31, DECEMBER 31, ------------------------------------
--------------------------- ----------------- PRO AS
1991 1992 1993 1993 1994 ACTUAL FORMA(4) ADJUSTED(5)
------- ------- ------- ------- ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............. $ 5,684 $ 6,419 $ 6,941 $ 7,896 $ 9,559 $12,740 $ 10,657 $45,757
Total assets................ 11,786 14,282 17,685 18,254 23,005 28,454 26,489 61,589
Long-term debt.............. 296 1,851 2,793 2,620 2,321 8,960 8,960 8,960
Stockholders' equity........ 6,812 7,210 8,891 9,860 13,052 10,411 8,328 43,428
</TABLE>
- ---------------
(1) The Company has entered into employment agreements with Messrs. Edward and
Keith Frankel which provide that their salaries and bonuses will not be
greater than $500,000 each in 1996. Had those agreements been in place in
Fiscal 1995 and, assuming that the full amount of the bonuses had been paid,
the Company would have paid $1.8 million less in compensation. Aggregate
compensation to Messrs. Edward and Keith Frankel in Fiscal 1993 and 1994 was
$2.5 million and $2.8 million greater than the maximum aggregate salary and
bonuses to be paid to these executives pursuant to such agreements in 1996.
Such agreements provide that for 1997 and 1998 base salary is subject to
annual increases of the greater of 5% or the percentage increase in the
Consumer Price Index and that the bonus shall not be
18
<PAGE> 21
more than $150,000 for each executive unless the Compensation Committee
determines otherwise on the basis of operating results. See
"Management -- Employment Agreements".
(2) For the four month period ended December 31, 1993 and Fiscal 1994 and 1995,
the Predecessor Companies were S corporations for Federal income tax
purposes and, accordingly, were not subject to Federal income taxes. The
Predecessor Companies were subject to Federal income taxes in Fiscal 1993,
1992 and 1991. For the four month period ended December 31, 1993 and Fiscal
1994 and 1995, Garden State Nutritionals, Inc. and Windmill Marketing
Services, Inc., and for Fiscal 1995, Cel-Mark International, Inc., were S
corporations for state income tax purposes. The pro forma data have been
presented as if the Company were subject to income taxes for all periods,
based on the tax laws in effect during such periods. See Note A of Notes to
Consolidated Financial Statements.
(3) Earnings per share reflects the effect of issuing 51,000 shares of Common
Stock to certain employees prior to this Offering. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
(4) The Company's presentation of unaudited pro forma balance sheet data at
December 31, 1995 reflects the effect of a $2.0 million S corporation
distribution to the stockholders at such date of all previously
undistributed S corporation earnings as well as the recording of a deferred
tax liability as if the S corporation status of the Company terminated
immediately prior to December 31, 1995 and reflects the effect of issuing
51,000 shares of Common Stock to certain employees prior to this Offering.
In connection with the issuance of shares to such employees, the Company
will recognize aggregate deferred compensation expense of $765,000 which
will be amortized over five years beginning in fiscal 1997. All earnings of
the Company and the Predecessor Companies from January 1, 1996 to a date
prior to the date of this Offering, up to $10.0 million, will be distributed
to those persons who were stockholders of the Company and the Predecessor
Companies at such date. See "S Corporation Distributions",
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements" and Notes A and M of Notes to Consolidated Financial
Statements.
(5) Adjusted to give effect to this Offering and the application of the net
proceeds therefrom and to the pro forma adjustments described in footnote
(4) above. See "Use of Proceeds".
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the related notes
thereto, and the other financial information appearing elsewhere in this
Prospectus. In 1993, Garden State Nutritionals, Inc. and Windmill Marketing
Services, Inc. elected to be treated as S corporations for Federal income tax
purposes and changed their fiscal year end from August 31 to December 31. The
financial information presented herein references the fiscal years ended
December 31, 1995 and 1994 ("Fiscal 1995" and "Fiscal 1994", respectively), the
fiscal year ended August 31, 1993 ("Fiscal 1993") and the four months ended
December 31, 1993.
OVERVIEW
The Company is a custom developer, manufacturer and marketer of vitamins
and nutritional supplements, as well as specialty nutritional systems. The
Company was incorporated on April 16, 1996 and prior to the date of this
Offering will be the successor by merger to the Predecessor Companies which will
be operated as divisions of the Company. Although the Company has been treated
as an S corporation, shortly prior to the date of this Offering, the Company
will become a C corporation and, accordingly, will be fully subject to Federal
and state income taxes. The table below illustrates the contribution to net
sales of each of the Company's divisions.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FISCAL YEAR ENDED FOUR MONTHS ENDED DECEMBER 31, DECEMBER 31,
AUGUST 31, 1993 DECEMBER 31, 1993 1994 1995
-------------------- -------------------- --------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garden State........ $25,399 71.4% $ 8,732 64.1% $33,988 67.7% $39,625 65.3%
Windmill Marketing... 7,396 20.8 2,935 21.6 8,426 16.8 11,439 18.9
Celebrity Marketing.. 2,789 7.8 1,950 14.3 7,778 15.5 9,569 15.8
------- ------ ------- ------ ------- ----- ------- -----
Net sales(1)........ $35,584 100.0% $13,617 100.0% $50,192 100.0% $60,633 100.0%
======= ====== ======= ====== ======= ===== ======= =====
</TABLE>
- ---------------
(1) Sales shown above are net of inter-company transactions. Sales of products
manufactured by Garden State for either Windmill Marketing or Celebrity
Marketing are reflected in each such division's results.
The Company's strategy for growth incorporates the following key aspects:
(i) targeting profitable growth across several channels of distribution; (ii)
broadening its product line and expanding value added services; (iii)
maintaining technologically advanced manufacturing facilities; (iv) leveraging
its product line across a diverse customer base; and (v) making strategic
acquisitions. See "Business -- Strategy". The Company's net sales have grown
from $26.9 million in Fiscal 1991 to $60.6 million in Fiscal 1995, a compounded
annual growth rate of 20.6%.
20
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth certain data from the respective
consolidated statements of operations, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR FOUR MONTHS FISCAL YEAR ENDED
ENDED ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, -----------------
1993 1993 1994 1995
----------- ------------- ----- -----
<S> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................. 57.7 56.4 54.6 52.3
------ ------ ------ ------
Gross profit................................... 42.3 43.6 45.4 47.7
Selling, general and administrative expenses... 32.2 29.9 27.9 27.0
------ ------ ------ ------
Earnings from operations....................... 10.1 13.7 17.5 20.7
Other income (expense)......................... 0.2 (0.4) 0.3 0.2
------ ------ ------ ------
Earnings before income taxes................... 10.3 13.3 17.8 20.9
Income taxes................................... 4.4 1.3 0.5 0.4
------ ------ ------ ------
Net earnings................................... 5.9% 12.0% 17.3% 20.5%
====== ====== ====== ======
</TABLE>
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales increased $10.4 million, or 20.8%, from $50.2 million
in Fiscal 1994 to $60.6 million in Fiscal 1995. Net sales of the Garden State
division increased $5.6 million, or 16.6%, from $34.0 million in Fiscal 1994 to
$39.6 million in Fiscal 1995. The increase was largely attributable to the
addition of four new direct selling company customers in Fiscal 1995, which more
than offset the loss of two major customers that had accounted for $4.0 million
in net sales in Fiscal 1994. The direct selling industry is highly volatile.
Such companies or other customers may purchase significant quantities of product
during one fiscal period and greatly reduced quantities or none of such product
in subsequent fiscal periods. As a result of such volatility, the Company's
success is dependent upon adding new customers for its products or increasing
orders from existing customers to supplement or replace reduced purchases from
such direct selling companies or other customers from time to time. Net sales of
the Windmill Marketing division increased $3.0 million, or 35.8%, from $8.4
million in Fiscal 1994 to $11.4 million in Fiscal 1995. Of this increase, $1.8
million was attributable to the introduction of the Company's branded specialty
nutritional supplements to drug stores, supermarkets and discount department
store chains. These products had accounted for less than $100,000 of net sales
in Fiscal 1994. The balance of the increase was due to higher sales of the
Company's Windmill(R) and Foods Plus(R) branded products and increased sales of
products of third parties distributed by the Windmill Marketing division. Net
sales from the Celebrity Marketing division increased by $1.8 million, or 23.0%,
from $7.8 million in Fiscal 1994 to $9.6 million in Fiscal 1995. The majority of
this increase was attributable to higher sales to two customers including the
Home Shopping Network.
Cost of Goods Sold. Cost of goods sold increased $4.3 million, or 15.8%,
from $27.4 million in Fiscal 1994 to $31.7 million in Fiscal 1995. As a
percentage of net sales, cost of goods sold decreased from 54.6% in Fiscal 1994
to 52.3% in Fiscal 1995. This improvement was due primarily to increased
operating efficiencies resulting from continued capital investment in plant and
equipment. Additionally, the Company benefitted from the increased sales of
higher margin products such as specialty nutritional systems and the Company's
branded specialty nutritional supplements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased $2.3 million, or 16.8%, from $14.0
million in Fiscal 1994 to $16.3 million in Fiscal 1995. SG&A includes salaries
and bonuses to Messrs. Edward and Keith Frankel, which decreased from $3.8
million for Fiscal 1994 to $2.8 million for Fiscal 1995. This reduction
primarily resulted from reduced commissions to Mr. Keith Frankel reflecting
changes in product mix in the Celebrity Marketing division. Prior to this
Offering, Mr. Keith Frankel was compensated primarily on a commission basis.
Pursuant to employment agreements to be effective on the date of this Offering,
Messrs. Edward and Keith Frankel have agreed to limit
21
<PAGE> 24
their 1996 salaries and bonuses to $500,000 each. See "Management -- Employment
Agreements". Increased SG&A from Fiscal 1994 to Fiscal 1995, which more than
offset the reduced salaries and bonuses to these executives, reflected an
increase of $1.1 million in advertising and other product marketing expenses
primarily for branded specialty nutritional supplements as well as expenses
associated with increased volume including expenses related to the addition of
personnel and increased sales commissions. As a percentage of net sales, SG&A
decreased from 27.9% in Fiscal 1994 to 27.0% in Fiscal 1995 reflecting the
leveraging of these expenses over an increased revenue base.
Prior to this Offering the Company will sell an aggregate of 51,000 shares
of Common Stock to certain employees for $1.00 per share. In connection with
such sale, the Company will recognize aggregate deferred compensation expense of
$765,000 which will be amortized over five years, beginning in fiscal 1997. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
Other Income. Other income (expense) decreased $51,000, from $134,000 in
Fiscal 1994 to $83,000 in Fiscal 1995. This decrease is due primarily to an
increase in interest expense, from $214,000 in Fiscal 1994 to $336,000 in Fiscal
1995. The additional interest expense was primarily due to $7.0 million of term
loan indebtedness incurred in Fiscal 1995, which was partially offset by an
increase in investment income, from $93,000 in Fiscal 1994 to $199,000 in Fiscal
1995. This increase in investment income resulted primarily from the institution
of a new cash management system in Fiscal 1995.
Income Taxes. Income taxes amounted to $224,000 in Fiscal 1995 compared to
$268,000 in Fiscal 1994. The Company will become a C corporation shortly prior
to the date of this Offering. See "S Corporation Distributions". The application
of the effective statutory Federal and state tax rates would have resulted in
pro forma income taxes of $5.9 million and $3.6 million in Fiscal 1995 and
Fiscal 1994, respectively.
Fiscal 1994 Compared to Fiscal 1993
Net Sales. In September 1993, the Company elected to be treated as an S
corporation for tax purposes and, accordingly, changed its fiscal year from
August 31 to December 31. The increased amount of net sales in Fiscal 1994 over
Fiscal 1993 was realized after the intervening four month period ended December
31, 1993. Therefore, the Company has not included the percentage changes from
Fiscal 1993 to Fiscal 1994 in its discussions of results of operations for these
periods. Net sales of the Company increased $14.6 million from $35.6 million in
Fiscal 1993 to $50.2 million in Fiscal 1994. Net sales of the Garden State
division increased $8.6 million from $25.4 million in Fiscal 1993 to $34.0
million in Fiscal 1994. This increase was attributable to the addition of seven
new customers, four of which were direct selling Company customers, which more
than offset the loss of one major customer that had accounted for $1.6 million
in net sales in Fiscal 1993. Net sales of the Windmill Marketing division
increased $1.0 million from $7.4 million in Fiscal 1993 to $8.4 million in
Fiscal 1994. This increase was due primarily to increased volume from its
existing customers. Net sales of the Celebrity Marketing division increased by
$5.0 million from $2.8 million in Fiscal 1993 to $7.8 million in Fiscal 1994.
This increase was primarily attributable to higher sales to one customer, the
Home Shopping Network.
Cost of Goods Sold. Cost of goods sold increased $6.9 million from $20.5
million in Fiscal 1993 to $27.4 million in Fiscal 1994. As a percentage of net
sales, cost of goods sold decreased from 57.7% in Fiscal 1993 to 54.6% in Fiscal
1994. This improvement was due primarily to increased operating efficiencies
resulting from continued capital investment in plant and equipment.
Additionally, the Company benefitted from increased sales of higher margin
products such as specialty nutritional systems.
Selling, General and Administrative Expenses. SG&A increased $2.5 million
from $11.5 million in Fiscal 1993 to $14.0 million in Fiscal 1994. As a
percentage of net sales, SG&A decreased from 32.2% in Fiscal 1993 to 27.9% in
Fiscal 1994. The increase is attributable primarily to payroll and payroll
related expenses amounting to $1.3 million. In addition, marketing expenses
increased $500,000 due to increased expenses for promotion of the Windmill(R)
vitamin products to retail pharmacies. The balance of the expense increase is
generally related to increased volume. The decline in SG&A as a percentage of
net sales reflects the Company's continuing efforts to leverage its overhead and
other fixed costs.
22
<PAGE> 25
Other Income. Other income (expense) increased $70,000 from $64,000 in
Fiscal 1993 to $134,000 in Fiscal 1994.
Income Taxes. Income taxes amounted to $268,000 in Fiscal 1994 compared to
$1.6 million in Fiscal 1993. Had the Company been a C corporation in Fiscal
1994, income taxes would have been $3.6 million.
Liquidity and Capital Resources
To date, the Company has financed its growth from funds generated by
operations and long-term borrowings. Net cash provided by operating activities
in Fiscal 1995 increased $1.8 million, or 20.9%, to $10.4 million from $8.6
million in Fiscal 1994. The increase in net cash provided by operating
activities resulted primarily from the growth in net earnings which increased
$3.7 million. Partially offsetting the growth in net earnings was an increase of
$3.2 million in working capital in Fiscal 1995. Capital expenditures in Fiscal
1995 decreased $961,000, or 62.1%, to $588,000 from $1.5 million in Fiscal 1994.
In Fiscal 1994, $482,000 was spent on renovations made to the Lehigh Drive
facility and $757,000 for the purchase of machinery and equipment for expansion
of the Company's manufacturing and packaging capabilities. The Company expects
that its capital expenditures in fiscal 1996 will be approximately $3.6 million,
of which approximately $2.6 million will be for capital improvements to its new
Henderson Drive facility. The Company expects that its capital expenditures in
fiscal 1997 will be approximately $1.4 million. See "Use of Proceeds".
In Fiscal 1995, the Predecessor Companies distributed $14.7 million,
representing previously undistributed earnings in respect of Fiscal 1994 and a
portion of Fiscal 1995 earnings. A portion of such distribution was financed by
a $7.0 million term loan agreement entered into in 1995 by the Predecessor
Companies. As of December 31, 1995 the Predecessor Companies had undistributed S
corporation earnings of $2.0 million, all of which has been distributed to those
persons who were stockholders of the Predecessor Companies as of such date. All
earnings of the Company and the Predecessor Companies from January 1, 1996 to a
date prior to the date of this Offering, up to $10.0 million, will be
distributed to those persons who were stockholders of the Company and the
Predecessor Companies at such date. As of April 30, 1996, $2.4 million of such
earnings have been distributed to such stockholders. The remaining amount of
earnings, up to $7.6 million, will be distributed to such stockholders in cash
and pursuant to the Company's promissory notes. The cash payments will be made
prior to the date of this Offering to the extent that the Company has sufficient
cash. The Company's promissory notes, which will be issued prior to the date of
this Offering, will provide for 36 equal monthly payments with interest at Chase
Manhattan Bank's prime rate on the date of issuance. Beginning shortly prior to
the date of this Offering the Company will no longer be treated as an S
corporation and will be subject to federal and state income taxes. See "S
Corporation Distributions".
In November 1992, the Company obtained a $1.2 million loan from a
commercial bank for the purpose of financing its purchase of the facility
located at 21 Dwight Place, Fairfield, New Jersey. The terms of the loan
agreement call for 59 monthly principal installments of $9,600 each and a final
installment of $600,000 on November 1, 1997. Interest accrues on the unpaid
principal balance at the rate of 7.85% per annum and is payable monthly. The
Company's obligations under the loan are secured by a mortgage on the facility.
The Company intends to sell this facility and repay the balance of such loan in
connection with such sale. See "Business -- Properties".
In September 1995, the Company entered into a $7.0 million seven year term
loan with a commercial bank in order to finance a portion of certain
distributions to the Company's stockholders. Under this agreement, principal
payments of $250,000 are due in 28 equal, quarterly installments commencing
January 1, 1996. Interest is payable quarterly on the unpaid principal balance
at a fixed annual rate of 7.74%. The Company is required to comply with certain
operating and financial covenants, including specific collateral requirements,
maintenance of minimum working capital and debt ratios, and restrictions on
capital expenditures. The agreement allows for optional prepayments subject to
payment of a specified fixed-rate breakage fee. Although the Company had been,
as of December 31, 1995, in default of the limitation on capital expenditures
contained in the loan agreement, the bank subsequently increased the capital
expenditures limitation for that period, thereby putting the Company in
compliance with the covenant. The Company is seeking to amend the loan agreement
to increase the capital expenditure limitation for periods after December
23
<PAGE> 26
31, 1995, and to amend such provisions as are necessary to allow for the merger
of the Predecessor Companies with and into the Company for this Offering. There
can be no assurance that such amendment will be obtained.
In November 1995, the Company entered into a triple net lease on a new
facility of approximately 140,000 square feet of space in West Caldwell, New
Jersey. The lease has an initial term of five years during which the annual
lease expense is $720,000, with an option for an additional ten years during
which the rent will be equal to fair market value at the time of the lease
renewal. The facility is subject to a $3.5 million mortgage which secures the
term loan obligations of its owner, a limited liability company in which Messrs.
Edward and Keith Frankel are members, which obligations are guaranteed by the
Company. See "Business -- Properties" and "Certain Relationships and Related
Transactions".
As a result of various stock redemption, confidentiality, non-competition
and related agreements, at December 31, 1995, the Company had outstanding notes
payable of $1.1 million. See Note F of Notes to Consolidated Financial
Statements.
The Company believes that its existing cash balances, internally generated
funds from operations and the net proceeds from the Offering will provide the
liquidity necessary to satisfy the Company's working capital needs for the next
two years, including the purchase and maintenance of inventory, the financing of
the Company's accounts receivable and the financing of anticipated capital
expenditures. The Company intends, as part of its strategy for growth, to make
strategic acquisitions of complementary or related product lines and businesses.
The Company has no current arrangements or agreements with respect to any
particular acquisition. The Company may finance these transactions with the use
of internally generated funds, a portion of the proceeds of this Offering, bank
borrowings, or the issuance of additional equity or debt securities. See "Use of
Proceeds" and "Business -- Strategy". There can be no assurance that such
additional funds will be available to the Company at all or on acceptable terms.
Seasonality
The Company experiences limited seasonal fluctuations in its business with
sales being greater in the first and fourth quarters than in the second and
third quarters.
Inflation
Inflation has not had a significant impact on the Company in the past three
years nor is it expected to have a significant impact in the foreseeable future.
Impact of Recently Issued Financial Accounting Standards
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Account Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which provides guidance on which to access and how to measure impairment of
long-lived assets, certain intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," which gives companies a choice of the
method of accounting used to determine stock-based compensation. Companies may
account for such compensation by using either the intrinsic value-based method
provided in APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," or the fair market value-based method provided in SFAS No. 123.
These statements are effective for financial statements for fiscal years
beginning after December 15, 1995.
The Company believes that the impact of adopting SFAS No. 121 will not be
material to the Company. The Company intends to use the intrinsic value-based
method provided in APB No. 25 to determine stock-based compensation. The primary
effect of the adoption of SFAS No. 123 is the obligation imposed on the Company
to comply with the new disclosure requirements provided thereunder.
24
<PAGE> 27
BUSINESS
GENERAL
The Company is a custom developer, manufacturer and marketer of vitamins
and nutritional supplements, as well as specialty nutritional systems. The
Company focuses on adding value for its customers through innovative product
development and brand creation. Currently, the Company manufactures a wide
variety of products which are sold (i) to over 100 marketers of vitamins,
nutritional supplements and specialty nutritional systems who sell to their
customers through many different channels of distribution, (ii) to various
companies who reach their customers through electronic media (such as Home
Shopping Club, Inc. and its affiliates (collectively, the "Home Shopping
Network")), and (iii) under its own trademarks to over 3,000 independent
pharmacies, as well as drug store, supermarket and discount department store
chains and to health food stores (such as General Nutrition Companies, Inc.
("GNC"), which has over 2,000 stores). The Company's net sales have grown from
$26.9 million in Fiscal 1991 to $60.6 million in Fiscal 1995, a compounded
annual growth rate of over 20.6%. In Fiscal 1995, more than 50% of the Company's
net sales resulted from products which were custom formulated by the Company
specifically for its customers. In addition, the Company assists a significant
number of these customers with value added services, such as product
development, package design and marketing support services. Approximately 35% of
the Company's Fiscal 1995 net sales were made to customers for sale through
direct marketing and electronic media distribution channels.
The Company operates its business in three divisions: the Garden State
division, the Celebrity Marketing division and the Windmill Marketing division.
Garden State manufactures and packages vitamins and nutritional supplement
products for distribution by the Company's customers as well as by the Celebrity
Marketing and Windmill Marketing divisions. The Company believes that the Garden
State division differentiates itself from many of its competitors by providing
value added services to its customers, including working with customers to
create innovative, branded products. The Celebrity Marketing division develops
and markets custom nutrition and health related products for sale by its
customers through various forms of electronic media, including television home
shopping networks and infomercials, as well as other direct response media,
using endorsements of celebrities and health and nutrition authorities. The
Celebrity Marketing division works with its customers to develop integrated
marketing and promotional strategies which include product identification and
formulation, package design, training and supervision of celebrities and health
and nutritional authorities, promotional and merchandising assistance, and
technical and compliance support. The Windmill Marketing division primarily
sells the Company's own branded product lines, Windmill(R) and Foods Plus(R),
and distributes other vitamin and nutritional supplement products to over 3,000
independent pharmacies generally located in the Northeast, Southeast,
Mid-Atlantic and Midwest regions of the United States. The Company expanded
Windmill Marketing's target market in Fiscal 1994 by introducing branded
specialty nutritional supplements to national drug store, supermarket and
discount department store chains including Walgreens, Osco, Revco and Pathmark,
as well as to health food stores including GNC. These new products include
Hi-Ener-G(TM), a ginseng based energy enhancing product, Citri-Life(TM), a
weight loss nutritional supplement, and Super Juice(TM), a phyto-nutrient
product derived from fruits and vegetables.
Prior to the merger of the Predecessor Companies with and into the Company,
Windmill Marketing Services, Inc., Garden State Nutritionals, Inc. and Cel-Mark
International, Inc. had been in business since 1977, 1979 and 1990,
respectively. During the past five years the Company acquired the assets of a
vitamin and nutritional supplement distributor located in the Midwest, and the
rights to the Foods Plus(R) trademark. The Company believes that its experienced
management group, including four of its most senior operations executives who
have an average of approximately 20 years of experience in the vitamin and
nutritional supplements industry, will continue to be instrumental in
implementing the Company's growth strategy. The Company's principal executive
offices are located at 100 Lehigh Drive, Fairfield, New Jersey 07004, and its
telephone number is (201) 575-9200.
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INDUSTRY
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates in the Packaged Facts
Survey, the retail market for vitamins, minerals and other nutritional
supplements has grown at a compounded annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. The Company believes these figures
exclude sales through electronic media, and direct selling and marketing
companies, which the Company views as important market segments. The Company
believes several factors account for the steady growth of the vitamins and
nutritional supplements market, including (i) increasing interest by many
individuals in taking better care of themselves, (ii) increased consumer
awareness of the health benefits of vitamins and nutritional supplements, (iii)
emphasis on the promotion of preventative care strategies by health officials to
address rising health care costs and (iv) favorable demographic trends toward
older Americans who are more likely to consume vitamins and mineral supplements.
The Company believes that increased consumer interest in healthier
lifestyles has led to greater consumption of vitamins and nutritional
supplements. The increase in the number of prominent television programs and
magazines on health, fitness and healthier eating is indicative of greater
consumer interest in this area. The Company believes more individuals are
exercising, reducing fat intake and consuming vitamins and other nutritional
supplements.
Over the past several years, public awareness of the positive effects of
vitamins and other nutritional supplements on health has been heightened by
widely publicized reports and medical research findings indicating a correlation
between the consumption of nutrients and the reduced incidence of certain
diseases. Reports have indicated that the U.S. Government and universities
generally have increased sponsorship of research relating to vitamins and other
nutritional supplements. Congress has established the Office of Alternative
Medicine within the National Institutes of Health to foster research into
alternative medical treatment modalities, which may include natural remedies.
The Company believes that the aging of the U.S. population, together with a
corresponding increased focus on preventative health care measures, has resulted
and will continue to result in increased demand for certain nutritional
supplement products. According to Congressional findings that accompanied the
DSHEA, national surveys reveal that almost 50% of Americans regularly consume
vitamins, minerals and herbal supplements. The 35 and older age group of
consumers, which has grown and is expected to continue to grow over the next two
decades, represents 78% of the regular users of vitamin and mineral supplements.
Based on data provided by the U.S. Bureau of Census, from 1990 to 2010, the 35
and older age group of the U.S. population is projected to increase by 31.7%, a
significantly greater increase than for the U.S. population in general.
The Company believes there are significant trends occurring within the
growth of the overall market. Over the past several years, a number of
successful nutritional products and systems have been introduced, including
function specific products for weight loss, sports nutrition, menopause, energy
and mental function. In addition, these products and systems use a number of
innovative nutritional ingredients, such as ginseng, ginkgo biloba, and chromium
picolinate.
RECENT LEGISLATION
In October 1994, the FDCA was amended by enactment of the DSHEA, which
introduced a new statutory framework governing the composition and labeling of
dietary supplements, which in the Company's judgment is favorable to the dietary
supplement industry. With respect to composition, the DSHEA creates a new class
of "dietary supplements", dietary ingredients consisting of vitamins, minerals,
herbs, amino acids and other dietary substances for human use to supplement the
diet, as well as concentrates, metabolites, extracts or combinations of such
dietary ingredients. Generally, dietary ingredients on the market before October
15, 1994 may be sold without obtaining FDA pre-approval and without notifying
the FDA. As for labeling, the DSHEA permits "statements of nutritional support"
for dietary supplements without FDA pre-approval. Such statements may describe
how particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body
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structure, function or well-being (but may not state that a dietary ingredient
will diagnose, mitigate, treat, cure or prevent a disease). In addition, the
DSHEA further allows the dissemination of "third party literature", publications
such as reprints of scientific articles that link particular dietary supplements
with health benefits to be used in connection with the sale of dietary
supplements, to consumers at retail or by mail order. These provisions are
subject to important limitations and restrictions. For a more complete
description and a description of certain proposed legislation affecting the sale
of ma huang containing products, See "Business -- Government Regulation".
STRATEGY
The Company's strategy for growth incorporates the following key aspects:
(i) targeting profitable growth across several channels of distribution; (ii)
broadening its product line and expanding value added services; (iii)
maintaining technologically advanced manufacturing facilities, (iv) leveraging
its product line across a diverse customer base, and (v) making strategic
acquisitions.
TARGETING PROFITABLE GROWTH ACROSS SEVERAL CHANNELS OF
DISTRIBUTION: The Company focuses on selling products to customers
where the Company believes it can achieve attractive margins by
providing value added services, such as product development, package
design and marketing support services. The Company seeks continued
growth through high margin product opportunities across all of its
channels of distribution, especially with respect to sales to direct
selling companies and electronic media. In addition, the Company is
seeking to increase export sales which were $2.1 million in Fiscal
1995, or less than 4% of total sales.
BROADENING ITS PRODUCT LINE AND EXPANDING VALUE ADDED SERVICES:
The Company plans to continue to broaden its product line of custom
formulated and manufactured products. In this regard, the Company is
considering expanding the dosage forms in which it manufactures
products to include effervescent, powdered and liquid vitamins and
nutritional supplements. By adding in-house manufacturing capabilities
the Company seeks to increase profit margins on products currently
manufactured by third parties and to improve customer service. The
Company also believes that its group of technical and marketing
managers, experts, and outside consultants are instrumental in
identifying, developing, formulating and marketing nutritional
products, including function specific nutritional packages, which are
marketed by the Company's customers and under the Company's own
trademarks.
MAINTAINING TECHNOLOGICALLY ADVANCED MANUFACTURING FACILITIES:
The Company operates technologically advanced manufacturing
facilities and invests regularly to update its plant and equipment.
Plant layout and equipment are designed for flexible production
schedules and to enable the Company to efficiently produce short runs
to accommodate the Company's broad product range and large base of
customers. The Company is currently renovating an approximately
140,000 square foot facility in West Caldwell, New Jersey that will
add packaging and coating capacity and provide space in the existing
facility to expand blending and tabulating capacity. See "Business --
Properties".
LEVERAGING ITS PRODUCT LINE ACROSS A DIVERSE CUSTOMER BASE: The
Company sells through a wide variety of marketing channels, including
independent pharmacies, drug store, supermarket and discount
department store chains, health food stores, mail order, direct
selling companies and electronic media. The Company believes that the
diverse nature of its customer base helps it to recognize consumer
demand in these channels providing critical input for new product
development and to leverage its product development efforts by
introducing customized variations of new products in different
channels. Moreover, the Company benefits from having a diverse base of
sales from over 3,000 products sold in these distribution channels. No
single product accounted for more than 3% of net sales in Fiscal 1995
except for one product which accounted for 6.2% of such net sales.
MAKING STRATEGIC ACQUISITIONS: Using the proceeds of this
Offering, the Company intends to continue its current strategy and to
seek to grow through the acquisition of complementary and related
product lines and businesses. The Company expects to evaluate
acquisition opportunities
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based on their strategic fit, the Company's analysis of its ability to
improve the profitability of acquired operations through cost reductions,
other synergies with existing operations and anticipated return on capital
invested. The Company has no current arrangements or agreements with
respect to any particular acquisitions. As the nutritional supplement
industry is highly fragmented with many companies producing only a single
product line or single product, the Company believes that it is well
positioned to make acquisitions due to its broad customer base, knowledge
of marketing in several distribution channels and technologically advanced
manufacturing facilities. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
PRODUCTS
In Fiscal 1995, the Company produced more than 3,000 products which were
marketed under proprietary brands of the Company or third parties. The Company
introduces new products and reformulates existing products on an ongoing basis
in response to perceived consumer demand.
The Garden State division manufactures, packages and markets a wide variety
of vitamins and nutritional supplements such as minerals, herbs and enzymes
which are sold as two piece hard shell capsules, solid dosage and bi-layered
tablets. The Company is considering expanding the dosage forms in which it
manufactures products to include forms such as effervescent, powdered and liquid
vitamin and nutrition supplements. See "Use of Proceeds". These products are
produced primarily for branded vitamin companies, direct selling companies,
health food stores, specialty retailers and direct response including mail order
companies. The Garden State division also manufactures products for the
Celebrity Marketing and the Windmill Marketing divisions.
The Celebrity Marketing division develops and markets custom nutrition and
health related products for sale by its customers through various forms of
electronic media, including television home shopping networks and infomercials,
as well as other direct response media, using endorsements of celebrities and
health and nutrition authorities. Examples of its customers include companies
which sell through electronic media, such as the Home Shopping Network, Frankie
Avalon Products, Inc. ("Frankie Avalon Products"), Value Vision International,
Inc. ("Value Vision") and Telebrands Corp. ("Telebrands"), and direct selling
companies such as Nu-Skin International Inc. and BeautiControl Cosmetics, Inc.
("BeautiControl").
The Windmill Marketing division distributes over 500 different branded
products primarily to independent pharmacies. These products include a full line
of multi- and single vitamins and nutritional supplements, as well as function
specific products, such as weight loss, energy and mental function, sports
nutrition and menopause. The Windmill Marketing division also distributes
vitamins and nutritional supplements on behalf of other vitamin marketers, such
as Twin Laboratories Inc. ("Twin Labs") and Schiff Weider Foods Inc. ("Schiff").
In addition, in order to address the product needs of independent pharmacies,
the Windmill Marketing division distributes sunglasses, non-prescription reading
glasses, sugar-free candies and similar products as well as other brands of
nutritional supplements. In Fiscal 1994, the Windmill Marketing division
expanded its target market for specialty nutritional systems to drug store,
supermarket and discount department store chains, as well as health food stores
including GNC. The Windmill Marketing division currently markets proprietary
products including Hi-Ener-G(TM), Super Juice(TM) and Citri-Life(TM) to these
customers. The Windmill Marketing division also recently launched its Diet
Works(TM) specialty weight management line of products for sale to GNC, other
health food stores and independent pharmacies.
PRODUCT DEVELOPMENT
The Company seeks to develop and introduce innovative products by closely
monitoring consumer trends and scientific research. The Company's product
development staff regularly studies over 25 different health and nutritional
periodicals, including Scientific American and the Journal of American Botanical
Counsel and Herb Research Foundation, in order to closely monitor research
studies and scientific developments resulting in ideas for new and innovative
products and new applications for current formulations. In addition, the Company
believes that the diverse nature of its customer base further helps it to
recognize consumer demands
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and trends throughout its several channels of distribution. The Company believes
that its introduction of new products and applications has increased the market
share for its branded products and views its product development efforts as an
important part of its continued growth.
In addition to its own branded product development efforts, the Company
assists customers with product development, including product formulation, the
selection of dosage form, package design and package engineering. These services
are provided through the combined efforts of the Company's personnel and, as
needed, other experts including a licensed nutritionist and an herbalist.
Information on specific raw materials and product formulation is culled from
published clinical studies, research data, expert consultation, industry
conferences and specifications from raw materials suppliers and customers.
Technical assistance is another important support service provided by the
Company in assisting its customers with product development. In addition to
using its technical personnel staff, laboratories and equipment to assist
customers, the Company prepares pilot batches of vitamins and nutritional
supplements and provides stability and dissolution test data to customers. The
Company believes that these technical support services are generally important
to the Company's contract manufacturing customers, many of which do not have
their own manufacturing facilities and depend on the Company to provide
development and manufacturing services.
SALES AND MARKETING
Garden State. The Company's value added services are key components of
Garden State's marketing strategy. The Company seeks new business by, among
other things, helping customers with product development, package design and
marketing support services. For direct selling organizations, the Company's
sales and marketing executives provide other value added services, participating
in product launches, lecturing to the selling representatives of such
organizations and providing support materials, promotional information and
expert consultations. The services of the Garden State division are marketed by
the division's four sales executives, as well as Messrs. Edward and Keith
Frankel. The sales executives each service specific customer accounts and are
compensated solely on a commission basis.
Important sources of new business for the Company include inquiries from
potential customers based on the reputation of the Company and its senior
personnel in the industry, referrals from existing customers and participation
in trade shows.
Celebrity Marketing. The services of the Celebrity Marketing division are
marketed principally by Mr. Keith Frankel, who has had primary responsibility
for managing this division since 1990, along with the assistance of a sales
staff of two persons. In addition to his responsibilities as Chief Executive
Officer, Mr. Frankel will continue to manage this division. Mr. Frankel is
responsible for relations with the division's electronic media customers and the
development of new customers. Mr. Frankel's compensation through the date of
this Offering has been primarily commission based. As in the Garden State
division, customers are assisted with product development, package design and
marketing support. In addition, customers are also assisted with the training
and supervision of the celebrities and health and nutritional authorities who
endorse their products and are provided with promotional and merchandising
assistance and technical and compliance support. See "Management -- Summary of
Cash and Certain Other Compensation."
Windmill Marketing. The Company's Windmill(R) and Foods Plus(R) lines of
products are distributed to over 3,000 independent pharmacies through its
20-person salesforce, selected third-party broker organizations and wholesale
drug distributors. In the Northeast, Mid-Atlantic and Midwest regions of the
United States, Windmill Marketing's products are marketed by Company sales
representatives, who generally each have responsibility for a specific territory
and who are compensated by salary and incentive bonuses. Company sales
representatives work closely with retailers to help them optimize the
performance of their vitamin departments, including providing retailers with
various types of merchandising assistance to maintain the inventory and
appearance of the vitamin sections of their stores, sophisticated shelf
marketing strategies, point-of-sale displays and topical information materials.
Windmill Marketing sells its Windmill(R) and Foods Plus(R) lines in the
Southeast region of the United States through one of its wholesale drug
distributors.
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An important part of the Windmill Marketing division's marketing strategy
to independent pharmacies is its "BIG SET" multi-line program for independent
pharmacies, introduced in 1994. The BIG SET allows a customer to fill a 12 to 32
foot section of the store with Windmill(R) and Foods Plus(R) trademarked
products as well as leading health food brands from Twin Labs and Schiff.
Depending on the section size, these sections contain a broad range of vitamins,
nutritional supplements, herbal products and teas, and sports nutrition
products. This enhanced section is designed to allow independent pharmacies to
offer product selection that is similar to that available in health food stores.
The Company markets its Windmill(R) and Foods Plus(R) lines through
advertising, primarily in trade magazines and through radio advertisements. The
Company also regularly attends pharmacy industry conventions.
The Company's branded product sales are directed by a vice president of
sales, who is compensated by salary and an incentive bonus, and by approximately
15 third-party brokers who distribute these products on a commission basis to
drug stores, supermarkets and discount department stores, such as Walgreens,
Osco, Revco and Pathmark. The Company regularly advertises these branded
products through radio, as well as in fitness and health related magazines. The
Company also attends conventions of chain store representatives to promote these
products.
CUSTOMERS
In Fiscal 1995, the Company marketed and sold its products to over 3,400
customers in the United States, and 20 customers abroad. During Fiscal 1995,
sales to the Company's 33 largest domestic customers accounted for approximately
44% of its total net sales, with one customer, the Home Shopping Network,
accounting for approximately 12% of net sales for the same period. In Fiscal
1995, Garden State had approximately 400 customers, Celebrity Marketing had
approximately 20 customers, and Windmill had over 3,000 customers. Export sales
accounted for 3.5% of total net sales during Fiscal 1995. The Company's products
are generally sold on a net 30-day basis and, except for branded products, are
sold without right of return. The Company's returns on branded products were
less than 1% of such sales in Fiscal 1995.
MANUFACTURING AND PRODUCTION
The Company operates technologically advanced manufacturing and production
facilities located in Fairfield and West Caldwell, New Jersey. In total, these
facilities include approximately 175,000 square feet of space. The Company is
currently renovating an approximately 140,000 square foot production,
distribution and office facility in West Caldwell, New Jersey, near its existing
manufacturing facility, that will increase the Company's manufacturing capacity
through the addition of a packaging and coating capacity. In addition, the
relocation of the Company's warehouse facilities and executive offices to the
new facility will allow space in the existing facility for the expansion of the
Company's blending and tableting capacity.
Current production capabilities allow the Company to manufacture solid
dosage and bi-layered tablet forms and two piece hard shell capsules. Following
this Offering, the Company is considering expanding the dosage forms in which it
manufactures products to include forms such as effervescent, powdered and liquid
vitamins and nutritional supplements. See "Use of Proceeds".
The Company emphasizes quality control. The number of quality control
personnel has increased from six in Fiscal 1993 to 14 in Fiscal 1995. Raw
materials which are used by the Company to manufacture its products are
initially held in quarantine, during which time the Company's quality control
personnel assay the raw materials against the supplier's certificate of
analysis. Once the quarantined materials have been properly identified and
analyzed, a lot number is assigned, samples are retained and the material is
processed for formulating, mixing and granulating. This mixture is either
compressed into tablets, and in some cases coated, or it is encapsulated.
Following this process, tablets and capsules are tested for weight, purity,
potency, dissolution and stability. Finished products are generally packaged by
the Company. The Company's automated equipment counts the tablets and capsules
and inserts them into the appropriate packaging, or otherwise prepares them to
be packaged by a third party. The Company maintains a computer-controlled,
integrated production planning system which allows for monitoring of all goods
and services produced by the
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Company. The Company believes that it is in substantial compliance with the good
manufacturing practices standards as established by the FDA with respect to food
manufacturing. See "Business -- Government Regulation".
The Company packages its products either in bottles or in blister packages.
All bottled products have tamper resistant closures. All packaged products are
labeled. A portion of the Company's packaging needs are currently subcontracted
to independent packaging operators. The Company anticipates that this practice
will diminish following this Offering as it expands its packaging facilities and
capabilities to increase capacity and to include specialty packaging
technologies such as effervescent humidity controlled packing, powder packaging,
kit assembly and shrink wrap.
RAW MATERIALS
The principal raw materials used in the manufacturing process are natural
and synthetic vitamins, minerals, herbs and related nutritional supplements,
gelatin capsules and coating materials and the necessary components for
packaging the finished products. The raw materials are available from numerous
sources both within the United States and abroad. The gelatin capsules and
coating materials, and packaging materials are similarly widely available. No
one supplier currently provides more than 10% of the Company's raw material and
related purchases. Raw materials are generally purchased by the Company without
long term commitments, on a purchase order basis. The Company is a party to a
joint venture agreement with a raw materials supplier for the acquisition and
sale of certain raw materials, principally dahlulin.
BACKLOG
At March 29, 1996, order backlog amounted to $7.6 million, compared with
$8.3 million at March 11, 1995. The Company's backlog consists of firm purchase
orders by customers for delivery within the next three months.
COMPETITION
The vitamin, nutritional supplement and specialty nutritional systems
industry is highly competitive. Numerous companies compete with the Company in
the manufacturing, distribution and sale of its products. Most of the Company's
competitors are privately held. Thus, the Company is unable to precisely assess
the size of such competitors or where it ranks in comparison to such competitors
with respect to its market share.
Some of the larger companies engaged in the manufacturing and distribution
of vitamins, nutritional supplements and specialty nutritional systems are
Rexall Sundown, Inc., Leiner Nutritional Products Inc. and Pharmavite Corp. The
Company's branded products compete with numerous distributors and manufacturers,
including large pharmaceutical companies, for sales to independent pharmacies
and chain stores. Some of the larger companies engaged in the sale and
distribution of branded vitamins, nutritional supplements and specialty
nutritional systems are Twin Labs, Nature's Bounty, Inc. and Pharmavite Corp.
Large pharmaceutical companies, such as the Lederle division of American Home
Products Corporation, also sell and distribute specific branded vitamins and
nutritional supplements but do not currently offer a full range of branded
products.
Certain of the Company's competitors, including large pharmaceutical
companies, have greater financial and other resources available to them and
possess extensive manufacturing, distribution and marketing capabilities far
greater than those of the Company. However, the Company believes that it
competes favorably with its competitors because of the value added services it
offers to its customers, its broad product line, its many channels of
distribution, its cost-efficient production capabilities through its
technologically advanced production facilities and its industry-experienced
senior sales personnel.
TRADEMARKS
The Company owns registrations in the United States Patent and Trademark
Offices for its Windmill(R), Foods Plus(R), Celluslim(R), Country Farms(R),
Cytoguard(R), Derma-Pure(R), For Women Only(R), Hidden Strength(R), Iron
Bodies(R), Nutra Betic(R) and Vita Betic(R) trademarks, and has rights to use
additional trademarks material to its business. Federally-registered trademarks
have perpetual life, provided they are renewed on a timely basis
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and are properly used, subject to the right of third parties to petition to
cancel such registrations on certain statutory grounds. The Company relies on
common law trademark rights to protect certain trademarks. Common law trademark
rights do not provide the Company with the same level of protection as would
U.S. federal registered trademarks. In addition, common law trademark rights
extend only to the geographic area in which the trademark is actually used,
while the U.S. federal registration prohibits the use of the trademark by any
third party anywhere in the United States. The Company regards its trademarks
and other intellectual property as valuable assets, and believes that such marks
and intellectual property have significant value when used in connection with
the marketing of its products.
PRODUCT LIABILITY INSURANCE
The Company, like other manufacturers, wholesalers and distributors of
vitamin and nutritional supplement products, faces an inherent risk of exposure
to product liability claims if, among other things, the use of its products
results in injury. Accordingly, the Company currently maintains product
liability insurance policies which provide a total of $6.0 million of coverage
per occurrence and $6.0 million of coverage in the aggregate. Although the
Company's product liability insurance policies do not currently provide coverage
for claims with respect to L-Tryptophan containing products manufactured after
September 1992, the Company discontinued manufacturing such products in 1990.
See "Business -- Legal Proceedings". The Company believes that its current level
of product liability insurance coverage is adequate. However, there can be no
assurance that such insurance will continue to be available or, if available,
will be adequate to cover potential liabilities.
GOVERNMENT REGULATION
The manufacturing, packaging, labeling, advertising, distribution and sale
of the Company's products are subject to regulation by one or more federal
agencies. The Company's activities are also regulated by various agencies of the
states and localities in which the Company's products are manufactured,
distributed and sold. The Company is subject to periodic inspection and testing
of its products by the Federal Drug Administration, the New Jersey Department of
Health and local health departments.
The FDA, the most active regulatory authority exercising jurisdiction over
vitamins, minerals and other nutritional ("dietary") supplements, regulates the
Company's products under the FDCA and regulations promulgated by the FDA to
implement this statute. In 1976, the FDA's ability to regulate the composition
of dietary supplements was restricted in several material respects by the
Proxmire Amendment to the FDCA. Under this Amendment, the FDA is precluded from
establishing maximum limits on the potency of vitamins, minerals and other
dietary supplements, from limiting the combination or number of any vitamins,
minerals or other food ingredients in dietary supplements, and from classifying
a vitamin, mineral, or combination of vitamins and minerals as a drug solely
because of its potency. However, the Proxmire Amendment did not affect the FDA's
authority to determine that a vitamin, mineral or other dietary supplement is a
new drug on the basis of drug claims made in the product's labeling. Such a
determination would require deletion of the drug claims, or the Company's
submission and the FDA's approval of an NDA for the product, which entails
costly and time-consuming clinical studies.
In 1990, the FDA's authority over dietary supplement labeling was expanded
in several respects by NLEA. This statute amended the FDCA by establishing a
requirement for the nutrition labeling of most foods, including dietary
supplements. In addition, the NLEA prohibits the use of any health benefit claim
("health claim") in dietary supplement labeling unless the claim is supported by
significant scientific agreement and is pre-approved by the FDA. Interested
companies may petition the FDA for the approval of health claims. To date, the
FDA has approved health claims for dietary supplements only in connection with
the use of calcium for prevention of osteoporosis and the use of folic acid for
prevention of neural tube defects. The NLEA also allows nutrient content claims
characterizing the level of a particular nutrient in a dietary supplement (e.g.,
"high in," "low in," "source of") if they are in compliance with definitions
issued by the FDA. Significantly, the NLEA precludes any state from mandating
nutritional labeling, nutrient content claim or health claim requirements which
differ from those established under the NLEA, as a result of which the Company's
products will not be subject to inconsistent labeling requirements.
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In October 1994, the FDCA was amended by enactment of the DSHEA, which
introduced a new statutory framework governing the composition and labeling of
dietary supplements which, in the Company's judgment, is favorable to the
dietary supplement industry. With respect to composition, the DSHEA creates a
new class of "dietary supplements", dietary ingredients consisting of vitamins,
minerals, herbs, amino acids and other dietary substances for human use to
supplement the diet, as well as concentrates, metabolites, extracts or
combinations of such dietary ingredients. Generally, under the DSHEA, dietary
ingredients on the market before October 15, 1994 may be sold without obtaining
the FDA pre-approval and without notifying the FDA. On the other hand, a new
dietary ingredient (one not on the market before October 15, 1994) requires
proof that it has been used as an article of food without being chemically
altered, or evidence of a history of use or other evidence establishing that it
is reasonably expected to be safe. The FDA must be supplied with such evidence
at least 75 days before the initial use of a new dietary ingredient. There can
be no assurance, however, that the FDA will accept the evidence of safety for
any new dietary ingredients the Company may decide to use, and the FDA's refusal
to accept such evidence could result in regulation of such dietary ingredients
as food additives requiring FDA pre-approval prior to marketing.
As for labeling, the DSHEA permits "statements of nutritional support" for
dietary supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A
company making a statement of nutritional support must possess substantiating
evidence for the statement, disclose on the label that the FDA has not reviewed
the statement and that the product is not intended for use for a disease, and
notify the FDA of the statement within 30 days after its initial use. However,
there can be no assurance that the FDA will not determine that a given statement
of nutritional support the Company decides to make is a drug claim rather than
an acceptable nutritional support statement. Such a determination would require
deletion of the drug claim or the submission by the Company and the approval by
the FDA of an NDA. The DSHEA allows the dissemination of "third party
literature", publications such as reprints of scientific articles that link
particular dietary supplements with health benefits. Third party literature may
be used in connection with the sale of dietary supplements to consumers at
retail stores or by mail order. Such a publication may be so distributed if it
is not false or misleading, if no particular manufacturer or brand of dietary
supplement is mentioned, if the publication is presented in such manner so as to
offer a balanced view of available scientific information on the subject matter,
if it is physically separated from products when used in a retail establishment
and if it does not have any other information appended to it. There can be no
assurance, however, that all pieces of third party literature that may be
disseminated in connection with the Company's products will be determined by the
FDA to satisfy each of these requirements, and any such failure to comply could
subject the product involved to regulation as a new drug.
In December 1995, the FDA proposed regulations to implement certain DSHEA
labeling provisions, which are expected to be finalized in late 1996 and to
become effective by January 1, 1997 (although the FDA has indicated that it may
delay the effective date until January 1, 1998). The regulations will require
the Company to revise the labeling for a substantial number of its products at
an undetermined expense to the Company but which the Company does not believe
will be material to its financial condition or its results of operations.
The DSHEA also requires that dietary supplements be prepared, packed and
held under conditions which meet the GMP regulations to be promulgated by the
FDA with respect to dietary supplements. The FDA has not yet proposed GMP
regulations for dietary supplements. Therefore, there can be no assurance that
the Company's current production facilities will meet all of the GMP regulations
when issued by the FDA with respect to dietary supplements, and the Company may,
in the future, be required to expend resources to upgrade its facilities or take
other appropriate action to comply with such regulations.
For certain of its contract manufacturing customers, the Company
manufactures products containing a Chinese herb known as "ma huang", a source of
naturally-occurring ephedrine, a stimulant. Such products accounted for 10.2% of
the Company's net sales in Fiscal 1995, including one product which accounted
for 6.2% of the Company's net sales in such year. Ma huang and ephedrine have
been the subject of certain
33
<PAGE> 36
adverse publicity in the United States and other countries, including a
statement issued by the FDA on April 10, 1996 warning consumers not to purchase
or consume dietary supplements containing ephedrine that are labeled as
alternatives to illicit street drugs, because these products pose significant
health risks. For this reason, certain states and foreign jurisdictions have
required appropriate warnings on product labels, or prohibited the sale of
products containing ma huang or ephedrine as energy enhancing products other
than by licensed pharmacists. Certain state and other local governments,
including Florida and Nassau County, New York have recently proposed a ban on
the sale of dietary supplements that contain ephedrine or have banned the sale
of products that certain high levels of epherdrine. Products manufactured by the
Company containing ma huang are labeled either for weight loss or energy
enhancement, not as alternatives to illicit street drugs. However, there can be
no assurance that ma huang will not become subject to further regulation, which
could require the reformulation of the Company's ma huang-containing products
and/or their relabeling. While the Company believes that the products it
manufactures that contain ma huang could be reformulated and relabeled if
required, there can be no assurance in that regard, or that either reformulation
or relabeling would not have a material adverse effect on the Company. There
also can be no assurance that the Company will not be subject to private civil
actions with respect to products that contain ma huang. The loss by the Company
of revenues generated by products containing ma huang, if not replaced by other
revenues, could have a material adverse effect on the Company.
The FTC, which exercises jurisdiction over the advertising of dietary
supplements, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees and the payment of fines by the companies involved. In addition,
the FTC has increased its scrutiny of infomercials. While the Company has not
been the target of FTC enforcement action for the advertising of its products,
there can be no assurance the FTC will not question the Company's advertising in
the future.
The Garden State division manufactures certain products pursuant to
contracts with customers who distribute the products under their own or other
trademarks. Such customers are subject to the governmental regulations discussed
in this section in connection with their purchase, marketing, distribution and
sale of such products, and the Company is subject to such regulations in
connection with the manufacture of such products and its delivery of services to
such customers. However, the Garden State division's contract manufacturing
customers are independent companies, and their labeling, marketing and
distribution of such products is beyond the Company's control. The failure of
these customers to comply with applicable laws or regulations could have a
material adverse effect on the Company. Governmental regulations in foreign
countries where the Company sells or plans to sell products may prevent or delay
entry into the market or prevent or delay the introduction, or require the
reformulation, of certain of the Company's products. Compliance with such
foreign governmental regulations is generally the responsibility of the
Company's customers in those countries. These customers are independent
companies over which the Company has no control.
The FDA has broad authority to enforce the provisions of the FDCA
applicable to dietary supplements, including the power to seize adulterated or
misbranded products or unapproved new drugs, to request their recall from the
market, to enjoin their further manufacture or sale, to publicize information
about a hazardous product, to issue warning letters, and to institute criminal
proceedings. The Company may be subject to additional laws or regulations
administered by the FDA or other regulatory authorities, the repeal of laws or
regulations which the Company considers favorable, such as the DSHEA, or more
stringent interpretations of current laws or regulations, from time to time in
the future. The Company is unable to predict the nature of such future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, the recall
or discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling, and/or scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's results of operations and financial condition.
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<PAGE> 37
LEGAL PROCEEDINGS
In 1989, the FDA initiated a voluntary recall of products containing
manufactured L-Tryptophan. Numerous unrelated manufacturers, distributors,
suppliers, importers and retailers of manufactured L-Tryptophan or products
containing manufactured L-Tryptophan are or were defendants in an estimated
2,000 actions brought in federal and state courts seeking compensatory and, in
some cases, punitive damages for alleged personal injuries resulting from the
ingestion of certain products containing manufactured L-Tryptophan. The
Predecessor Companies manufactured products containing manufactured L-Tryptophan
prior to such recall and were named in many of such actions. However, neither
the Predecessor Companies nor the Company are now parties to any such actions.
The possibility of future actions related to such products cannot be excluded.
The Company is a party to a joint defense agreement (the "Showa Denko
Agreement") entered into in 1990 and amended and restated in 1992 with Showa
Denko America, Inc. which sold the bulk L-Tryptophan which the plaintiffs allege
caused their personal injuries. Under the Showa Denko Agreement, Showa Denko
America has agreed to pay all legal fees incurred and to indemnify the Company
against liability in any claim if it is determined that a proximate cause of the
injury sustained by the plaintiff was a constituent of the raw material sold by
Showa Denko America to the Company or was a factor for which Showa Denko America
or any of its affiliates was responsible, except to the extent that actions by
the Company proximately contributed to the injury. In 1992, the Company also
entered into an guaranty agreement with Showa Denko K.K., the Japanese parent
company of Showa Denko America which manufactured the bulk L-Tryptophan, under
which Showa Denko K.K. unconditionally and irrevocably guarantees all of Showa
Denko America's payments to the Company under the Showa Denko Agreement. The
Company believes that, under the Showa Denko Agreement, it will be entitled to
indemnification in all actions arising out of the ingestion of products
containing L-Tryptophan manufactured by Showa Denko, K.K. and that contribution
by the Company will not be warranted.
The Company also has product liability insurance which it believes provides
coverage of up to $1.0 million per occurrence and in the aggregate for
L-Tryptophan product claims, including legal defense costs in respect of the
Company's L-Tryptophan containing products manufactured prior to September 1992.
The Company discontinued manufacturing such products in 1990. If further
L-Tryptophan actions are brought and indemnification is not provided under the
Showa Denko Agreement such coverage could be denied or the potential damages
that could be recovered could exceed the Company's available product liability
insurance coverage, and such excess could have a material adverse effect upon
the Company's results of operations. To date, the Company has not incurred any
out-of-pocket expense in connection with any of such actions.
The Company is presently engaged in various other legal actions and
governmental proceedings, and, although ultimate liability cannot be determined
at the present time, the Company is currently of the opinion that the amount of
any such liability from these other actions and proceedings when taking into
consideration the Company's product liability coverage, will not have a material
adverse effect on its financial position, results of operations or liquidity.
PROPERTIES
The Company currently leases two facilities. The Company's newest facility,
located at 8 Henderson Drive, West Caldwell, New Jersey contains approximately
140,000 square feet of space, and currently houses the sales and marketing
offices of the Company's Windmill Marketing division, and the Company's
packaging, tablet coating and distribution operations. By the end of this year,
this facility will also house the Company's principal executive offices and the
Celebrity Marketing division. The facility located at 100 Lehigh Drive,
Fairfield, New Jersey contains approximately 35,000 square feet of space and
currently houses the Company's executive offices and principal manufacturing and
warehouse facilities. The Company believes that its Lehigh Drive facility,
together with the capital projects associated with the build-out of its new West
Caldwell, New Jersey facility will provide the Company with enough space to meet
the Company's foreseeable needs. The Henderson Drive facility is leased from a
limited liability company of which Messrs. Edward and Keith Frankel are members
and the Lehigh Drive facility is leased from a partnership of which Messrs.
Edward and Keith Frankel and Mr. Howard Munk are partners. See "Certain
Relationships and Related Transactions". In
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<PAGE> 38
addition to these two facilities, the Company intends to open a small sales
office in Illinois following the Offering.
The Company owns a facility located at 21 Dwight Place, Fairfield, New
Jersey, which it is currently seeking to sell. There can be no assurance that
the Company will be able to sell such property at all or at a price favorable to
the Company. The Company's operations, formerly housed at the Dwight Place
facility, which accounts for approximately 33,000 square feet of space, have
been moved in their entirety to the new Henderson Drive facility.
EMPLOYEES
The Company employs 248 individuals, with 160 employed in manufacturing and
production, 27 employed in sales and marketing, 14 in research, development and
laboratory testing, and the balance in executive, administrative and other
professional positions. The Company has never experienced a work stoppage, and
none of its employees are currently represented by a union or other form of
collective bargaining unit. The Company believes its relations with its
employees are good.
CHANGE IN AUDITORS
In 1996, Horowitz, Waldman, Berretta & Maldow, CPA, LLP, resigned as the
Company's independent accounting and auditing firm. Julius Horowitz, a principal
of that firm, became a member of the Company's Board of Directors shortly
thereafter. Prior reports rendered by Horowitz, Waldman, Berretta & Maldow, CPA,
LLP, did not contain any adverse opinion or disclaimer, nor were they modified
or qualified as to uncertainty, audit scope or accounting principles, nor were
there any disagreements between that firm and the Company. Grant Thornton LLP,
currently serves as the Company's independent accountants and auditors. See
"Management" and "Certain Relationships and Related Transactions".
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<PAGE> 39
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers as of May 10, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Edward M. Frankel........................ 58 Chairman of the Board, President and
Director
Keith I. Frankel......................... 32 Chief Executive Officer and Director
Stephen J. Young......................... 53 Chief Financial Officer, Treasurer and
Secretary
Myron Jacobowitz......................... 55 Executive Vice President -- Garden State
Division
Howard L. Munk........................... 55 Executive Vice President -- Windmill
Marketing Division
Joel H. Girsky........................... 57 Director
Julius M. Horowitz....................... 64 Director
</TABLE>
The Board of Directors currently consists of four directors, who are
divided into three classes, with terms expiring at the Company's annual meetings
of stockholders in 1997, 1998, and 1999. Mr. Horowitz's term will expire at the
1997 annual meeting. Mr. Girsky's term will expire at the 1998 annual meeting.
Messrs. Edward and Keith Frankel's terms will expire at the 1999 annual meeting.
Each director is elected to serve until the third succeeding annual meeting of
stockholders (if elected at an annual meeting of stockholders) or until a
successor is duly elected, or for the remaining term of any vacancy filled by
the director or until a successor is duly elected. Officers of the Company serve
at the discretion of the Board of Directors. There are three standing Committees
of the Board of Directors: the Compensation Committee, which makes
recommendations to the Board of Directors concerning compensation arrangements
for directors, executive officers and senior management of the Company; the
Audit Committee, which reviews the work and reports of the Company's independent
accountants; and the Option Committee, which administers the Company's 1996
Stock Option Plan. The members of each of the Compensation Committee, Audit
Committee and Option Committee are Messrs. Horowitz and Girsky. Other than
options pursuant to the 1996 Stock Option Plan, directors who are not employees
of the Company do not receive any compensation for their service. See
"Management -- 1996 Stock Option Plan".
Edward M. Frankel has been Chairman of the Board and President of the
Company since its formation. Prior to the merger of the Predecessor Companies
with and into the Company, Mr. Frankel had been President and a Director of
Windmill Marketing Services, Inc. since 1977 and of Garden State Nutritionals,
Inc. since 1984 and a Director of Cel-Mark International, Inc. since 1990. Mr.
Frankel joined the founders of Windmill Marketing Services, Inc. in 1974. From
1973 through 1974, he was employed at Ford Laboratories, a division of APL
Corporation, as a vice president of sales and marketing, and from 1971 through
1972 he was employed at Hudson Vitamins, a division of Cadence Industries, Inc.
as a sales director. Both Hudson Vitamins and Ford Laboratories were
manufacturers and marketers of vitamins and nutritional supplements. Mr. Frankel
graduated from Long Island University in 1959 with a B.S. in pharmacy. Mr.
Frankel is also a director of Jaco Electronics, Inc. of Hauppauge, New York, a
distributor of electronic components.
Keith I. Frankel has been Chief Executive Officer and a Director of the
Company since its formation. Mr. Frankel founded Cel-Mark International, Inc. in
1990 and was its President from that time until the merger of Cel-Mark with and
into the Company. As President of Cel-Mark International, Inc., he had principal
day-to-day responsibility for its sales and marketing as well as its general
operation. In addition to his duties as CEO of the Company, Mr. Frankel is
responsible for overseeing all of the Company's sales and marketing and will
retain his responsibilities at the Celebrity Marketing division. During the past
ten years, Mr. Frankel has held various sales, marketing and management
positions for the Predecessor Companies. Mr. Frankel graduated from American
University with a B.S. in marketing management.
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<PAGE> 40
Stephen J. Young has been the Chief Financial Officer of the Company since
its formation and of each of the Predecessor Companies from 1992 until their
merger with and into the Company. Prior to joining the Predecessor Companies,
Mr. Young was the President of Ketchum & Co., Inc., a wholesale drug
distributor, from 1990 to 1992 and Chief Financial Officer from 1985 to 1990.
Mr. Young graduated from St. Johns University with a B.S. in accounting.
Myron Jacobowitz has been an Executive Vice-President of the Company with
principal day-to-day operating responsibility for the Garden State division
since the Company's formation. He served as Executive Vice President of Garden
State Nutritionals, Inc. from January 1994 until its merger with and into the
Company. During the six years prior to 1994, Mr. Jacobowitz had been the
President and a partner of CFH Laboratories, L.P., a pharmaceutical and food
supplement company. Mr. Jacobowitz graduated from City College of New York with
a B.S. in chemistry and holds an M.B.A. from Pace University.
Howard L. Munk has been an Executive Vice-President of the Company with
principal day-to-day operating responsibility for the Windmill Marketing
division since the Company's formation. He served as Executive Vice President of
Windmill Marketing Services, Inc. from 1983 until its merger with and into the
Company. From 1973 to 1983, Mr. Munk was employed in a variety of sales and
marketing positions by Hudson Vitamins, a division of Cadence Industries, Inc.,
a manufacturer and marketer of vitamin and nutritional supplements. Mr. Munk had
majored in business and marketing at Long Island University.
Joel H. Girsky was elected as a director of the Company shortly prior to
this Offering. Since 1983 he has been the President and Chairman of the Board of
Directors of Jaco Electronics, Inc. He is also a director of Nastech
Pharmaceutical Company, Inc., a research pharmaceutical company, and Frequency
Electronics, Inc., a manufacturer and distributor of electronic products.
Julius M. Horowitz was elected as a director of the Company shortly prior
to this Offering. For over the past 25 years, Mr. Horowitz has been and is
currently a partner in the accounting firm of Horowitz, Waldman, Berretta &
Maldow, CPA, LLP, an accounting firm and the auditors of the Predecessor
Companies prior to this Offering. See "Business -- Change in Auditors".
Except for Edward and Keith Frankel, who are father and son, respectively,
no family relationship exists between any directors or executive officers of the
Company.
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<PAGE> 41
EXECUTIVE COMPENSATION
The following table sets forth, for each of the Company's last three fiscal
years, the compensation paid to the President of the Company and to certain
other executive officers of the Company whose aggregate annual salary and bonus
for the Company's last fiscal year exceeded $100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
FISCAL ----------------------- COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)
- --------------------------------------------- ------ --------- --------- ---------------
<S> <C> <C> <C> <C>
1995 $ 750,000 $ 149,942 $47,859
Edward M. Frankel; 1994 750,000 452,322 52,891
Chairman of the Board and President........ 1993 750,000 1,737,577 50,837
1995 1,885,648 -- 27,706
Keith I. Frankel; 1994 2,637,927 -- 35,206
Chief Executive Officer and Director(2).... 1993 1,008,808 -- 35,206
Myron Jacobowitz; 1995 159,808 45,000 32,581
Executive Vice President -- Garden State 1994 152,885 35,000 --
Division(3)................................ 1993 -- -- --
1995 100,554 35,000 28,609
Stephen J. Young; 1994 94,177 26,000 14,027
Chief Financial Officer (3)................ 1993 82,027 -- --
Howard L. Munk; 1995 100,728 15,000 7,302
Executive Vice President -- Windmill 1994 92,772 6,750 6,579
Marketing Division(4)...................... 1993 79,830 -- 6,837
</TABLE>
- ---------------
(1) Includes certain benefits granted to the named persons such as payments
related to deferred compensation agreements pursuant to a non-qualified
plan, payments to the Company's profit sharing plan and payments by the
Company on split dollar and other life insurance contracts. In Fiscal 1995,
Edward Frankel received $22,500 in profit sharing contributions and $25,359
in life insurance benefits; in Fiscal 1994, Edward Frankel received $30,000
in profit sharing contributions and $22,891 in life insurance benefits; in
Fiscal 1993, Edward Frankel received $30,000 in profit sharing contributions
and $20,837 in life insurance benefits. In Fiscal 1995, Keith Frankel
received $22,500 in profit sharing contributions and $5,206 in deferred
compensation benefit; in each of Fiscal 1994 and 1993, Keith Frankel
received $30,000 in profit sharing contributions and $5,206 in deferred
compensation benefit. In Fiscal 1995, Mr. Jacobowitz received $22,500 in
profit sharing contributions and $10,081 in deferred compensation benefit.
In Fiscal 1995, Mr. Young received $18,591 in profit sharing contributions
and $10,018 in deferred compensation benefit; in Fiscal 1994, Mr. Young
received $14,027 in profit sharing contributions. In Fiscal 1995, Mr. Munk
received $5,181 in profit sharing contributions and $2,121 in life insurance
benefit; in Fiscal 1994, Mr. Munk received $4,712 in profit sharing
contributions and $1,867 in life insurance benefit; in Fiscal 1993, Mr. Munk
received $5,184 in profit sharing contributions and $1,653 in life insurance
benefit.
(2) Prior to January 1, 1996, salary amounts paid to Keith Frankel were based
primarily on commissions earned on sales of Cel-Mark International, Inc. and
Garden State Nutritionals, Inc. See "Management -- Employment Agreements".
(3) Does not include the value of 8,000 shares of Common Stock to be issued
shortly prior to this Offering at a purchase price of $1.00 per share. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
(4) Does not include the value of 25,000 shares of Common Stock to be issued
shortly prior to this Offering at a purchase price of $1.00 per share. See
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
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<PAGE> 42
EMPLOYMENT AGREEMENTS
Effective as of January 1, 1996, the Company has entered into employment
agreements with Messrs. Edward and Keith Frankel, which expire on June 30, 1999.
Each such agreement provides for a $350,000 annual base salary, plus such bonus
as the Company's Compensation Committee determines, provided that in 1996, such
bonus shall not be more than $150,000. Such agreements further provide that for
1997 and 1998 the base salary is subject to annual increases of the greater of
5% or the percentage increase in the Consumer Price Index published by the U.S.
Department of Labor. Subsequent to June 30, 1997, the bonus shall not be more
than $150,000 unless the Compensation Committee determines otherwise, on the
basis of operating results. Such employment agreements further prohibit the
employee from competing with the Company, soliciting any customers of the
Company or contacting any strategic partner of the Company with the intention of
entering into a joint venture or similar business relationship for a period of
12 months following termination of employment other than by the employee with
good reason or by the Company without cause (each as defined therein).
NON-COMPETITION, CONFIDENTIALITY AND OTHER EMPLOYEE ARRANGEMENTS
In addition to the non-competition and confidentiality provisions
applicable to Messrs. Edward and Keith Frankel contained in their respective
employment agreements, other executive officers and certain other key employees
have entered into agreements under which such individuals must maintain the
confidentiality of the Company's proprietary or confidential information. Such
other agreements further provide that during the term of employment of each
individual and for two years thereafter, the individual will neither solicit any
customers of the Company nor contact any strategic partner of the Company with
the intention of entering into a joint venture or similar business relationship.
The Company has a qualified profit sharing plan for all employees meeting
certain minimum eligibility requirements. Contributions are determined annually
at the discretion of the Board of Directors. Participants become vested at the
rate of 20% per year, provided that they have completed one year of service.
The Company has entered into deferred compensation agreements with certain
executives including Messrs. Keith Frankel, Myron Jacobowitz and Stephen Young
pursuant to which the Company pays the premiums for life insurance policies on
those employees. The Company is the beneficiary of the policies and has an
arrangement with the employee to compensate the employee or his estate in the
event of retirement or death, after the Company recoups its entire cost. See
"Management -- Summary Compensation Table".
Prior to this Offering, the Company will have sold to several employees an
aggregate of 51,000 shares of Common Stock at a purchase price of $1.00 per
share, including 25,000 shares to Howard Munk, 8,000 shares to Myron Jacobowitz
and 8,000 shares to Stephen Young. The shares so purchased will be subject to
repurchase by the Company, at the same price, if the individual ceases to be
employed by the Company prior to the fifth anniversary of the date of purchase,
unless such termination is without good cause, as defined in the purchase
agreement. Such repurchase right will lapse over a five year period at the rate
of 20% of the purchased shares, per year.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan reserves for issuance up to 1,300,000
shares of the Company's Common Stock pursuant to the exercise of options granted
under such plan. The number of shares is subject to adjustment for any future
stock dividends, splits, mergers, combinations, or other changes in
capitalization as described in the 1996 Stock Option Plan. As of the date of
this Offering, the Company has issued options to purchase shares at
the initial public offering price per share.
Authority to administer the 1996 Stock Option Plan and to grant awards
rests with the Board of Directors. The Board has delegated its authority to
grant awards to any employee (including officers who are members of the Board)
to the Option Committee. The 1996 Stock Option Plan will terminate on
, 2006, but the Board retains the right to suspend, terminate or
amend the Plan at any time. On termination of the Plan, outstanding awards
remain in effect until they expire by their terms, are forfeited or otherwise
terminate.
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<PAGE> 43
Options may be granted under the 1996 Stock Option Plan to full or
part-time employees, officers, consultants and advisors of the Company and its
affiliates. Non-Employee Directors are also eligible for the grant of options
pursuant to the nondiscretionary provisions of the 1996 Stock Option Plan.
Options granted to employees may be either incentive stock options ("ISOs")
which satisfy the requirements of Section 422 of the Internal Revenue Code (the
"Code") or nonstatutory options ("NSOs") which are not intended to satisfy such
requirements. Options granted to Non-Employee Directors, consultants and
advisors may only be NSOs.
The option exercise price of ISOs and NSOs may not be less than the fair
market value of the Company's Common Stock on the date of grant. Payment of the
exercise price may be made in cash, by certified check, promissory note, other
shares of the Company's Common Stock, or through a same day sale program. In
addition, the Board may authorize loans and loan guarantees for the exercise
price. The term of an ISO may not exceed ten years. The term of an NSO may not
exceed ten years plus one day.
Options granted to employees may be made cumulatively exercisable in annual
installments. Options may be made exercisable only under such conditions as the
Board or its delegate may establish, such as if the optionee remains employed
until a specified date, or if specified performance goals have been met. If an
optionee's employment terminates because of misconduct, such option terminates
immediately. If an optionee's employment terminates for any reason other than
misconduct, the option remains exercisable for a fixed period of three months
(twelve months where employment has terminated because of death or disability)
or a longer period to be fixed by the Board or its delegate up to the remainder
of the option's term. In no case may an option be exercised after the expiration
of the option term. An option may be exercised by the optionee or his guardian
or legal representative.
Each Non-Employee Director will be granted an initial option for
shares as of the date of this Offering and, for so long as such Non-Employee
Director continues to serve on the Board, on the first business day following
each annual meeting of the Corporation's stockholders at which directors are
elected, he or she will automatically receive an additional option for
shares. Options granted to Non-Employee Directors will be fully vested
when granted and may be exercised for up to twelve months following termination
of their service on the Board.
No taxable income is recognized by an optionee upon the grant of an NSO.
The optionee generally will recognize ordinary income in the year in which the
option is exercised equal to the excess of the fair market value of the
purchased shares at the date of exercise over the exercise price, and the
optionee will be required to satisfy the tax withholding requirements applicable
to such income which the optionee may elect to satisfy by having the Company
withhold shares from the shares otherwise due or by delivering a sufficient
number of previously owned shares of Common Stock to the Company. On ultimate
sale of the shares, the optionee will generally recognize as capital gain or
loss the difference between the fair market value on the date of exercise and
the ultimate sales price.
No taxable income is recognized by the optionee at the time of the grant of
an ISO and, except in determining alternative minimum tax, no taxable income is
recognized at the time the ISO is exercised. The optionee will, however,
recognize taxable income or loss in the year in which the purchased shares are
sold or otherwise made the subject of disposition. For Federal tax purposes,
dispositions of ISOs are divided into two categories: qualifying and
disqualifying. The optionee will make a qualifying disposition of the purchased
shares if the sale or other taxable disposition of such shares is made more than
two years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result. Upon a qualifying disposition of the
shares, the optionee generally will recognize long-term capital gain in an
amount equal to the excess of (i) the amount realized upon the sale or other
disposition over (ii) the option price paid for the shares. If there is a
disqualifying disposition of the shares, then the excess of (i) the fair market
value of the shares at the date of exercise (or, if lower, the fair market value
of the shares on the date of disposition) over (ii) the option price paid
therefor will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain, and such gain will be long-term if the
shares have been held for more than one year following exercise of the option.
41
<PAGE> 44
The difference between the fair market value of shares subject to an ISO on
the date of exercise and the exercise price of such shares is an adjustment to
income for purposes of the alternative minimum tax (the "AMT"). The AMT (imposed
to the extent it exceeds the taxpayer's regular tax) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of alternative
minimum taxable income in excess of $175,000). Alternative minimum taxable
income is determined by adjusting regular taxable income for certain items,
increasing that income by certain tax preference items (including the difference
between the fair market value of the shares subject to the ISO on the date of
exercise and the exercise price) and reducing this amount by the applicable
exemption amount ($45,000 in case of a joint return, subject to reduction under
certain circumstances). If a disqualifying disposition of the shares subject to
an ISO occurs in the same calendar year as exercise of the ISO, there is no AMT
adjustment with respect to those shares. Also, upon a sale of such shares that
is a qualifying disposition, alternative minimum taxable income is reduced in
the year of sale by the excess of the fair market value of the shares subject to
the ISO at exercise over the amount paid for such shares.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee in connection with the exercise of
an NSO. The deduction generally will be allowed for the taxable year of the
Company in which occurs the last day of the calendar year in which the optionee
recognizes ordinary income in connection with such exercise.
If the optionee makes a disqualifying disposition of the shares purchased
on exercise of an ISO, then the Company will be entitled to an income tax
deduction for the taxable year in which such disposition occurs, equal to the
amount which is taxable to the employee as ordinary income. In no other instance
will the Company be allowed a deduction with respect to the optionee's
disposition of the shares purchased upon exercise of an ISO.
Under Section 162(m) of the Code, the Company is not entitled to a
deduction for certain executive compensation in excess of $1,000,000. This
limitation applies to compensation paid to the Company's Chief Executive Officer
and to each of its next four most highly compensated executive officers. Amounts
treated as compensation pursuant to the exercise of stock options are subject to
the deduction limit, unless the option exercise price is at least equal to the
fair market value of the underlying stock on the date of grant. In addition, the
grant of options must be made by a committee of at least two "outside directors"
(as defined in Section 162(m) of the Code). Awards granted under the Stock
Option Plan are intended to qualify for full deductibility. In order to so
qualify, the maximum number of shares which may be granted to an individual
under the full ten-year term of the 1996 Stock Option Plan is limited to
shares.
42
<PAGE> 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's approximately 140,000 square foot facility located at 8
Henderson Drive, West Caldwell, New Jersey is leased to the Company by a limited
liability company (the "Henderson Drive LLC"), whose members are Messrs. Edward
and Keith Frankel. Such lease is on a triple-net basis and provides for a rental
of approximately $720,000 per annum. The Henderson Drive lease term began on
November 1, 1995, expires on November 30, 2000 and is renewable at the Company's
option for up to an additional ten years. The Henderson Drive facility is
subject to a $3.5 million mortgage which secures the term loan obligations of
its owner, which obligations are guaranteed by the Company. The Company's
approximately 35,000 square foot facility located at 100 Lehigh Drive,
Fairfield, New Jersey is leased to the Company by a partnership (the "Lehigh
Drive Partnership") which includes Messrs. Edward and Keith Frankel as general
partners and Howard Munk as a limited partner. Such lease is on a triple-net
basis and provides for a rental of approximately $311,000 per annum subject to
increase based upon increases in the borrowing rate charged to the Lehigh Drive
Partnership in respect of the financing of the facility. The Lehigh Drive lease
term began on June 30, 1985 and expires on June 30, 2001. The Company believes
that the terms of both such leases are not less favorable to the Company than
terms that could be obtained from unaffiliated parties for comparable
facilities. See "S Corporation Distributions" for a description of certain
amounts distributed and to be distributed to Messrs. Edward and Keith Frankel
and "Management -- Employment Agreements" for a description of the employment
agreements between Messrs. Edward and Keith Frankel and the Company.
The Company paid to Horowitz, Waldman, Berretta & Maldow, CPA, LLP, an
accounting firm which includes Julius M. Horowitz, a Director of the Company,
$242,000 in Fiscal 1995, $201,000 in Fiscal 1994, $253,000 in Fiscal 1993 and
$103,000 for the four month period ended December 31, 1993 for accounting and
auditing services. Such firm will continue to provide certain accounting
services following this Offering. See "Business -- Change in Auditors".
During Fiscal 1995, Mr. Keith Frankel purchased approximately 5% of the
outstanding shares of capital stock of Windmill Marketing Services, Inc. for
$75,000. Concurrently with the closing, the Company entered into consulting,
non-competition and confidentiality agreements with the seller. See Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources and Note F of Notes to
Consolidated Financial Statements.
During 1995, the Company made a non-interest bearing advance to Mr. Keith
Frankel in the amount of $254,000 in connection with certain tax obligations of
Mr. Frankel, primarily related to his status as an S corporation stockholder.
During 1995 the Company advanced certain legal and other professional expenses
for the Henderson Drive LLC and Lehigh Drive Partnership resulting in amounts
due from those entities at December 31, 1995 of $54,000 and $70,000
respectively. Since January 1, 1995 the largest amount of each such advance was
$254,000 to Mr. Frankel, $54,000 to the Henderson Drive LLC and $70,000 to the
Lehigh Drive Partnership, respectively. As of April 30, 1996, the entire amount
of the advance to Mr. Frankel and the Henderson Drive LLC had been paid and
there remained a balance of $65,000 due from the Lehigh Drive Partnership, which
is scheduled to be paid during 1996.
43
<PAGE> 46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Common Stock as of May 10, 1996 and immediately following the Offering by
(i) each person or entity who owns of record or beneficially five percent or
more of the Company's Common Stock, (ii) each director and named executive
officer of the Company, (iii) all directors and executive officers of the
Company as a group and (iv) each stockholder selling shares of Common Stock in
the Offering (collectively, the "Selling Stockholders"). To the knowledge of the
Company, each of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted. The address of each holder of 5% or
more of the Company's common stock is the Company's corporate address.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR NUMBER OF BENEFICIAL OWNERSHIP
TO OFFERING SHARES AFTER OFFERING(1)
------------------------- BEING ------------------------
BENEFICIAL OWNER SHARES PERCENT(2) OFFERED SHARES PERCENT(2)
- ---------------------------------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Edward M. Frankel................. 5,756,238 40.6% 2,400,000 3,356,238 20.3%
Keith I. Frankel(3)............... 8,300,749 58.6% 2,400,000 5,900,749 35.6%
Joel H. Girsky.................... -- -- -- -- --
Julius M. Horowitz................ -- -- -- -- --
Stephen J. Young(4)............... 8,000 * -- 8,000 *
Myron Jacobowitz(4)............... 8,000 * -- 8,000 *
Howard L. Munk(4)................. 25,000 * -- 25,000 *
All directors and executive
officers as a group (7
persons)........................ 14,097,987(2) 99.5% 4,800,000 9,297,987(2) 56.1%
</TABLE>
- ---------------
* Represents less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters exercise their over-allotment option in full, Mr. Edward
Frankel will beneficially own 2,996,238 shares and Mr. Keith Frankel will
beneficially own 5,540,749 shares, representing an aggregate of 50.4% of the
outstanding shares of Common Stock.
(2) Includes 51,000 shares of Common Stock to be issued prior to this Offering
at a purchase price of $1.00 per share. See "Management -- Non-Competition,
Confidentiality and Other Employee Arrangements".
(3) Includes an aggregate of 2,544,511 shares held by trusts established by Mr.
and Mrs. Edward Frankel for the benefit of their sons, Keith Frankel and
Frank Frankel (the "Trusts"). Keith Frankel, as trustee, possesses the sole
power to vote and to dispose of such shares, and therefore may be deemed the
beneficial owner of such shares. Mr. and Mrs. Edward Frankel retain the
right to receive an annuity from the Trusts, which may be paid by delivery
of shares valued at their then fair market value.
(4) Represents shares of Common Stock to be purchased prior to this Offering
described in footnote 2 above.
44
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). Upon completion of this
Offering, 16,566,000 shares of Common Stock will be issued and outstanding and
no shares of Preferred Stock will be outstanding. The following summary of
certain provisions of the Company's capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, the Certificate of Incorporation and the By-laws
of the Company that are included as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
As of May 10, 1996, there were 14,115,000 shares of Common Stock
outstanding, all of which were held by three holders of record. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock being
offered will be upon payment therefor, validly issued, fully paid and
nonassessable. Subject to the prior rights of the holders of any Preferred
Stock, the holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. See "Dividend
Policy". Following consummation of this Offering, the shares of Common Stock
will not be redeemable or convertible, and the holders thereof will have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Common Stock is entitled to vote on
all matters submitted to a vote of stockholders.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors of the Company,
without stockholder approval, may issue shares of Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock. Upon consummation of the Offering, there will be no shares of
Preferred Stock outstanding, and the Company has no present intention to issue
any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS AND STATUTORY
PROVISIONS
The Certificate of Incorporation provides that the Company's Board of
Directors will be divided into three classes, with each class, after a
transitional period, serving for three years, and one class being elected each
year. A majority of the remaining directors then in office, though less than a
quorum, or the sole remaining director, will be empowered to fill any vacancy on
the Board of Directors which arises during the term of a director. The provision
for a classified board may be amended, altered or repealed only upon the
affirmative vote of the holders of at least 80% of the outstanding shares of the
voting stock of the Company. The classification of the Board of Directors may
discourage a third party from making a tender offer or
45
<PAGE> 48
otherwise attempting to gain control of the Company and may have the effect of
maintaining the incumbency of the Board of Directors. See "Management".
The Certificate of Incorporation requires that any action required or
permitted to be taken by the Company's stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
consent in writing. Additionally, the Certificate of Incorporation requires that
special meetings of the stockholders of the Company be called only by a majority
of the Board of Directors or by certain officers.
The By-laws provide that stockholders seeking to bring business before or
to nominate directors at any annual meeting of stockholders must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to such meeting or, if
less than 70 days' notice was given for the meeting, within 10 days following
the date on which such notice was given. The By-laws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions will restrict the ability of stockholders to bring matters before the
stockholders or to make nominations for directors at meetings of stockholders.
Following the consummation of this Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly-held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the transaction
is approved by the Board of Directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder". A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. In addition, the Certificate of
Incorporation provides that the affirmative vote of a least 80% of the
outstanding voting stock is required for a business combination between the
Company or any subsidiary and the beneficial owner of more than five percent of
the outstanding voting stock unless such transaction (i) has been approved by a
majority of the disinterested directors or (ii) involves a person who, as of the
effectiveness of the Offering, was the beneficial owner of more than five
percent of the outstanding voting stock.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
the Certificate of Incorporation provides that the Company shall indemnify
directors and officers of the Company to the fullest extent permitted by such
law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be Chemical
Mellon Shareholder Services.
46
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering there will be 16,566,000 shares of
Common Stock outstanding. The 7,200,000 shares of Common Stock sold in this
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by an "affiliate" of the Company, as that
term is defined in Rule 144, which shares will be subject to the resale
limitations of Rule 144. Each director, executive officer, Trust and Selling
Stockholder has agreed not to sell or transfer any shares of Common Stock for a
period of 360 days from the date of this Offering without the consent of the
Representatives (as defined below). Of the shares outstanding upon the closing
of this Offering, 9,366,000 will be deemed "restricted securities" under Rule
144 and may not be sold unless they are registered under the Securities Act or
unless an exemption from registration, such as the exemption provided by Rule
144, is available. Of such restricted securities, 9,315,000 shares are currently
eligible for sale under Rule 144, subject to certain volume and other
limitations, and 51,000 shares will be eligible for sale under Rule 701(c)
promulgated under the Securities Act 90 days after the date of this Offering,
subject to certain limitations relating to the manner of sale of those shares.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least two years, is entitled to sell within any three-month period a number
of shares that does not exceed the greater of one percent of the outstanding
Common Stock or the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of such sale is filed
pursuant to Rule 144. Sales under Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A stockholder (or
stockholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a proposed transaction and who has beneficially
owned "restricted securities" for at least 90 days prior to a proposed
transaction and who has beneficially owned "restricted securities" for at least
three years is entitled to sell such shares under Rule 144 without regard to the
limitations described above.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price of the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to this Offering, there has been no public market for the Common Stock, and
there can be no assurance that a significant public market for the Common Stock
will develop or be sustained after the Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
47
<PAGE> 50
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (together, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the aggregate number of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER TO BE PURCHASED
--------------------------------------------------------------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc..............................................
Donaldson, Lufkin & Jenrette Securities Corporation..................
-------
Total......................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The nature of the obligations of
the Underwriters is such that they are committed to purchase all of the shares
of Common Stock offered hereby if any are purchased.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock
offered hereby directly to the public at the public offering price set forth on
the cover page of this Prospectus. The Underwriters may allow a selected dealer
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, concessions not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and concessions and reallowance to dealers may be changed by the
Representatives.
The Selling Stockholders and the Company have granted an option to the
Underwriters, exercisable at any time during the 30 day period after the date of
this Prospectus, to purchase from the Selling Stockholders and the Company up to
an additional 720,000 shares (360,000 from each) and 360,000 shares,
respectively, of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the sale of the shares of Common Stock offered
hereby. To the extent that the Underwriters exercise this option, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's purchase obligations set forth in the foregoing table.
The Underwriting Agreement provides that the Company and each of the
Selling Stockholders will indemnify the several Underwriters against certain
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
All executive officers and directors of the Company and certain
stockholders, including, without limitation, the Selling Stockholders, have
agreed with the Underwriters that they will not sell, transfer, assign, contract
to sell or otherwise dispose of any shares of Common Stock owned by them for a
period of 360 days after the date of this Prospectus without the prior written
consent of the Representatives.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not expect to confirm sales to discretionary accounts.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiation
among the Company and the Representatives. Among the factors which were
considered in such negotiations are the Company's history, capital structure and
financial condition, its past and present earnings and the trend of such
earnings, prospects for the Company and its
48
<PAGE> 51
industry, the present state of the Company's development, the recent market
prices of publicly-held companies that the Company and the Representatives
believe to be comparable to the Company and general conditions prevailing in the
securities markets at the time of this Offering.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Morrison Cohen Singer & Weinstein, LLP, New York,
New York. Certain legal matters will be passed upon for the Underwriters by
Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1995, and the
consolidated statements of earnings, changes in stockholders' equity and cash
flows for the year ended August 31, 1993, the four months ended December 31,
1993 and the years ended December 31, 1994 and 1995 have been included in this
Prospectus in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, given on the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 pursuant to the Securities
Act with respect to the Common Stock being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document filed
with the Registration Statement as exhibits are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed as an exhibit to the Registration
Statement. For further information about the Company and the securities offered
hereby, reference is made to the Registration Statement and to the consolidated
financial statements, schedules and exhibits filed as a part thereof.
Upon completion of the Offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
following regional offices of the Commission: 7 World Trade Center, 13th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also be
obtained from the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
49
<PAGE> 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995.......................... F-3
Consolidated Statements of Earnings for the year ended August 31, 1993, four months
ended December 31, 1993 and the years ended December 31, 1994 and 1995.............. F-4
Consolidated Statement of Stockholders' Equity for the year ended August 31, 1993,
four months ended December 31, 1993 and the years ended December 31, 1994 and
1995................................................................................ F-5
Consolidated Statements of Cash Flows for the year ended August 31, 1993, four months
ended December 31, 1993 and the years ended December 31, 1994 and 1995.............. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
VITAQUEST INTERNATIONAL INC.
We have audited the accompanying consolidated balance sheets of Vitaquest
International Inc., and Subsidiary as of December 31, 1994 and 1995, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the year ended August 31, 1993, the four months ended December 31, 1993 and
the years ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Vitaquest
International Inc. and Subsidiary as of December 31, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the years then ended, the four-month period ended December 31, 1993 and
the year ended August 31, 1993, in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Vitaquest International Inc. and
Subsidiary for the year ended August 31, 1993, the four months ended December
31, 1993 and the years ended December 31, 1994 and 1995. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Parsippany, New Jersey
April 12, 1996
F-2
<PAGE> 54
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,470,874 $ 3,838,005 $ 1,873,160
Marketable securities............................. 1,611,376 1,776,429 1,776,429
Accounts receivable, net of allowance for doubtful
accounts of $200,000 in 1994 and $381,000 in
1995........................................... 7,939,384 9,401,509 9,401,509
Inventories....................................... 4,964,000 6,948,132 6,948,132
Prepaid expenses and other........................ 567,889 719,927 719,927
Due from stockholders............................. -- 377,684 377,684
----------- ----------- -----------
Total current assets...................... 17,553,523 23,061,686 21,096,841
Property and equipment -- at cost, net.............. 3,558,259 3,464,332 3,464,332
Intangible assets (less accumulated amortization of
$389,970 in 1994 and $482,492 in 1995)............ 849,764 707,242 707,242
Other assets........................................ 1,043,317 1,221,003 1,221,003
----------- ----------- -----------
$ 23,004,863 $ 28,454,263 $ 26,489,418
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............. $ 362,499 $ 1,237,683 $ 1,237,683
Due to stockholders............................... 815,260 1,331,747 1,331,747
Accounts payable.................................. 4,276,074 4,839,730 4,839,730
Customer deposits................................. 916,754 667,373 667,373
Accrued expenses.................................. 1,623,969 2,244,964 2,244,964
Deferred income taxes............................. -- -- 118,000
----------- ----------- -----------
Total current liabilities................. 7,994,556 10,321,497 10,439,497
Long-term debt, less current maturities............. 1,958,755 7,721,916 7,721,916
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding........ -- -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 14,115,000 shares issued and
outstanding, actual; 14,166,000 shares, pro
forma.......................................... 141,150 141,150 141,660
Additional paid-in capital........................ -- -- 815,490
Retained earnings................................. 13,010,248 10,253,256 8,119,411
Unrealized gain (loss) on marketable securities... (99,846) 16,444 16,444
Unearned compensation............................. -- -- (765,000)
----------- ----------- -----------
Total stockholders equity................. 13,051,552 10,410,850 8,328,005
----------- ----------- -----------
$ 23,004,863 $ 28,454,263 $ 26,489,418
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 55
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, ---------------------------
1993 1993 1994 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................. $35,584,190 $ 13,616,852 $50,191,851 $60,633,243
Cost of goods sold.................... 20,525,472 7,675,025 27,391,998 31,728,577
----------- ----------- ----------- -----------
Gross profit..................... 15,058,718 5,941,827 22,799,853 28,904,666
Operating expenses
Selling, general and
administrative................... 11,465,498 4,070,262 13,991,948 16,343,133
----------- ----------- ----------- -----------
Operating earnings............... 3,593,220 1,871,565 8,807,905 12,561,533
Other income (expense)
Investment income................... 142,179 24,300 93,321 199,079
Interest expense.................... (205,833) (72,189) (213,532) (336,040)
Miscellaneous income................ 127,901 (13,600) 254,611 219,968
----------- ----------- ----------- -----------
Earnings before income taxes..... 3,657,467 1,810,076 8,942,305 12,644,540
Income taxes.......................... 1,574,841 180,223 268,187 224,000
----------- ----------- ----------- -----------
Net earnings................ $ 2,082,626 $ 1,629,853 $ 8,674,118 $12,420,540
=========== =========== =========== ===========
Pro forma data
Historical earnings before income
taxes............................ $ 1,810,076 $ 8,942,305 $12,644,540
Compensation differential........... 1,791,135
Income taxes........................ 733,000 3,612,000 5,926,000
----------- ----------- -----------
Net earnings................ $ 1,077,076 $ 5,330,305 $ 8,509,675
=========== =========== ===========
Net earnings per share.............. $.60
===========
Weighted average number of common
shares outstanding............... 14,166,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 56
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN
----------------------- (LOSS) ON TOTAL
PAR RETAINED MARKETABLE STOCKHOLDERS'
SHARES VALUE EARNINGS SECURITIES EQUITY
---------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1992....................... 14,115,000 $141,150 $ 7,068,523 $ -- $ 7,209,673
Net earnings................. -- -- 2,082,626 -- 2,082,626
Distributions to
stockholders............... -- -- (400,000) -- (400,000)
---------- -------- ----------- -------- -----------
Balance at August 31, 1993... 14,115,000 141,150 8,751,149 -- 8,892,299
Net earnings................. -- -- 1,629,853 -- 1,629,853
Distributions to
stockholders............... -- -- (660,885) -- (660,885)
---------- -------- ----------- -------- -----------
Balance at December 31,
1993....................... 14,115,000 141,150 9,720,117 -- 9,861,267
Net earnings................. -- -- 8,674,118 -- 8,674,118
Unrealized loss on marketable
securities................. -- -- -- (99,846) (99,846)
Purchase of treasury stock... -- -- (400,000) -- (400,000)
Distributions to
stockholders............... -- -- (4,983,987) -- (4,983,987)
---------- -------- ----------- -------- -----------
Balance at December 31,
1994....................... 14,115,000 141,150 13,010,248 (99,846) 13,051,552
Net earnings................. -- -- 12,420,540 -- 12,420,540
Distributions to
stockholders............... -- -- (15,177,532) -- (15,177,532)
Unrealized gain on marketable
securities................. -- -- -- 116,290 116,290
---------- -------- ----------- -------- -----------
BALANCE AT DECEMBER 31, 1995. 14,115,000 $141,150 $ 10,253,256 $ 16,444 $ 10,410,850
========== ======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 57
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, --------------------------
1993 1993 1994 1995
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................. $ 2,082,626 $1,629,853 $ 8,674,118 $ 12,420,540
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization.......... 460,654 159,116 621,208 824,240
Provision for losses on accounts
receivable........................... 101,537 -- 256,179 181,200
Loss (gain) on sale of marketable
securities........................... (16,098) 25,575 43,679 32,741
(Earnings) loss from joint venture..... (26,984) 22,611 (18,124) (30,331)
Increase (decrease) in cash flows from
changes in operating assets and
liabilities:
Accounts receivable.................. (717,666) (356,626) (1,658,343) (1,643,325)
Inventories.......................... (1,569,788) 217,000 (1,063,000) (1,984,132)
Prepaid expenses and other........... 321,188 62,739 125,608 (152,038)
Other assets......................... (27,748) 3,104 (93,185) (147,355)
Accounts payable and accrued
expenses.......................... 128,510 (668,280) 1,358,112 1,184,651
Customer deposits.................... 421,784 (8,046) 386,231 (249,381)
----------- ---------- ----------- ----------
Net cash provided by operating activities... 1,158,015 1,087,046 8,632,483 10,436,810
----------- ---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sale of marketable
securities and returns of principal.... 1,335,775 352,813 1,596,281 1,332,091
Purchases of marketable securities........ (1,174,752) (585,627) (2,467,606) (1,413,595)
Acquisition of property and equipment..... (1,085,581) (40,120) (1,549,334) (587,791)
Acquisition of intangible assets.......... -- -- (125,000) --
----------- ---------- ----------- ----------
Net cash used in investing
activities...................... (924,558) (272,934) (2,545,659) (669,295)
----------- ---------- ----------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings............. 350,000 -- -- 7,000,000
Payments of long-term debt................ (574,750) (172,880) (363,338) (361,655)
Advances to stockholders.................. -- -- -- (377,684)
Distributions to stockholders............. (200,000) (200,000) (4,907,301) (14,661,045)
Proceeds from stockholder loan............ 30,267 (11,530) 36,702 --
Purchase of treasury stock................ -- -- (400,000) --
----------- ---------- ----------- ----------
Net cash used in financing
activities........................... (394,483) (384,410) (5,633,937) (8,400,384)
----------- ---------- ----------- ----------
Increase (decrease) in cash and cash
equivalents.......................... (161,026) 429,702 452,887 1,367,131
Cash and cash equivalents at beginning of
period.................................... 1,749,311 1,588,285 2,017,987 2,470,874
----------- ---------- ----------- ----------
Cash and cash equivalents at end
of period................................. $ 1,588,285 $2,017,987 $ 2,470,874 $ 3,838,005
=========== ========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ 180,000 $ 66,000 $ 211,000 $ 161,000
Income taxes......................... 1,444,000 16,000 190,000 295,000
</TABLE>
F-6
<PAGE> 58
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Vitaquest International Inc. (the "Company") was incorporated in 1996 and
will be the successor by merger to Garden State Nutritionals, Inc., Windmill
Marketing Services, Inc. and Cel-Mark International, Inc. (the "Predecessor
Companies"). As a result of the merger, each of the Predecessor Companies will
become a division of the Company. The merger is accounted for in a manner
similar to a pooling of interests, and, accordingly, the accompanying financial
statements include the accounts of the Predecessor Companies for all periods
presented. Assets and liabilities were recorded at their respective net book
values.
The Company is a custom developer, manufacturer and marketer of vitamins
and nutritional supplements as well as specialty nutritional systems. The
Company's products are sold through independent drug stores, mass market chains,
mail order and electronic media. The Company operates in one industry segment.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All intercompany balances and transactions have
been eliminated.
2. Revenue Recognition
Revenue is recognized upon shipment of merchandise to customers.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
4. Depreciation
Depreciation is computed using the straight-line and double-declining
balance methods. The useful lives of property and equipment range as follows:
<TABLE>
<S> <C>
Building and improvements....................................... 31 years
Machinery and equipment......................................... 5-10 years
Furniture, fixtures and office equipment........................ 5-10 years
Leasehold improvements.......................................... 15 years
</TABLE>
Effective January 1, 1996, depreciation on newly acquired property and
equipment will be computed on a straight-line basis over the estimated useful
lives of the assets.
5. Amortization of Intangible Assets
In connection with a business combination and stock redemption agreements,
the Company recorded $1,200,000 for confidentiality and noncompetition
agreements with two former stockholders. Amortization is being recorded on a
straight-line basis principally over eight years through the year 2000.
In connection with the acquisition of the Foods Plus(R) vitamin line in
1994, the Company acquired intangible assets totalling approximately $90,000
consisting of the Foods Plus trademark, customer lists, formulas and
merchandising material. Amortization is being recorded on a straight-line basis
over fifteen years.
F-7
<PAGE> 59
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
6. Investment in Joint Venture and Miscellaneous Income
The Company's investment in a joint venture for the purchase of a raw
material is accounted for under the equity method. The Company owns a 50%
interest in this joint venture. The investment is carried at cost, adjusted for
the Company's proportionate share of the joint venture's earnings and losses. At
December 31, 1994 and 1995, the investment in joint venture, which is included
in other assets, amounted to approximately $458,000 and $489,000, respectively.
The Company's share of joint venture earnings (losses), which is included in
miscellaneous income, totalled $26,984 for the year ended August 31, 1993,
$(22,611) for the four months ended December 31, 1993 and $18,124 and $30,331
for the years ended August 31, 1994 and 1995, respectively. Miscellaneous income
also includes commissions and royalties earned and other items.
7. Income Taxes
Beginning with the period ended December 31, 1993, Garden State
Nutritionals, Inc. and Windmill Marketing Services, Inc. elected under the
Internal Revenue Code and applicable state laws to be treated as S corporations.
Since it's incorporation, Cel-Mark International, Inc. had been an S corporation
for Federal income tax purposes. In 1995, it elected to be treated as an S
corporation for state tax purposes. In lieu of corporation income taxes, the
stockholders of an S corporation are taxed on the company's taxable income.
Deferred income taxes are determined based on the difference between the
tax basis of an asset or liability and its reported amount in the financial
statements using enacted tax rates in effect for the year in which the
differences are expected to reverse. The principal item giving rise to deferred
income taxes is differences arising from the conversion from the cash basis of
accounting for income tax purposes to the accrual basis for financial reporting
for one of the Company's divisions. Deferred income taxes are not significant.
Prior to the closing of the proposed public offering, the Company's income
tax status as an S corporation will terminate. The Company will convert to a C
corporation and will be subject to both Federal and state income taxes. Any
income tax adjustment required as a result of the conversion will be reflected
in the period in which it becomes effective.
Pro forma income taxes reflect provision for income taxes at the effective
statutory Federal and state rates applied to the Company's financial statement
earnings in each period.
8. Concentrations of Credit Risk and Fair Value of Financial Instruments
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, certificates of deposit and trade
accounts receivable. The Company places its cash and certificates of deposit
with high credit quality institutions. In general, such investments exceed the
FDIC insurance limit.
The Company provides credit to its customers in the normal course of
business. The Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable exposure is
limited.
The carrying value of financial instruments potentially subject to
valuation risk (principally consisting of cash, certificates of deposit,
accounts receivable, long-term debt and accounts payable) approximates fair
market value.
F-8
<PAGE> 60
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
9. Cash and Cash Equivalents and Supplemental Disclosure of Noncash
Transactions
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
Supplemental Disclosures of Noncash Transactions:
During the year ended August 31, 1993, the four months ended December 31,
1993 and the years ended December 31, 1994 and 1995, dividends of $200,000,
$660,885, $737,571 and $1,254,058, respectively, were declared and paid in the
subsequent period.
During the year ended December 31, 1994, the Company issued notes payable
totalling $64,734 in exchange for certain intangible assets.
During the year ended August 31, 1993, the Company acquired certain
property and equipment totalling $1,165,994 in exchange for long-term debt.
10. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
11. New Accounting Standards Not Yet Adopted
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which provides guidance on when to assess and how to measure impairment of
long-lived assets, certain intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," which gives companies a choice of the
method of accounting used to determine stock-based compensation. Companies may
account for such compensation either by using either the intrinsic value-based
method provided in APB Opinion 25 ("APB No. 25"), "Accounting for Stock Issued
to Employees," or the fair market value-based method provided in SFAS No. 123.
These statements are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company believes that the impact of
adopting SFAS No. 121 will not have a material effect on the Company. The
Company intends to use the intrinsic value-based method provided in APB No. 25
to determine stock-based compensation. The primary effect of the adoption of
SFAS No. 123 is the obligation imposed on the Company to comply with the new
disclosure requirements provided thereunder.
NOTE B -- MARKETABLE SECURITIES
During the year ended December 31, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This statement addresses the accounting and
reporting for investments in equity securities that have a readily determinable
fair value and for all investments in debt securities.
F-9
<PAGE> 61
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- MARKETABLE SECURITIES -- (CONTINUED)
As of December 31, 1994 and 1995, the Company classified its investments
with a cost of $1,711,222 and $1,759,985 and market value of $1,611,376 and
$1,776,429, respectively, as available-for-sale securities. Cost is determined
by the specific identification method. The following is a schedule of these
securities:
<TABLE>
<CAPTION>
1994 1995
-------------------------------------- --------------------------------------
UNREALIZED UNREALIZED
GAINS FAIR GAINS FAIR
COST (LOSSES) VALUE COST (LOSSES) VALUE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Equity securities....... $ 276,422 $ (20,639) $ 255,783 $ 162,634 $ 7,048 $ 169,682
Corporate obligations... 657,020 (22,517) 634,503 282,366 10,513 292,879
Municipal obligations... 522,207 (15,124) 507,083 1,169,887 (1,538) 1,168,349
Mortgage-backed
securities............ 255,573 (41,566) 214,007 145,098 421 145,519
---------- -------- ---------- ---------- -------- ----------
$1,711,222 $ (99,846) $1,611,376 $1,759,985 $ 16,444 $1,776,429
========== ======== ========== ========== ======== ==========
</TABLE>
In March 1996, the Company transferred to stockholders, at fair market
value, $1,290,000 of marketable securities and liquidated substantially all of
the remaining portfolio for $496,000. The transfer of shares and proceeds from
sale were used to pay stockholder distributions.
During the years ended December 31, 1994 and 1995, transactions from the
sale of available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Gross proceeds from sales................................... $1,417,817 $1,323,825
Historical cost............................................. 1,461,496 1,356,566
---------- ----------
Net loss from sales......................................... $ (43,679) $ (32,741)
========== ==========
</TABLE>
NOTE C -- INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Raw materials............................................... $1,419,000 $2,480,729
Work in process............................................. 1,202,000 1,735,499
Finished product............................................ 2,343,000 2,731,904
---------- ----------
$4,964,000 $6,948,132
========== ==========
</TABLE>
F-10
<PAGE> 62
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Land........................................................ $ 277,200 $ 277,200
Building and improvements................................... 1,414,758 1,419,848
Machinery and equipment..................................... 2,273,151 2,654,622
Furniture, fixtures and office equipment.................... 657,822 739,720
Leasehold improvements...................................... 756,867 790,130
---------- ----------
5,379,798 5,881,520
Less accumulated depreciation and amortization.............. 1,821,539 2,417,188
---------- ----------
$3,558,259 $3,464,332
========== ==========
</TABLE>
Depreciation and amortization expense of property and equipment totalled
approximately $302,000, $106,000, $450,000 and $682,000 for the year ended
August 31, 1993, the four months ended December 31, 1993 and the years ended
December 31, 1994 and 1995, respectively.
NOTE E -- ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Salaries, commissions and payroll taxes..................... $ 801,040 $ 848,159
Profit sharing contribution................................. 157,833 217,782
Professional fees........................................... 224,672 363,982
Interest.................................................... 51,876 226,955
Health and welfare.......................................... 26,776 138,402
Other....................................................... 361,772 449,684
---------- ----------
$1,623,969 $2,244,964
========== ==========
</TABLE>
NOTE F -- LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Term loan payable to bank................................... $ -- $7,000,000
Mortgage payable............................................ 911,406 796,281
Notes payable -- former stockholders........................ 1,333,000 1,109,000
Other....................................................... 76,848 54,318
---------- ----------
2,321,254 8,959,599
Less current maturities..................................... 362,499 1,237,683
---------- ----------
$1,958,755 $7,721,916
========== ==========
</TABLE>
Term Loan Payable to Bank
In September 1995, the Company entered into a term loan agreement with a
bank to finance a portion of distributions to the Company's shareholders. Under
this agreement, principal payments of $250,000 are due in
F-11
<PAGE> 63
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LONG-TERM DEBT -- (CONTINUED)
28 equal, quarterly installments commencing January 1, 1996. Interest is payable
quarterly on the unpaid principal balance at a fixed annual rate of 7.74%.
Terms of the loan require the Company to meet certain operating and
financial covenants, including specific collateral requirements, maintenance of
minimum working capital and debt ratios, and restrictions on capital
expenditures. The agreement allows for optional prepayments subject to specified
fixed rate breakage fee provisions.
Although as of December 31, 1995, the Company has been in default of the
limitation on capital expenditures contained in the loan agreement, the bank has
increased the capital expenditures limitation for that period thereby putting
the Company was in compliance with this covenant.
Mortgage Payable
In November 1992, the Company purchased a manufacturing and warehouse
facility. The mortgage is payable in 59 equal monthly principal payments of
$9,594, calculated on a ten-year straight-line amortization with a final payment
of $585,219 due on November 1, 1997. Interest is payable at a fixed rate of
7.85%.
Under terms of the agreement, the Company must meet certain covenants which
require, among other things, maintenance of minimum working capital and net
worth, and restrictions on capital expenditures.
Notes Payable -- Former Stockholders
The notes payable to former stockholders are principally the result of
various stock buy-back, confidentiality and noncompete agreements. The notes
bear interest at prime and require annual principal payments commencing
principally in 1997 through 2000.
The following is a summary of the annual maturities of long-term debt:
<TABLE>
<S> <C>
Year ending December 31,
1996........................................................... $1,237,683
1997........................................................... 1,944,071
1998........................................................... 1,263,575
1999........................................................... 1,264,270
2000........................................................... 1,250,000
Thereafter..................................................... 2,000,000
----------
$8,959,599
==========
</TABLE>
NOTE G -- COMMITMENTS AND CONTINGENCIES
1. In 1995, the Company renewed a lease from a partnership in which certain
stockholders of the Company are partners. The lease term is for six years with
two five-year renewal options. The lease is on a triple net basis which provides
for a rent of approximately $311,000 per annum, subject to increase based upon
increases in the borrowing rate charged to the landlord in respect to the
financing of the facility.
In 1995, the Company entered into a lease agreement with a limited
liability company in which the stockholders of the Company are members. The
lease term is for five years with two five-year renewal options. Base annual
rent payments commencing November 1995 are $720,000. The lease requires the
Company to pay all property taxes and operating costs of the facility. In
connection with this lease agreement, the Company guaranteed a $3,440,000
mortgage loan of the limited liability company.
F-12
<PAGE> 64
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company believes that the terms of both such leases are not less
favorable to the Company than terms that could be obtained from unaffiliated
parties for comparable facilities.
Rent expense for the year ended August 31, 1993, the four months ended
December 31, 1993 and the years ended December 31, 1994 and 1995, was
approximately $338,000, $104,000, $311,000 and $438,000, respectively.
Minimum annual lease payments under these leases are $1,031,000 in each
year through 1999, $971,000 in 2000 and $311,000 thereafter.
2. In connection with various stock redemption agreements, the Company is
obligated to former shareholders for consulting fees, employment agreements and
covenants not to compete totalling $393,000 in 1996, $243,000 in each of 1997
and 1998, $176,000 in 1999, $43,000 in 2000 and $170,000 thereafter.
3. The Company is a party to various legal matters arising in the normal
course of business. It is the opinion of management that the disposition of
these matters will not have a material adverse effect on the Company's financial
position.
4. The manufacturing, packaging, labeling, advertising, distribution and
sale of the Company's products are subject to regulation by one or more federal
agencies. The Company's activities are also regulated by various agencies of the
states and localities in which the Company's products are manufactured,
distributed and sold. The Company is subject to periodic inspection and testing
of its products by the Food and Drug Administration, the New Jersey Department
of Health and local health departments.
NOTE H -- PROFIT-SHARING PLAN
The Company has a profit-sharing plan for all its employees meeting certain
minimum eligibility requirements. Contributions are at the discretion of the
Board of Directors. For the year ended August 31, 1993, four months ended
December 31, 1993 and the years ended December 31, 1994 and 1995, contributions
to the plan charged to operations were $439,000, $120,000, $505,000 and
$620,000, respectively.
NOTE I -- INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED DECEMBER
YEAR ENDED ENDED 31,
AUGUST 31, DECEMBER 31, ---------------------
1993 1993 1994 1995
---------- ------------ -------- --------
<S> <C> <C> <C> <C>
Federal........................... $1,206,763 -- -- --
State............................. 368,078 $180,223 $283,327 $256,000
Investment tax credits............ -- -- (15,140) (32,000)
---------- -------- -------- --------
$1,574,841 $180,223 $268,187 $224,000
========== ======== ======== ========
</TABLE>
NOTE J -- MAJOR CUSTOMERS
For the year ended August 31, 1993, one customer accounted for
approximately 14% of sales. For the year ended December 31, 1994, three
customers accounted for approximately 16%, 13% and 11%, respectively, of sales.
For the year ended December 31, 1995, one customer accounted for
approximately 12% of sales. At December 31, 1995, the amount receivable from
this customer was approximately 14% of accounts receivable.
F-13
<PAGE> 65
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- TRANSACTIONS WITH STOCKHOLDERS
At December 31, 1995, the Company had advances to a stockholder of
approximately $254,000 and advances to entities owned by the principal
stockholders of the Company of approximately $124,000. In addition, the Company
had dividend distributions payable to stockholders totalling approximately
$738,000 and $1,254,000, respectively, and a loan payable to stockholders
totalling approximately $78,000 at December 31, 1994 and 1995.
In March 1996, the advance to stockholder of $254,000 was offset by a
dividend distribution to the stockholder. The remaining balance of the dividend
distributions payable and the loan payable at December 31, 1995 were paid in
March 1996. Approximately $65,000 of the advances to these entities were repaid
by April 12, 1996. The dividend distributions payable at December 31, 1994 were
paid in 1995.
NOTE L -- PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
preferred stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series.
NOTE M -- PRO FORMA INFORMATION
Pro Forma Statements of Earnings (Unaudited)
The pro forma adjustments in the statements of earnings reflect a provision
for income taxes based upon pro forma pretax earnings as if the Company had been
subject to Federal and state income taxes which it is not currently subject to.
The pro forma income tax provision has been prepared in accordance with SFAS No.
109. The effective pro forma tax rate of the Company differs from the Federal
rate of 34% primarily due to the effects of state income taxes. The Company
elected to be taxed as an S corporation pursuant to the Internal Revenue Code.
In connection with the proposed public offering, the Company will become subject
to Federal and state income tax.
In addition, as a result of new employment agreements to be entered into
with the principal stockholder of the Company, compensation costs will be
reduced for 1996. The pro forma adjustment gives effect to these agreements and
the resulting compensation differential as if they had been in place for the
entire year ended December 31, 1995.
The pro forma provision for income taxes, after giving effect to the
Federal statutory rate of 34% and an approximate state tax provision of 9% after
reflecting the Federal tax benefit, consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, ---------------------------
1993 1993 1994 1995
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Federal........................ $1,206,763 $568,000 $2,811,000 $4,647,000
State.......................... 368,078 165,000 801,000 1,279,000
---------- -------- ---------- ----------
$1,574,841 $733,000 $3,612,000 $5,926,000
========== ======== ========== ==========
</TABLE>
F-14
<PAGE> 66
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- PRO FORMA INFORMATION -- (CONTINUED)
The differences between pro forma income tax expense shown in the
statements of earnings and the pro forma computed income tax expense based on
the Federal statutory corporate tax rate are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, -------------------------
1993 1993 1994 1995
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Computed income taxes based on
Federal statutory corporate
rate of 34%.................... $1,243,549 $615,000 $3,040,000 $4,909,000
State income taxes, net of
Federal benefit................ 242,891 109,000 529,000 844,000
Other............................ 88,401 9,000 43,000 173,000
---------- -------- ---------- ----------
$1,574,841 $733,000 $3,612,000 $5,926,000
========== ======== ========== ==========
</TABLE>
Pro Forma Earnings Per Share
Pro forma earnings per share are based on the weighted average number of
common shares outstanding during the period plus the issuance of 51,000 shares
to certain employees to be made prior to the proposed public offering.
Pro Forma Balance Sheet (Unaudited)
The Company intends to declare a final S corporation dividend to its
stockholders of all undistributed S corporation earnings up to $10 million. To
the extent that the Company does not have sufficient cash to pay such dividend,
it will issue promissory notes payable over a three-year period in an aggregate
amount not to exceed the undistributed S corporation earnings through a date
prior to the proposed public offering, which payments will commence one month
after the effective date of the proposed public offering.
The pro forma balance sheet of the Company at December 31, 1995 has been
adjusted for the pro forma effects of: (1) the distributions to the principal
stockholders of approximately $2,015,000 representing the undistributed S
corporation earnings through December 31, 1995 (this amount, which relates to
Fiscal 1995 earnings, is recorded as a reduction to cash in the pro forma
balance sheet at December 31, 1995); (2) additional income tax liabilities as a
result of termination of the S corporation status, and (3) issuance of 51,000
shares of common stock to certain employees at a price of $1 per share made
shortly before the offering. This includes the recording of $816,000 in common
stock and additional paid-in capital, receipt of cash of $51,000, and an
unearned compensation contra equity adjustment of $765,000. The shares so issued
will be subject to repurchase by the Company, at the same price, if the
individual ceases to be employed by the Company prior to the fifth anniversary
of the date of purchase, unless such termination is without good cause, as
defined in the purchase agreement. Such repurchase right will lapse over a five
year period at the rate of 20% of the purchased shares, per year. Accordingly
the unearned compensation will be amortized over five years.
F-15
<PAGE> 67
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- PRO FORMA INFORMATION -- (CONTINUED)
The following table illustrates the pro forma balance sheet adjustments
described above as of December 31, 1995:
<TABLE>
<S> <C>
Historical stockholders' equity......................................... $10,410,850
Pro forma adjustments:
(1) Dividend of undistributed S corporation earnings.................. (2,015,845)
(2) Additional income tax liabilities as a result of termination of
the S corporation status which will be charged to operations in
the period in which the termination occurs........................ (118,000)
(3) Net effect of issuance of 51,000 shares of common stock to certain
employees......................................................... 51,000
-----------
Pro forma stockholders' equity.......................................... $ 8,328,005
===========
</TABLE>
NOTE N -- SUBSEQUENT EVENTS
1. Proposed Public Offering of Common Stock
The Board has authorized the filing of a registration statement relating to
an initial public offering of shares of common stock.
The net proceeds from the issuance and sale of the common stock will be
used to fund capital expenditures associated with the build out of the Company's
new production, distribution and office facility, to purchase certain machinery
and equipment and for general coprorate purposes. A portion of the net proceeds
may be used by the Company for strategic acquisitions.
2. 1996 Stock Option Plan
In 1996, the Board of Directors and Stockholders approved the adoption of
The 1996 Stock Option Plan. The 1996 Stock Option Plan provides for the grant of
options to purchase up to 1,300,000 shares of the Company's common stock. These
options may be granted to employees, officers of the Company, nonemployee
directors of the Company and consultants to the Company. The 1996 Stock Option
Plan provides for granting of options to purchase the Company's common stock at
not less than the fair value of such shares on the date of the grant.
3. Employment Agreements
In connection with the proposed public offering, the Company will enter
into employment agreements with its Chairman of the Board and Chief Executive
Officer which provide that their salaries and bonuses, will not be greater than
$500,000 each in 1996. Such agreements further provide that for 1997 and 1998
the base salary is subject to annual increases of the greater of 5% or the
percentage increase in the Consumer Price Index published by the U.S. Department
of Labor. Subsequent to June 30, 1997, the bonus shall not be more than $150,000
unless the Compensation Committee determines otherwise, on the basis of
operating results.
F-16
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 14
Dividend Policy...................... 15
S Corporation Distributions.......... 15
Dilution............................. 16
Capitalization....................... 17
Selected Consolidated Financial
Data .............................. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 25
Management........................... 37
Certain Relationships and Related
Transactions....................... 43
Principal and Selling Stockholders... 44
Description of Capital Stock......... 45
Shares Eligible for Future Sale...... 47
Underwriting......................... 48
Legal Matters........................ 49
Experts.............................. 49
Additional Information............... 49
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
7,200,000 SHARES
VITAQUEST INTERNATIONAL INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
-----------
<S> <C>
SEC registration fee.................................................... $ 48,537.93
National Association of Securities Dealers, Inc. filing fee............. 14,576.00
Blue Sky fees and expenses.............................................. 20,000.00
NASDAQ NMS listing fee.................................................. 50,000.00
Accounting fees and expenses............................................ 290,000.00
Legal fees and expenses................................................. 225,000.00
Printing and engraving expenses......................................... 140,000.00
Registrar and Transfer Agent's fees..................................... 35,000.00
Miscellaneous fees and expenses......................................... 17,000.00
Total......................................................... $840,113.93
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article 11 of the Registrant's
Certificate of Incorporation, as amended, and Section 5 of the Registrant's
By-Laws provides for indemnification to the fullest extent authorized by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with each of its directors that provide for the indemnification of
and the advancement of expenses to such persons to the greatest extent permitted
by Delaware law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant where
indemnification will be required or permitted. The Registrant is not aware of
any threatened litigation or proceeding that may result in a claim for
indemnification by any director, officer, employee or other agent.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant and its directors and officers for certain
liabilities, including certain liabilities arising under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has not sold or issued any securities within the past three
years, other than 51,000 shares of its Common Stock to be sold to five persons
shortly prior to the date of this Offering. The foregoing transactions are
considered exempt from the registration requirements of the Act under Section
3(b) and Rule 701 promulgated pursuant thereto. The purchasers of the
above-described shares will represent their intention to acquire the shares for
investment only and not with a view to the distribution thereof. Appropriate
legends will be affixed to the certificates representing the securities issued
in such transactions. Similar representations of investment intent will be
obtained and similar legends imposed in connection with any subsequent sales of
any such securities. All purchasers had adequate access, through employment or
other relationships, to information about the Registrant.
II-1
<PAGE> 70
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ------------------------------------------------------------------------------------
<S> <C>
1.1* Proposed Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant dated
April 29, 1996.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant dated May
2, 1996.
3.4 By-laws of the Registrant.
4.1* Specimen of Common Stock Certificate of the Registrant.
5.1* Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1 Employment, Non-Competition and Confidentiality Agreement, dated as of January 1,
1994, between Garden State Nutritionals, Inc. and William Howard, together with
letter agreement dated April 30, 1996.
10.2 Consulting, Non-Competition and Confidentiality Agreement, dated as of January 1,
1995, between Garden State Nutritionals, Inc. and Dan Garcia, together with letter
agreement dated April 29, 1996.
10.3* Restricted Stock Plan of the Registrant.
10.4* Restricted Stock Purchase Agreements between the Registrant and Messrs. Howard C.
Munk, Myron Jacobowitz, Stephen J. Young, Dan Garcia and Al Paglinco.
10.5* 1996 Stock Option Plan of the Registrant.
10.6* 1995 Employee Profit Sharing Plan of Garden State Nutritionals, Inc.
10.7 Loan Agreement, dated November 12, 1992, between Garden State Nutritionals, Inc. and
Chemical Bank, with First Amendment thereto dated as of September 28, 1995.
10.8 Loan Agreement, dated September 28, 1995, between Garden State Nutritionals, Inc.
and Chemical Bank.
10.9 Lease Agreement, dated as of June 30, 1985, between Garden State Nutritionals, Inc.
and Vitareal Associates, L.P., as amended on September 25, 1995.
10.10 Lease Agreement, dated as of November 1, 1995, between Garden State Nutritionals,
Inc. and Leknarf Associates, L.L.C.
10.11 Lease Agreement, dated as of November 1, 1995, between Windmill Marketing Services,
Inc. and Leknarf Associates, L.L.C.
10.12 Rent rebate agreement, dated as of November 1, 1995, between Garden State
Nutritionals, Inc. and Leknarf Associates, L.L.C.
10.13* Form of Promissory Note to be issued by the Registrant to Messrs. Edward, Keith and
Frank Frankel
16 Letter from Horowitz, Waldman, Berretta & Maldow, CPA, LLP, regarding its
concurrence with the statements made by the Registrant regarding the resignation of
the Registrant's principal accountant.
21* Subsidiary of the Registrant
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2* Consent of Morrison Cohen Singer & Weinstein, LLP.
24 Power of Attorney (included in the signature page filed as a part of this
Registration Statement).
27.1 Financial Data Schedule -- December 31, 1995.
27.2* Financial Data Schedule -- March 31, 1996.
</TABLE>
- ---------------
* To be filed by amendment.
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts............................. S-1
-----
</TABLE>
II-2
<PAGE> 71
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on May 13, 1996.
VITAQUEST INTERNATIONAL INC.
By /s/ Edward M. Frankel
--------------------------------------
Edward M. Frankel,
President and Chairman
of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Edward M. Frankel and Keith I. Frankel,
or either of them, each with the power of substitution, his or her
attorney-in-fact, to sign any amendments to this Registration Statement and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his or her substitute, may
do or choose to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------------- -------------
<C> <S> <C>
/s/ Edward M. Frankel President (Principal Executive May 13, 1996
- ------------------------------------------ Officer) and Chairman of the Board
Edward M. Frankel of Directors
/s/ Keith I. Frankel Chief Executive Officer and May 13, 1996
- ------------------------------------------ Director
Keith I. Frankel
/s/ Stephen J. Young Chief Financial Officer, Treasurer May 13, 1996
- ------------------------------------------ and Secretary (Principal Financial
Stephen J. Young and Accounting Officer)
/s/ Julius M. Horowitz Director May 13, 1996
- ------------------------------------------
Julius M. Horowitz
/s/ Joel H. Girsky Director May 13, 1996
- ------------------------------------------
Joel H. Girsky
</TABLE>
II-4
<PAGE> 73
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995 AND 1994,
THE FOUR MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
COLUMN C
-------------------------
ADDITIONS
-------------------------
COLUMN B (1) (2) COLUMN E
---------- CHARGED TO COLUMN D ----------
COLUMN A BALANCE AT CHARGED TO OTHER ---------- BALANCE AT
- ------------------------------------ BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(A) PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts... $ 200,000 $181,000 $ -- $ 381,000
======== ======== ======== ========
Year ended December 31, 1994
Allowance for doubtful accounts... $ 150,000 $256,000 $206,000 $ 200,000
======== ======== ======== ========
Four months ended December 31, 1993
Allowance for doubtful accounts... $ 150,000 $ -- $ -- $ 150,000
======== ======== ======== ========
Year ended August 31, 1993
Allowance for doubtful accounts... $ 98,000 $102,000 $ 50,000 $ 150,000
======== ======== ======== ========
</TABLE>
- ---------------
(a) Represents accounts written off.
S-1
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <S> <C>
1.1* Proposed Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant
dated April 29, 1996.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant
dated May 2, 1996.
3.4 By-laws of the Registrant.
4.1* Specimen of Common Stock Certificate of the Registrant.
5.1* Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1 Employment, Non-Competition and Confidentiality Agreement, dated as of
January 1, 1994, between Garden State Nutritionals, Inc. and William Howard,
together with letter agreement dated April 30, 1996.
10.2 Consulting, Non-Competition and Confidentiality Agreement, dated as of
January 1, 1995, between Garden State Nutritionals, Inc. and Dan Garcia,
together with letter agreement dated April 29, 1996.
10.3* Restricted Stock Plan of the Registrant.
10.4* Restricted Stock Purchase Agreements between the Registrant and Messrs.
Howard C. Munk, Myron Jacobowitz, Stephen J. Young, Dan Garcia and Al
Paglinco.
10.5* 1996 Stock Option Plan of the Registrant.
10.6* 1995 Employee Profit Sharing Plan of Garden State Nutritionals, Inc.
10.7 Loan Agreement, dated November 12, 1992, between Garden State Nutritionals,
Inc. and Chemical Bank, with First Amendment thereto dated as of September
28, 1995.
10.8 Loan Agreement, dated September 28, 1995, between Garden State Nutritionals,
Inc. and Chemical Bank.
10.9 Lease Agreement, dated as of June 30, 1985, between Garden State
Nutritionals, Inc. and Vitareal Associates, L.P., as amended on September 25,
1995.
10.10 Lease Agreement, dated as of November 1, 1995, between Garden State
Nutritionals, Inc. and Leknarf Associates, L.L.C.
10.11 Lease Agreement, dated as of November 1, 1995, between Windmill Marketing
Services, Inc. and Leknarf Associates, L.L.C.
10.12 Rent rebate agreement, dated as of November 1, 1995, between Garden State
Nutritionals, Inc. and Leknarf Associates, L.L.C.
10.13* Form of Promissory Note to be issued by the Registrant to Messrs. Edward,
Keith and Frank Frankel
16 Letter from Horowitz, Waldman, Berretta & Maldow, CPA, LLP, regarding its
concurrence with the statements made by the Registrant regarding the
resignation of the Registrant's principal accountant.
21* Subsidiary of the Registrant
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2* Consent of Morrison Cohen Singer & Weinstein, LLP.
24 Power of Attorney (included in the signature page filed as a part of this
Registration Statement).
27.1 Financial Data Schedule -- December 31, 1995.
27.2* Financial Data Schedule -- March 31, 1996.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
GSCMW, INC.
-----------
ARTICLE ONE
The name of the corporation is GSCMW, INC.
ARTICLE TWO
-----------
The address of the corporation's registered office in the State of
Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is National Corporate Research,
Ltd. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
ARTICLE THREE
-------------
The nature of the business of purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
------------
CAPITAL STOCK
(a) The total number of shares of common stock that the corporation
shall have authority to issue is 50,000,000, par value $.01 per share (the
"Common Stock"). The total number of shares of preferred stock that the
corporation shall have authority to issue is 10,000,000, par value $.01 per
share (the "Preferred Stock").
(b) The Common Stock shall rank junior to the Preferred Stock in right
of payment of dividends and upon liquidation and is subject to all the powers,
rights, privileges, preferences and priorities of the Preferred Stock as
provided herein or in any resolution or resolutions adopted by the board of
directors pursuant to authority expressly vested in it by the provisions of
Paragraph (c) of this ARTICLE FOUR.
-1-
<PAGE> 2
The Common Stock shall have voting rights for the election of directors
and for all other purposes, each holder of Common Stock being entitled to one
vote for each share thereof held by such holder, except as otherwise required by
law.
(c) Authority is hereby expressly vested in the board of directors of
the corporation, subject to the provisions of this ARTICLE FOUR and to the
limitations prescribed by law, to authorize the issuance from time to time of
one or more series of Preferred Stock. The authority of the board of directors
with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the directors then in
office:
(i) The designation of such series;
(ii) The dividend rate of such series, the conditions
and dates upon which such dividends shall be payable, the relation
which such dividends shall bear to the dividends payable on any other
class or classes or series of the corporation's capital stock, and
whether such dividends shall be cumulative or non-cumulative;
(iii) Whether the shares of such series shall be
subject to redemption for cash, property or rights, including
securities of any other corporation, by the corporation or upon the
happening of a specified event, and, if made subject to any such
redemption, the times or events, prices, rates, adjustments and other
terms and conditions of such redemptions;
(iv) The terms and amount of any sinking fund provided
for the purchase or redemption of the shares of such series;
(v) Whether or not the shares of such series shall be
convertible into, or exchangeable for, at the option of either the
holder or the corporation or upon the happening of a specified event,
shares of any other class or classes or of any other series of the same
or any other class or classes of the corporation's capital stock, and,
if provision be made for conversion or exchange, the time or events,
prices, adjustments and other terms and conditions of such conversions
or exchanges;
(vi) The restrictions, if any, on the issue or reissue
of any additional Preferred Stock;
(vii) The rights of the holders of the shares of such
series upon the voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
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<PAGE> 3
(viii) The provisions as to voting, optional and/or other
special rights and preferences, if any, including, without limitation,
the right to elect one or more directors.
ARTICLE FIVE
------------
The corporation is to have perpetual existence.
ARTICLE SIX
-----------
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter, amend, change, add to or repeal the by-laws of the corporation. Any
alteration or repeal of the by-laws of the corporation by the stockholders of
the corporation shall require the affirmative vote of two-thirds of the
outstanding shares of the corporation entitled to vote on such alteration or
repeal, subject to ARTICLE TEN hereof.
ARTICLE SEVEN
-------------
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE EIGHT
-------------
(a) Subject to the rights of the holders of any series of Preferred
Stock, from and after the date on which the Common Stock of the corporation is
registered pursuant to the Securities Exchange Act of 1934, as amended, (A) any
action required or permitted to be taken by the stockholders of the corporation
must be effected at an annual or special meeting of stockholders of the
corporation and may not be effected in lieu thereof by any consent in writing by
such stockholders, and (B) special meetings of stockholders of the corporation
may be called only by the chairman of the board, the president or the board of
directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office.
(b) A director of the corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall
any transaction or contract of
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<PAGE> 4
the corporation be void or voidable or affected by reason of the fact that any
director, or any firm of which any director is a member, or any corporation of
which any director is an officer, director or stockholder, is in any way
interested in such transaction or contract; provided that at the meeting of the
board of directors or of a committee thereof having authority in authorizing or
affirming such contract or transaction, the existence of the interest of such
director, firm or corporation is disclosed or made known and such contract or
transaction shall be approved by a majority of directors not so interested or
connected. Nor shall any director be liable to account to the corporation for
any profit realized by him from or through any such transaction or contract of
the corporation ratified or approved as aforesaid, by reason of the fact that he
or any firm of which he is a member, or any corporation of which he is an
officer, director or stockholder, was interested in such transaction or
contract. Directors so interested may be counted when present at meetings of the
board of directors or such committee for the purpose of determining the
existence of a quorum. Any contact, transaction or act of the corporation or of
the board of directors or of any committee thereof (whether or not approved or
ratified as hereinabove in this paragraph provided) which shall be ratified by a
majority in interest of a quorum of the stockholders having voting power at any
annual meeting or any special meeting called for such purpose, shall be as valid
and as binding as though ratified by every stockholder of the corporation.
(c) The number of directors which shall constitute the whole board
shall be such as from time to time shall be fixed by resolution adopted by
affirmative vote of a majority of the board of directors except that such number
shall not be less than one (1) nor more than fifteen (15), the exact number to
be determined by resolution adopted by affirmative vote of a majority of the
board of directors. Commencing with the election of directors by the
stockholders of the corporation in 1996, the directors of the corporation shall
be divided into three classes: Class I, Class II and Class III. Membership in
such classes shall be as nearly equal in number as possible. The term of office
of the initial Class I directors shall expire at the annual election of
directors by the stockholders of the corporation in 1997, the term of office of
the initial Class II directors shall expire at the annual election of directors
by the stockholders of the corporation in 1998, and the term of office of the
initial Class III directors shall expire at the annual election of directors by
the stockholders of the corporation in 1999, or thereafter when their respective
successors in each case are elected by the stockholders and qualified, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office for cause. At each succeeding annual election of directors by the
stockholders of the corporation beginning in 1997, the directors chosen to
succeed those whose terms then expire shall be identified as being of the same
class as the directors they succeed and shall be elected for
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<PAGE> 5
a term expiring at the third succeeding annual election of directors by the
stockholders of the corporation, or thereafter when their respective successors
in each case are elected by the stockholders and qualified. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director.
Vacancies and newly created directorships resulting from any increase
in the number of directors may be filled only by (i) the stockholders at an
annual or special meeting of the corporation, as provided in the by-laws or (ii)
the affirmative vote of the majority of the board of directors then in office,
although less than quorum, or by a sole remaining director. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filing of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Section
(c) of ARTICLE EIGHTH unless expressly provided by such terms.
Subject to the rights of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, no director may be removed from office
without cause.
(d) Except to the extent prohibited by law, the board of directors
shall have the right (which, to the extent exercised, shall be exclusive) to
establish the rights, powers, duties, rules and procedures that from time to
time shall govern the board of directors and each of its members, including
without limitation the vote required for any action by the board of directors,
and that from time to time shall affect the directors' power to manage the
business and affairs of the corporation; and no by-law shall be adopted by
stockholders which shall impair or impede the implementation of the foregoing.
(e) The board of directors shall have authority from time to time to
set apart out of any assets of the corporation otherwise available for dividends
a reserve or reserves as working capital or
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<PAGE> 6
for any other purpose or purposes, and to abolish or add to any such reserve or
reserves from time to time as said board may deem to be in the interest of the
corporation; and said board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the corporation.
(f) Any and all right, title, interest and claim in or to any dividends
declared by the corporation, whether in cash, stock or otherwise, which are
unclaimed by the stockholder entitled thereto for a period of six years after
the close of business on the payment date, shall be and shall be deemed to be
extinguished and abandoned; and such unclaimed dividends in the possession of
the corporation, its transfer agents or other agents or depositories, shall at
such time become the absolute property of the corporation, free and clear of any
and all claims of any persons whatsoever.
(g) The shares of all classes of stock of the corporation may be issued
by the corporation from time to time for such consideration as from time to time
may be fixed by the board of directors of the corporation, provided that shares
of stock having a par value shall not be issued for a consideration less than
such par value, as determined by the board. At any time, or from time to time,
the corporation may grant rights or options to purchase from the corporation any
shares of its stock of any class or classes to run for such period of time, for
such consideration, upon such terms and conditions, and in such form as the
board of directors may determine. The board of directors shall have authority,
as provided by law, to determine that only a part of the consideration, which
shall be received by the corporation for the shares of its stock which it shall
issue from time to time, shall be capital, provided, however, that, if all the
shares issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of stock of the corporation shall be and remain at
all times nonassessable.
(h) No holders of stock of the corporation of any class, as such, shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the corporation whether nor or hereafter authorized, or to any
obligations convertible (directly or indirectly) into stock of the corporation
whether now or hereafter authorized, or any right of subscription to any thereof
other than such, if any, as the board of directors in its discretion may, from
time to time, determine with respect thereto; and any shares of stock or
convertible obligations which the board of directors may determine to offer for
subscription to
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<PAGE> 7
the holders of stock of the corporation may, as the board shall determine, be
offered to the holders of any class or classes of stock exclusively, or to the
holders of all classes of stock, and, if offered to more than one class of
stock, in such proportion as between said classes of stock as the board of
directors in its discretion may determine. As used herein, the expression
"convertible obligations" shall include any notes, bonds or other evidence of
indebtedness to which are attached or with which are issued warrants or other
rights to purchase stock of the corporation of any class or classes. The board
of directors is hereby expressly authorized, in its discretion, in connection
with the issuance of any obligations or stock of the corporation (but without
intending hereby to limit its general power so to do in other cases), to grant
rights or options to purchase stock of the corporation of any class upon such
terms and during such period as the board of directors shall determine, and to
cause such rights to be evidenced by such warrants or other instruments as it
may deem advisable.
(i) The board of directors shall have power from time to time to
determine to what extent and at what times and places and under what conditions
and regulations the accounts and books of the corporation, or any of them, shall
be open to the inspection of the stockholders; and no stockholder shall have any
right to inspect any account or book or document of the corporation, except as
conferred by the laws of the State of Delaware, unless and until authorized so
to do by resolution of the board of directors or of the stockholders of the
corporation.
(j) Except as otherwise provided in the by-laws, the stockholders of
the corporation and the board of directors may hold their meetings and have an
office or offices outside of the State of Delaware, and, subject to the
provisions of the laws of said State, may keep the books of the corporation
outside of said State at such places as may, from time to time, be designated by
the board of directors.
(k) The by-laws of the corporation may confer powers upon the directors
in addition to those granted in the Certificate of Incorporation, as amended,
and in addition to the powers expressly conferred upon them by the laws of the
State of Delaware.
ARTICLE NINE
------------
Section 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
------------------------------------------------
(a) In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
Section 2 of this ARTICLE NINE:
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<PAGE> 8
(i) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder
(as hereinafter defined) or (b) any other corporation (whether nor not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the corporation or any Subsidiary having
an aggregate Fair Market Value of $25,000,000 or more; or
(iii) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary to any Interested
Stockholders or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $25,000,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class (it being understood that for purposes of this
ARTICLE NINE, each share of the Voting Stock shall have the number of votes
granted to it pursuant to ARTICLE FOUR of this Certificate of Incorporation).
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or any
agreement with any national securities exchange or otherwise.
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<PAGE> 9
(b) The term "Business Combination" as used in this ARTICLE NINE shall
mean any transaction which is referred to in any one or more of clauses (i)
through (v) of paragraph (a) of this Section 1.
Section 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section
1 of this ARTICLE NINE shall not be applicable to any particular Business
Combination involving an Interested Stockholder (or any Affiliate or Associate
of such Interested Stockholder), and such Business Combination shall require
only such affirmative vote as is required by law and any other provision of this
Certificate of Incorporation, if the Business Combination (a) shall have been
approved by a majority of the Disinterested Directors (as hereinafter defined)
either before or after the Interested Stockholder becomes such or (b) involves
an Interested Stockholder (or any Affiliate or an Associate of such Interested
Stockholder) who (i) was an Interested Stockholder as of the date the Common
Stock was initially registered pursuant to the Securities Exchange Act of 1934
or (ii) became an Interested Stockholder as a result of a gift or a bequest from
an Interested Stockholder described in (i) above.
Section 3. CERTAIN DEFINITIONS. For the purposes of this ARTICLE
NINE:
(a) A "person" shall mean any individual, firm, corporation
or other entity.
(b) "Interested Stockholder" shall mean any person (other than the
corporation, any Subsidiary or any employee benefit plan of the corporation) who
or which is the beneficial owner directly or indirectly, of more than 5% of the
voting power of the outstanding Voting Stock.
(c) A person shall be a "beneficial owner" of any Voting
Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates
has (x) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (y) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement
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<PAGE> 10
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
(d) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include any other shares of Voting
Stock which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, or any successor thereto.
(f) "Subsidiary" means any corporation, partnership, joint venture or
other enterprise, at least 50% of whose equity interests are owned directly or
indirectly, by the corporation and any other entity for which the board of
directors possesses the right to elect a majority of the board of directors or
other governing body of such entity; provided, however, that for the purposes of
the definition of Interested Stockholder set forth in paragraph (b) of this
section 3, the term "Subsidiary" shall mean only a corporation, partnership,
joint venture or other enterprise of which a majority of each class of equity
security is owned directly or indirectly, by the corporation.
(g) "Disinterested Director" means any member of the board of directors
of the corporation who is not an Affiliate or an Associate of the Interested
Stockholder that wishes to engage in a Business Combination.
Section 4. POWERS OF THE BOARD OF DIRECTORS. A majority of the
directors of the corporation shall have the power and duty to determine for the
purposes of this ARTICLE NINE, on the basis of information known to them after
reasonable inquiry, (A) whether a person is an Interested Stockholder, (B) the
number of shares of Voting Stock beneficially owned by any person, (C) whether a
person is an Affiliate or Associate of another, (D) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance of transfer of securities by the corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$25,000,000 or more. A majority of the directors of the corporation shall have
the sole power to interpret all the terms and provisions of this ARTICLE NINE.
Section 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS. Nothing contained in this ARTICLE NINE shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
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ARTICLE TEN
-----------
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, Section 10 of Article II and Sections 2, 3, 4 and
5 of Article III of the by-laws of the corporation and ARTICLE SIX, Sections
(a), (c) and (d) of ARTICLE EIGHT, ARTICLE NINE and this ARTICLE TEN of this
Certificate of Incorporation shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of at least 80% of the Voting Stock, voting together as a single
class.
ARTICLE ELEVEN
--------------
Section 1. LIMITATION OF LIABILITY.
(a) To the fullest extent permitted by the General Corporation Law of
the State of Delaware (the "Delaware General Corporation Law") as it now exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than permitted prior thereto), no director of the
corporation shall be liable to the corporation or its stockholders for monetary
damages arising from a breach of fiduciary duty owed to the corporation or its
stockholders.
(b) Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
Section 2. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action suit or proceeding, whether civil,
criminal, administrative or investigative, hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving a director or officer, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA exercise taxes
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<PAGE> 12
or penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; PROVIDED, HOWEVER, that, except as provided in Section 3 of
ARTICLE ELEVEN with respect to proceedings to enforce rights to indemnification,
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Section 2 of ARTICLE
ELEVEN shall be a contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advance of expenses"); PROVIDED, HOWEVER,
that, if and to the extent that the Delaware General Corporation Law requires,
an advance of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 2 of ARTICLE ELEVEN or otherwise. The
corporation may, by action of its board of directors, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 3. PROCEDURE FOR INDEMNIFICATION. Any indemnification of a
director or officer of the corporation or advance of expenses under Section 2 of
this ARTICLE ELEVEN shall be made promptly, and in any event within forty-five
(45) days (or, in the case of an advance of expenses, twenty (20) days), upon
the written request of the director or officer. If a determination by the
corporation that the director or officer is entitled to indemnification pursuant
to this ARTICLE ELEVEN is required, and the corporation fails to respond within
sixty (60) days to a written request for indemnity, the corporation shall be
deemed to have approved the request. If the corporation denies a written request
for indemnification or advance of expenses, in whole or in part, or if payment
in full pursuant to such request is not made within forty-five (45) days (or, in
the case of an advance of expenses, twenty (20) days), the right to
indemnification or advances as granted by this ARTICLE ELEVEN shall be
enforceable by the director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in
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whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of expenses where the undertaking
required pursuant to Section 2 of this ARTICLE ELEVEN, if any, has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed, but the burden of such defense shall be on the corporation. Neither the
failure of the corporation (including its board of directors, independent legal
counsel, or its stockholder) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the corporation (including its board of directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. The procedure for
indemnification of other employees and agents for whom indemnification is
provided pursuant to Section 2 of this ARTICLE ELEVEN shall be the same
procedure set forth in this Section 3 for directors or officers, unless
otherwise set forth in the action of the board of directors providing
indemnification for such employee or agent.
Section 4. SERVICE FOR SUBSIDIARIES. Any person serving as a director,
officer, employee or agent of a Subsidiary shall be conclusively presumed to be
serving in such capacity at the request of the corporation.
Section 5. RELIANCE. Persons who, after the date of the adoption of
this provision, become or remain directors or officers of the corporation or
who, while a director or officer of the corporation, become or remain a
director, officer, employee or agent of a Subsidiary, shall be conclusively
presumed to have relied on the rights to indemnity, advance of expenses and
other rights contained in this ARTICLE ELEVEN in entering into or continuing
such service. The rights to indemnification and to the advance of expenses
conferred in this ARTICLE ELEVEN shall apply to claims made against an
indemnitee arising out of acts or omissions which occurred or occur both prior
and subsequent to the adoption hereof.
Section 6. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
to the advance of expenses conferred in this ARTICLE ELEVEN shall not be
exclusive of any other right which any person may have or hereafter acquire
under this Certificate of Incorporation or under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
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<PAGE> 14
Section 7. INSURANCE. The corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.
ARTICLE TWELVE
--------------
The corporation expressly elects to be governed by Section 203
of the Delaware General Corporation Law.
ARTICLE THIRTEEN
----------------
The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted subject
to this reservation.
/s/ PAUL D. MALEK
--------------------------------
Paul D. Malek, Sole Incorporator
c/o Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, NY 10022
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<PAGE> 1
Exhibit 3.2
Certificate of Amendment
of
Certificate of Incorporation
of
GSCMW, Inc.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is GSCMW, Inc.
2. The Certificate of Incorporation of the Corporation
is hereby amended by striking out ARTICLE I thereof and substituting in lieu of
said article the following new article:
"The name of the corporation is Vitaquest International Ltd."
3. The amendment of the Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Sections 107 and 241 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I have hereunto set my hand as the Sole
Incorporator of the Corporation this 29th day of April, 1996, and I hereby
affirm that the foregoing Certificate is my act and deed and the act and deed
of the Corporation and that the facts stated herein are true.
/s/ PAUL D. MALEK
----------------------------
Paul D. Malek
Sole Incorporator
<PAGE> 1
Exhibit 3.3
Certificate of Amendment
of
Certificate of Incorporation
of
Vitaquest International Ltd.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Vitaquest International Ltd.
2. The Certificate of Incorporation of the Corporation
is hereby amended as follows:
(i) By striking out ARTICLE ONE thereof and substituting
in lieu of said article the following new article:
"The name of the corporation is Vitaquest International Inc."
(ii) By striking out paragraph (a) of ARTICLE FOUR
thereof and substituting in lieu of said paragraph the
following new paragraph:
"(a) The total number of shares of common stock that
the corporation shall have authority to issue is 50,000,000,
par value $.01 per share (the "Common Stock"). The total
number of shares of preferred stock that the corporation shall
have authority to issue is 5,000,000, par value $.01 per share
(the "Preferred Stock")".
3. The amendment of the Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Sections 107 and 241 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I have hereunto set my hand as the Sole
Incorporator of the Corporation this 2nd day of May, 1996, and I hereby affirm
that the foregoing Certificate is my act and deed and the act and deed of the
Corporation and that the facts stated herein are true.
/s/ PAUL D. MALEK
----------------------------
Paul D. Malek
Sole Incorporator
<PAGE> 1
Exhibit 3.4
BY-LAWS
OF
VITAQUEST INTERNATIONAL INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
-------
Section 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be located at the 9 East Loockerman Street, City
of Dover, Delaware, County of Kent. The name of the corporation's registered
agent at such address shall be National Corporate Research, Ltd. The registered
office and/or registered agent of the corporation may be changed from time to
time by action of the bard of directors.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of,
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. PLACE AND TIME OF MEETINGS. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. Unless
otherwise directed by the board of directors, annual meetings of stockholders
shall be held on the last Friday in February if not a legal holiday and, if a
legal holiday, then on the first preceding regular business day. At the annual
meeting stockholders shall elect directors and transact such other business as
properly may be brought before the meeting pursuant to Article II, Section 10
hereof.
Section 2. PLACE OF MEETINGS. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 3. NOTICE. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled
<PAGE> 2
to vote at such meeting not less than ten (10) nor more than ninety (90) days
before the date of the meeting. All such notices shall be delivered, either
personally or by mail, by or at the direction of the board of directors, the
chairman of the board, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 4. STOCKHOLDERS LIST. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. QUORUM. The holders of a majority of the outstanding shares
of capital stock entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares present in person
represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and or place. When a specified item of
business requires a vote by a class or series (if the corporation shall then
have outstanding shares of more than one class or series) voting as a class, the
holder of a majority of the shares of such class or series shall constitute a
quorum (as to such class or series) for the transaction of such item of
business.
Section 6. ADJOURNED MEETINGS. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 7. VOTE REQUIRED. When a quorum is present the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provision of an applicable law or of the
certificate of incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question, or
(ii) the subject
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matter is the election of directors, in which case Section 2 of Article II
hereof shall govern and control the approval of such subject matter.
Section 8. VOTING RIGHTS. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 9. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 10. BUSINESS BROUGHT BEFORE A MEETING. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting or any
supplement thereto given by or at the direction of the board of directors, (b)
brought before the meeting by or at the direction of the board of directors, or
(c) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received no
later than the close of business on the tenth (10) day following the date on
which such notice of the date of the annual meeting was mailed or such pubic
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the
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stockholder in such business. Notwithstanding anything in the by-laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedure set forth in this Section 10. The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 10; and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
---------
Section 1. GENERAL POWER. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors. In
addition to such powers as are herein and in the certificate of incorporation
expressly conferred upon it, the board of directors shall have and may exercise
all the powers of the corporation, subject to the provisions of the laws of
Delaware, the certificate of incorporation and these by-laws.
Section 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors
which shall constitute the first board shall be six. Thereafter, the number of
directors shall be established from time to time by resolution of the board. The
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote in the
election of director; provided that whenever the holders of any class or series
of capital stock of the corporation are entitled to elect one or more directors
pursuant to the provisions of the certificate of incorporation of the
corporation (including, but not limited to, for purposes of these by-laws,
pursuant to any duly authorized certificate of designation), such directors
shall be elected by a plurality of the votes of such class or series present in
person or represented by proxy at the meeting and entitled to vote in the
election of such directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. REMOVAL AND RESIGNATION. No director may be removed at any
time without cause; provided, however, that if the holder of any class or series
of capital stock are entitled by the provisions of the corporation's certificate
of incorporation to elect one or more directors, such director or directors so
elected may be removed without cause only by the vote of the holder of a
majority of the outstanding shares of that class or series entitled to vote. Any
director may resign at any time upon written notice to the corporation.
Section 4. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the total number of director established by the
board pursuant to Section 2 of this Article III may be filled only by (i) the
stockholders at an annual or special meeting of the corporation, as provided in
Section 2 of this Article III or (ii) the affirmative vote of the
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majority of the total number of directors then in office though less than a
quorum, or by a sole remaining director. Any director elected to fill a vacancy
resulting from an increase in the number of directors shall hold office for a
term that shall coincide with the remaining term of the class of director to
which he is elected. A director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his predecessor. Each director so chosen shall hold office until a successor
is duly elected and qualified or until his or her earlier death, resignation or
removal as herein provided. Whenever holders of any class or classes of stock or
series thereof are entitled by the provisions of the certificate of
incorporation to elect one or more directors, vacancies and newly created
directorships of such class or classes or series may only be filled by the
affirmative vote of the majority of the total number of directors elected by
such class or classes or series thereof then in office, or by a sole remaining
director so elected.
Section 5. NOMINATION.
----------
(a) Only persons who are nominated in accordance with the procedures
set forth in these by-laws shall be eligible to serve as directors. Nominations
of persons for election to the board of directors of the corporation may be made
at a meeting of stockholders (i) by or at the direction of the board of
directors or (ii) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in this by-law, who is
entitled to vote for the election of directors at the meeting and who shall have
complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to the
board of directors of the corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation (i) in the case of an annual
meeting, not less than sixty (60) nor more than ninety (90) days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is changed by more than
thirty (30) days from such anniversary date, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth
(10) day following the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure of the meeting was made, and (ii) in the
case of a special meeting at which directors are to be elected, no later than
the close of business on the tenth (10) day following the earlier of the day on
which notice of the date of the meeting was mailed or public disclosure of the
meeting was made. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election as a director at
such meeting all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(ii) as to the stockholder giving the notice (A) the name and address, as they
appear on the corporation's books, of such stockholder and (B) the class and
number of shares of the corporation which are
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beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the corporation which are beneficially owned by
such person. At the request of the board of directors, any person nominated by
the board of directors for election as a director shall furnish to the secretary
of the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 5. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 5, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a director must also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth in this Section 5.
Section 6. ANNUAL MEETING. The annual meting of the board of directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. OTHER MEETINGS AND NOTICE. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by the
chairman of the board or, upon the written request of at least a majority of the
directors then in office, the secretary of the corporation on at least 24 hours
notice to each director, either personally, by telephone, by mail, or by
telegraph.
Section 8. CHAIRMAN OF THE BOARD, QUORUM, REQUIRED VOTE AND
ADJOURNMENT. The board of directors shall elect, by affirmative vote of the
majority of the total number of directors then in office, a chairman of the
board, who shall preside at all meetings of the stockholders and board of
directors at which he or she is present. If the chairman of the board is not
present at a meeting of the stockholders or the board of directors, the
president (if the president is a director and is not also the chairman of the
board) shall preside at such meeting, and, if the president is not present at
such meeting, a majority of the directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of directors
then in office shall constitute a quorum for the transaction of business. Unless
by express provision of an applicable law, the corporation's certificate of
incorporation or these by-laws a different vote is required, the vote of a
majority of directors present at a meeting at which a quorum is present shall be
the act of the board of directors. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement to the
meeting, until a quorum shall be present.
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Section 9. COMMITTEES. The board of directors may, by resolution passed
by the majority of the total number of directors then in office, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation, which to the extent provided in such resolution or these
by-laws shall have, and may exercise, the powers of the board of directors in
the management and affairs of the corporation, except as otherwise limited by
law. The board of directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 10. COMMITTEE RULES. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in Section 9 of
this Article III, of such committee is or are absent or disqualified, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in place
of any such absent or disqualified member.
Section 11. COMMUNICATION EQUIPMENT. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communication
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
Section 11 shall constitute presence in person at the meeting.
Section 12. WAIVER OF NOTICE AND PRESUMPTION OF ASSENT. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings
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are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
--------
Section 1. NUMBER. The officer of the corporation shall be elected by
the board of directors and shall consist of a chairman of the board, president,
one or more vice-presidents, a secretary, a chief financial officer and such
other officers and assistant officers as may be deemed necessary or desirable by
the board of directors. Any number offices may be held by the same person. In
its discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. REMOVAL. Any officer or agent elected by the board of
directors may be removed by the board of directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. VACANCIES. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors.
Section 5. COMPENSATION. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board shall be
the chief executive officer of the corporation, and shall have the power and
perform the duties incident to that position. Subject to the powers of the board
of directors, he or she shall be in the general and active charge of the entire
business and affairs of the corporation, and shall be its chief policy making
officer. He or she shall preside at all meetings of the board of directors and
stockholders and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or provided in these by-laws. The
chairman of the board is authorized to execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation. Whenever
the president is unable to serve, by reason of sickness, absence or otherwise,
the chairman of the board shall
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perform all the duties responsibilities and exercise all the powers of the
president.
Section 7. THE PRESIDENT. The president of the corporation shall,
subject to the powers of the board of directors and the chairman of the board,
have general charge of the business, affairs and property of the corporation,
and control over its officers, agents and employees; and shall see that all
orders and resolutions of the board of directors are carried into effect. The
president is authorized to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation. The president shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or as may be provided in these by-laws.
Section 8. VICE-PRESIDENTS. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors or the chairman of the board, shall, in the absence of disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-president shall also perform such other duties and
have such other powers as the board of directors, the chairman of the board, the
president or these by-laws may, from time to time, prescribe. The
vice-presidents may also be designated as executive vice-presidents or senior
vice-presidents, as the board of directors may from time to time prescribe.
Section 9. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these by-laws or by law; shall have
such powers and perform such duties as the board of directors, the chairman of
the board, the president or these by-laws may, from time to time, prescribe; and
shall have custody of the corporate seal of the corporation. The secretary, or
an assistant secretary, shall have authority to affix the corporate seal to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature. The
assistant secretary, or if there be more than one, any of the assistant
secretaries, shall in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the board of directors, the president, or
secretary may, from time to time, prescribe.
Section 10. THE CHIEF FINANCIAL OFFICER. The chief financial officer
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the chairman of the board
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or the board of directors; shall cause the funds of the corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; shall render to the chairman of the board, the
president and the board of directors, at its regular meeting or when the board
of directors so requires, an account of the corporation; and shall have such
powers and perform such duties as the board of directors, the chairman of the
board, the president or these by-laws may, from time to time, prescribe. If
required by the board of directors, the chief financial officer shall give the
corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the office of chief financial
officer and for the restoration to the corporation, in case of death,
resignation, retirement, or removal from office, of all books papers, vouchers,
money, and other property of whatever kind in the possession or under the
control of the chief financial officer belonging to the corporation.
Section 11. TREASURER. The treasurer shall, in the absence or
disability of the chief financial officer, act with all of the powers and be
subject to all the restrictions of the chief financial officer. The treasurer
shall also perform such other duties and have such other power as the board of
directors, the chairman of the board, the chief financial officer or these
by-laws may, from time to time, prescribe.
Section 12. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENT. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the power and
duties of such officer to any other officer or to any director, or to any other
person elected by it.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. LIMITATION OF LIABILITY.
(i) To the fullest extent permitted by the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law") as it now
exits or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
indemnification rights than permitted prior thereto), no director of the
corporation shall be liable to the corporation or its stockholders for monetary
damages arising from a breach of fiduciary duty owed to the corporation or its
stockholders.
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(ii) Any repeal or modification of the foregoing paragraph by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
Section 2. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loan (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 3 hereof with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Section 2 shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advance of expenses"); provided, however, that, if and to the extent that
the Delaware General Corporation Law requires, an advance of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 2 or otherwise. The corporation may, by action of its board of
directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 3. PROCEDURE FOR INDEMNIFICATION. Any indemnification of a
director or officer of the corporation or advance of expenses under Section 2 of
this Article V shall be made promptly, and in any event within forty-five (45)
days (or, in the case of an advance of expenses, twenty (20) days), upon the
written request of the director or officer. If a
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determination by the corporation that the director or officer is entitled to
indemnification pursuant to this Article V is required, and the corporation
fails to respond within sixty (60) days to a written request for indemnity, the
corporation shall be deemed to have approved the request. If the corporation
denies a written request or indemnification or advance of expenses, in whole or
in part, or if payment in full pursuant to such request is not made within
forty-five (45) days (or, in the case of an advance of expenses, twenty (20)
days), the right to indemnification or advances as granted by this Article V
shall be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be indemnified by the corporation. It shall
be a defense to any such action (other than an action brought to enforce a claim
for the advance of expenses where the undertaking required pursuant to Section 2
of this Article V, if any, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its board of
directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure or indemnification of other employees and agents for whom
indemnification is provided pursuant to Section 2 of this Article V shall be the
same procedure set forth in this Section 3 for directors or officers, unless
otherwise set forth in the action of the board of directors providing
indemnification for such employee or agent.
Section 4. NOT EXCLUSIVE. The rights to indemnification and the advance
of expenses conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 5. INSURANCE. The corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the corporation would have the power
to indemnify such person against such liability under this Article V.
Section 6. SERVICE FOR SUBSIDIARIES. Any person serving as a director,
officer, employee or agent of another corporation, partnership, joint venture or
other enterprise, at least 50% of whose equity interests are owned by the
corporation (hereinafter a "subsidiary"), shall be conclusively presumed to be
serving in such capacity at the request of the corporation.
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Section 7. RELIANCE. Persons who after the date of the adoption of this
provision become or remain directors or officers of the corporation or who,
while a director or officer of the corporation, become or remain a director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this Article V in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
Article V shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Section 8. MERGER OR CONSOLIDATION. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
---------------------
Section 1. FORM. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of
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such endorsement, transfer, authorization, and other matters as the corporation
may reasonably require, and accompanied by all necessary stock transfer stamps.
In that event, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
corporation.
Section 2. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. FIXING A RECORD DATE FOR STOCKHOLDER MEETINGS. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than ninety (90) nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the board of directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be the close of
business on the next day preceding the day on which notice is first given. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 4. FIXING A RECORD DATE FOR OTHER PURPOSES. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 5. REGISTERED STOCKHOLDERS. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to
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receive dividends, to vote, to receive notifications, and otherwise to exercise
all the rights and powers of an owner. The corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof.
Section 6. SUBSCRIPTIONS FOR STOCK. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, in accordance with applicable law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. CHECKS, DRAFTS OR ORDERS. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof
Section 3. CONTRACTS. In addition to the power otherwise granted to
officers pursuant to Article IV hereof, the board of directors may authorize an
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or continued to
specific instances.
Section 4. LOANS. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is a
director of the corporation or its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably
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be expected to benefit the corporation. The loan, guaranty or other assistance
may be with or without interest, and may be unsecured, or secured in such manner
as the board of directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this section contained shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
Section 5. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 6. CORPORATE SEAL. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. VOTING SECURITIES OWNED BY CORPORATION. Voting securities in
any other corporation held by the corporation shall be voted by the chairman of
the board, the president or a vice-president, unless the board of directors
specifically confers authority to vote with respect thereto, which authority may
be general or confined to specific instances, upon some other person or officer.
Any person authorized to vote securities shall have the power to appoint
proxies, with general power of substitution.
Section 8. INSPECTION OF BOOKS AND RECORDS. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business. The
corporation shall have a reasonable amount of time to respond to any such
request.
Section 9. SECTION HEADINGS. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. INCONSISTENT PROVISIONS. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the Delaware General Corporation Law or any other applicable
law, the provision of these by-laws shall not be given any effect to the extent
of such inconsistency but shall otherwise be given full force and effect.
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ARTICLE VIII
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by the affirmative vote of the
majority of the total number of directors then in office. The fact that the
power to adopt, amend, alter, or repel the by-laws has been conferred upon the
board of directors shall not divest the stockholders of such powers as set forth
in the certificate of incorporation.
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Exhibit 10.1
EMPLOYMENT, NON-COMPETITION AND CONFIDENTIALITY AGREEMENT
---------------------------------------------------------
THIS AGREEMENT (the "Agreement") dated as of the 1st day of January,
1994 by and between GARDEN STATE NUTRITIONALS, INC. (the "Company"), a New
Jersey corporation having its principal office and place of business at 100
Lehigh Drive, Fairfield, New Jersey 07006 and WILLIAM HOWARD ("Howard"),
residing at 160 Overlook Avenue, Apartment 23F, Hackensack, New Jersey 07601.
WITNESSETH
----------
WHEREAS, Howard is currently employed by the Company and has been
employed by the Company for over five (5) years;
WHEREAS, Howard's ten (10) shares of the Company's common stock were
redeemed by the Company pursuant to that certain Stock Redemption Agreement
dated as of the date hereof (the "Howard Shares");
WHEREAS, the Company desires to continue to employ and secure the
services of Howard upon the terms and conditions specified herein; and
WHEREAS, Howard desires to continue to be employed by the Company upon
the terms and conditions specified herein:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties intending to be
legally bound, agree as follows:
1. EMPLOYMENT DUTIES; TERM; TERMINATION.
(a) The Company hereby employs Howard as an executive salesman
responsible for the servicing of certain of the Company's customer accounts to
be designated from time to time by the Company. Howard hereby accepts such
employment and agrees to discharge the responsibilities of such position, and
any other executive position as determined by the Company, faithfully and to the
best of his ability and perform such duties and services of an executive, sales,
administrative and managerial nature as shall be specified and designated from
time to time by the Board of Directors of the Company in connection with the
business and activities of the Company. The Company agrees only to impose such
duties and services as are reasonable and consistent with good and ethical
business practices.
(b) Howard's employment shall be for a period beginning on the date
hereof (the "Commencement Date") and ending on August 31, 1999 (the "Term of the
Agreement").
(c) Howard agrees that during the Term of the Agreement he will
devote substantially all of his time and effort to the performance of his duties
hereunder and will refrain from engaging on his own behalf or on the behalf of a
third party in any line of activities or business which the Company is now or,
at such time, is engaged.
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2. COMPENSATION; NON-COMPETE AND CONFIDENTIALITY FEE; CERTAIN COVENANTS.
(a) The Company agrees to pay to Howard and Howard agrees to accept
the following amounts and benefits as compensation for his services hereunder
and for the performance of other duties assigned to him by the Board of
Directors of the Company:
(i) Commencing on the Commencement Date, and continuing through
August 31, 1994, the Company shall pay Howard a salary at a rate of One Hundred
Seventy-Four Thousand Eight Hundred Fifty-Nine and 88/100 Dollars
($174,859.88) per annum, payable in equal weekly installments; and
(ii) Commencing on September 1, 1994 and continuing through the
last day of the Term of this Agreement, the Company shall pay Howard a salary at
a rate of Two Hundred Thousand Dollars ($200,000) per annum, payable in equal
weekly installments.
(b) In consideration for and in recognition of the value of Howard's
services rendered to the Company prior to the Commencement Date, the Company
agrees to pay to Howard, within thirty (30) days from the Commencement Date, a
bonus equal to One Hundred Twenty-Five Thousand Dollars ($125,000).
(c) In consideration for and in recognition of the value of Howard's
services rendered to the Company prior to the Commencement Date, the Company
agrees to pay to Howard on August 31, 1994, a bonus equal to One Hundred Fifty
Thousand Dollars ($150,000).
(d) In consideration for and in recognition of the value of Howard's
services rendered to the Company prior to the Commencement Date, if the Company
should sell all or substantially all of its assets at any time during the period
beginning on the Commencement Date and ending on August 31, 1996, or if the
shareholders of the Company should sell all of their shares of common stock of
the Company during the same period (each such sale is hereinafter referred to as
a "Triggering Event"), then the Company agrees to pay Howard (i) if such
Triggering Event shall occur on or before August 31, 1994, an amount equal to
eighty percent (80%) of the amount which the Howard Shares would have otherwise
been entitled to receive out of the proceeds resulting from such Triggering
Event (for purposes of calculating such amount, the Company shall assume that no
other shares of common stock of the Company have been redeemed subsequent to the
Commencement Date) (hereinafter, the "Triggering Event Value"), less all amounts
paid to Howard and the value of all benefits made available to Howard under this
Agreement before such Triggering Event, (ii) if such Triggering Event shall
occur after August 31, 1994 and on or before August 31, 1995, an amount equal to
seventy percent (70%) of the Triggering Event Value of the Howard Shares, less
all amounts paid to Howard and the value of all benefits made available to
Howard under this Agreement before such Triggering Event, and (iii) if such
Triggering Event shall occur after August 31, 1995 and on or before August 31,
1996, an amount equal to sixty percent (60%) of the Triggering Event Value of
the Howard Shares, less all amounts paid to Howard and the value of all benefits
made available to Howard under this Agreement before such Triggering Event.
(e) Howard shall be entitled to participate in any fringe benefit,
group insurance, pension, major medical, hospitalization, profit sharing,
deferred compensation,
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welfare or other benefit plan or program of the Company in which other personnel
of the Company participate, to the extent permissible under, and in accordance
with, the provisions of such plan or program, as such plans or programs are
currently in effect. Nothing in this Agreement shall preclude the Company from
amending or terminating any such plan or program at any time, provided that the
overall benefits to Howard are substantially comparable to those available under
the current plans and programs.
(f) Within thirty days from the Commencement Date, the Company
shall pay Howard an aggregate fee (the "Non-Compete and Confidentiality Fee") in
consideration of his covenant not-to-compete and his covenant to keep certain
information confidential, the terms and conditions of which are set forth in
paragraphs 4 and 3 hereof, respectively, equal to One Hundred Thousand Dollars
($100,000).
(g) Howard shall not be entitled to reimbursement for any
expenses which he may incur in connection with the services hereunder, unless
such expenses are incurred at the request of the Company and approved in advance
in writing by the President of the Company.
(h) Howard shall be entitled to four (4) weeks of vacation per
annum.
(i) The Company may withhold from any compensation or benefits
under this Agreement all federal, state, local or other taxes that shall be
required pursuant to any law or governmental regulation or ruling.
(j) In the event Howard voluntarily terminates his employment,
other than for any of the reasons described in paragraph 5 hereof, during the
Term of this Agreement, he shall cease being compensated as of the effective
date of the termination of his employment, and the Company shall pay him, as and
when due, only his full compensation hereunder due on or before the date of such
termination.
(k) In the event the Company terminates Howard's employment for
just cause, Howard shall cease being compensated as of the effective date of the
termination of his employment. The Company shall, however, pay Howard, as and
when due, his full compensation as provided in paragraph 2 hereof up to the
effective date of such termination. For purposes of this Agreement, "just
cause" shall mean only (i) dishonesty directly injurious to the Company or the
willful misconduct in the performance of Howard's assigned duties (defined as
the intentional disregard of any express, written directives issued to Howard by
the President or the Board of Directors of the Company), (ii) a material breach
of this Agreement by Howard during the Term of his Agreement, and (iii) any
embezzlement, misappropriation or theft of funds or property of the Company.
3. CONFIDENTIALITY. All memoranda, notes, records or other documents
made or compiled by Howard or made available to him during the term of this
Agreement concerning the business of the Company shall be the Company's property
and shall be delivered to the Company on the termination of this Agreement.
Howard shall not use, for himself or others, or divulge to others, any
proprietary or confidential information of the Company obtained by him as a
result of his services pursuant to this Agreement. Howard hereby acknowledges
and recognizes the highly competitive nature of the Company's business, the
time, money and effort
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<PAGE> 4
invested by the Company in developing its customer list, its contacts at each
customer, prospective customer, strategic partner and potential strategic
partner, and the other proprietary or confidential information described below.
For purposes of this paragraph 4, the term "proprietary or confidential
information" shall mean all information which is known only to Howard or to
Howard and the employees, former employees, consultants or others in a
confidential relationship with the Company, which relates to specific matters
such as trade secrets, customers, potential customers and vendor lists, the
Company's contact person(s) at each customer, potential customer and vendor,
customer preferences and pricing data, marketing strategies, strategic partners
or potential strategic partners, the Company's contact person(s) at each
strategic partner and potential strategic partner, pricing and credit
techniques, research and development activities, books and records and private
processes, as they may exist from time to time, which Howard may have acquired
or obtained by virtue of work heretofore or hereafter performed for or on behalf
of the Company or which be may acquire or may have acquired knowledge of during
the performance of said work, and which is not known to others, or not readily
available to others from sources other than Howard, or is not in the public
domain. In the event of a breach or a threatened breach by Howard of the
provisions of this paragraph 4, the Company shall be entitled to an injunction
restraining Howard from disclosing the aforementioned proprietary or
confidential information, and/or from rendering any services to any person,
firm, corporation, association or other entity to whom such proprietary or
confidential information has been disclosed or is threatened to be disclosed.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Howard.
4. RESTRICTIVE COVENANTS.
(a) Howard hereby acknowledges and recognizes the highly competitive
nature of the Company's business and, accordingly, agrees that in consideration
of the premises contained herein and the Non-Compete Fee to be paid hereunder,
he shall not, other than on behalf of the Company or any affiliate of the
Company, during the term hereof, and for a period of three years from and after
the termination hereof: (i) directly or indirectly engage in any Competitive
Activity (as hereinafter defined) within the United States of America, whether
such engagement shall be as an officer, director, consultant, agent, lender,
shareholder, or other participant; or (ii) assist others in engaging in any
Competitive Activity.
(b) As used herein, the term "Competitive Activity" shall mean (i)
the solicitation of purchase orders for vitamins or any other related products
or services from, or the marketing or sale of vitamins or any other related
products or services to, any customer of the Company, or any person at a
potential customer of the Company with whom the Company maintained a
professional relationship during Howard's employment, and (ii) contacting any
strategic partner of the Company or any person at a potential strategic partner
of the Company with whom the Company maintained a professional relationship
during Howard's employment, in each case, with the intention of entering into a
joint venture or other similar business relationship. Notwithstanding the
foregoing, Howard shall be permitted to enter into consulting arrangements with
third parties pursuant to which he may assist such third parties in planning,
designing and physically laying out manufacturing plants and facilities,
provided, however, that (i) prior to entering into any such consulting
arrangements, Howard shall first obtain the
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Company's written consent thereto, which such consent shall not be unreasonably
withheld, and (ii) Howard shall not be permitted to enter into any such
consulting arrangements with any customer of the Company (or any person who was
a customer of the Company during the term of this Agreement) or any strategic
partner of the Company (or any person who was a strategic partner of the
Company during the term of this Agreement.
(c) In the event of a breach or threatened breach by Howard of the
provisions of this paragraph 4, the Company shall be entitled to an injunction
restraining him from such breach, since the remedy at law would be inadequate
and insufficient. In addition, the Company will be entitled to such damages as
it can show it has sustained by reason of such breach, and in its discretion
from time to time shall be entitled to withhold, and offset against and deduct
from, any remaining payments pursuant to paragraph 2 hereof the amount of such
damages. Any party hereto shall be entitled to recover their respective
attorneys' fees, client costs and disbursements relating to a dispute over such
offset from the other party hereto as the court may determine to be equitable.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing any other remedies available for such breach or threatened breach or
any other breach of this Agreement.
5. DEATH OR DISABILITY. As an inducement for Howard to enter into this
Agreement, the Company agrees that all amounts payable to Howard hereunder shall
be paid to Howard, or to Howard's estate in the event of his death,
notwithstanding his disability or death, and neither Howard nor the estate of
Howard shall be required to repay any amount paid to Howard prior to Howard's
death or disability.
6. CERTAIN REPRESENTATIONS BY HOWARD. Howard hereby represents and
warrants that he has been a shareholder and an employee of the Company for more
than five (5) years, has a strong familiarity with the Company's financial
condition, and is aware of and understands the terms and conditions of the
Company's redemption of both Earl Weisman's and David Langerman's shares of the
Company's common stock.
7. NOTICES. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally or sent by telefacsimile, registered
or certified mail (postage prepaid, return receipt requested) or overnight
courier to the parties at the following addresses:
(a) If to the Company, to:
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
Attention: Edward M. Frankel, President
Telecopier: (201) 575-6782
5
<PAGE> 6
with copies to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
(b) If to the Howard, to:
Mr. William Howard
160 Overlook Avenue
Apt. 23F
Hackensack, New Jersey 07601
with copies to:
Ronald Groseibl, Esq.
500 Route 17 South
Hasbrook Heights, New Jersey 07604
Telecopier: (201) 288-0380
or to such other persons or at such other addresses or telecopier locations as
shall be furnished by either party by like notice to the other, and such notice
or communication shall be deemed to have been given or made as of the date so
delivered or mailed.
8. MODIFICATION AND WAIVER. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by all the
parties. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
9. ASSIGNMENT. The parties acknowledge the personal nature of the
services to be rendered hereunder and each agrees that the rights and
obligations of the parties to this Agreement may not be assigned by either
party.
10. ENTIRE AGREEMENT. This Agreement, together with the exhibits
hereto, represents the entire agreement and understanding of the parties with
reference to the transactions set forth herein and no representations or
warranties have been made in connection with this Agreement other than those
expressly set forth herein or in the exhibits, certificates and other documents
delivered in accordance herewith. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings, and
agreements between the parties relating to the subject matter of this
Agreement and all prior drafts of this Agreement, all of which are merged into
this Agreement. No prior drafts of this Agreement and no words or phrases from
any such prior drafts shall be admissible into evidence in any action or suit
involving this Agreement.
6
<PAGE> 7
11. GOVERNING LAW; CONVENIENCE OF FORUM; CONSENT TO JURISDICTION. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New Jersey. The parties to this Agreement, acting for themselves and
for their respective beneficiaries, heirs, successors and assigns, without
regard to domicile, citizenship or residence, hereby expressly and irrevocably
elect as the sole judicial forum for the adjudication of any matters arising
under or in connection with this Agreement, and consent and subject themselves
to the jurisdiction of, the courts of the State of New Jersey located in Passaic
County, and/or the United States District Court for the same location. Service
of process, notices and demands of such courts may be made upon any party to
this Agreement by personal service at any place where it may be found or giving
notice to such patty as provided in Paragraph 7 hereof.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
13. SEVERABILITY OF PROVISIONS. It is the desire and intent of the
parties that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision of this Agreement shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provisions of this Agreement in the
particular jurisdiction in which such adjudication is made. In addition, if the
scope of any restriction contained in this Agreement is too broad to permit
enforcement thereof to its fullest extent in any jurisdiction, then such
restriction shall be enforced to the maximum extent permitted by law in such
jurisdiction, and Howard hereby consents and agrees that such scope may be
judicially modified accordingly in any such jurisdiction in any proceeding
brought to enforce such restriction.
14. TITLES AND HEADINGS. The Paragraph headings in this Agreement are
solely for convenience of reference and shall not affect the meaning or
interpretation of this Agreement or any term or provision hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
GARDEN STATE NUTRITIONALS, INC.
BY: /s/ Edward M. Frankel
----------------------------
Edward M. Frankel, President
/s/ William Howard
-------------------------------
WILLIAM HOWARD
7
<PAGE> 8
' GARDEN STATE NUTRITIONALS, INC.
100 Lehigh Drive
Fairfield, New Jersey 07004
April 30, 1996
Mr. William Howard
2309 Sanibel Boulevard
St. James City, FL 33956
Dear Bill:
This letter will confirm that the January 1, 1994 Employment,
Non-Competition and Confidentiality Agreement between us is hereby amended by
deleting Section 2(d). Please confirm the foregoing by signing where indicated
below.
Very truly yours,
GARDEN STATE NUTRITIONALS, INC.
By: /s/ EDWARD M. FRANKEL
----------------------------
Edward M. Frankel, President
CONFIRMED:
/s/ WILLIAM HOWARD
- ------------------
William Howard
<PAGE> 1
Exhibit 10.2
CONSULTING, NON-COMPETITION AND CONFIDENTIALITY AGREEMENT
---------------------------------------------------------
THIS AGREEMENT (the "Agreement"), dated as of January 1, 1995, by and
between GARDEN STATE NUTRITIONALS, INC. (the "Company"), a New Jersey
corporation having its principal office and place of business at 100 Lehigh
Drive, Fairfield, New Jersey 07004 and DAN GARCIA ("Garcia"), an individual
residing at 307 Plymouth Avenue, Brightwaters, New York 11718.
WITNESSETH:
-----------
WHEREAS, Garcia is currently employed by Windmill Marketing Services,
Inc. ("Windmill Marketing"), an affiliate of the Company, and has been employed
by Windmill Marketing for over nineteen (19) years;
WHEREAS, during his employment with Windmill Marketing, Garcia has
gained a valuable understanding and knowledge of the marketing of vitamins,
vitamin supplements and related products;
WHEREAS, the Company desires to engage Garcia as a consultant, upon the
terms and conditions specified herein, thereby availing itself of Garcia's
knowledge and experience, which it intends to use in connection with the
manufacturing and marketing of its vitamin, vitamin supplement and related
products; and
WHEREAS, Garcia desires to be so engaged by the Company upon the terms
and conditions specified herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, together with other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties intending to be legally bound, agree as follows;
1. CONSULTING DUTIES; TERM OF AGREEMENT; TERMINATION.
(a) Garcia shall advise and consult with senior executives, and
managerial and supervisory personnel of the Company, sharing with them any and
all marketing insights he may have with respect to any product manufacturing
issues which arise from time to time. All consulting duties shall be performed
at the Company's offices, upon reasonable prior request of the Company.
(b) The term of this Agreement shall be for a period beginning on
the date hereof (the "Commencement Date") and ending on December 31, 2004 (the
"Term").
<PAGE> 2
2. CONSULTING FEE; NON-COMPETE FEE; CERTAIN COVENANTS.
(a) Garcia shall receive a fee in consideration of the consulting
services rendered by him hereunder at a rate equal to Forty-Two Thousand Five
Hundred Dollars ($42,500) per annum, payable in equal monthly installments.
(b) In consideration for Garcia's covenant not-to-compete set forth
in paragraph 4 hereof, the Company agrees to pay to Garcia an aggregate amount
equal to Seventy-Five Thousand Dollars ($75,000) (the "Non-Compete Fee"),
payable in equal monthly installments during the Term.
(c) As additional consideration for Garcia's services rendered to
the Company hereunder, if Windmill Marketing should sell all or substantially
all of its assets at any time during the Term, or if the shareholders of
Windmill Marketing should sell all of their shares of common stock of Windmill
Marketing during the same period, in each case, other than in connection with an
employee stock option plan or any other transaction involving Windmill Marketing
which does not result in a material change in the current beneficial owners of
Windmill Marketing, (each such sale is hereinafter referred to as a "Triggering
Event"), then the Company agrees to pay Garcia an amount equal to five percent
(5%) of the difference between (I) the gross proceeds of such Triggering Event,
and (II) $12,000,000, less all commissions, fees, costs, expenses and legal and
other professional fees and disbursements incurred in connection with such
Triggering Event. The foregoing amount shall be paid in amounts which are
proportional to the installment payments paid to Windmill Marketing or its
shareholders, as the case may be, in connection with the payment of the gross
proceeds of such Triggering Event, as and when such installment payments are
actually received by Windmill Marketing or its shareholders, as the case may be.
(d) Garcia shall not be entitled to reimbursement for any expenses
which he may incur in connection with the services hereunder, unless such
expenses are incurred at the request of the Company and approved in advance in
writing by the President of the Company.
3. CONFIDENTIALITY. All memoranda, notes, records or other documents
made or compiled by Garcia or made available to him during the term of this
Agreement concerning the business of the Company or its affiliates shall be the
Company's property and shall be delivered to the Company on the termination of
this Agreement. Garcia shall not use, for himself or others, or divulge to
others, any proprietary or confidential information of the Company obtained by
him as a result of his services pursuant to this Agreement. Garcia hereby
acknowledges and recognizes the highly competitive nature of the Company's
business, the time, money and effort invested by the Company in developing its
customer list, its contacts at each customer, prospective customer, strategic
partner and potential strategic partner, and the other proprietary or
confidential information described below. For purposes of this paragraph 3, the
term "proprietary or confidential information" shall mean all information which
is known only to Garcia or to Garcia and the employees, former employees,
consultants or others in a confidential relationship with the Company, which
relates to specific matters such as trade secrets, customers, potential
customers and vendor lists, the Company's contact person(s) at each customer,
potential customer and vendor, customer preferences and pricing data, marketing
strategies, strategic partners or potential strategic partners, the Company's
contact person(s) at
2
<PAGE> 3
each strategic partner and potential strategic partner, pricing and credit
techniques, research and development activities, books and records and private
processes, as they may exist from time to time, which Garcia may have acquired
or obtained by virtue of work heretofore or hereafter performed for or on behalf
of the Company or which he may acquire or may have acquired knowledge of during
the performance of said work, and which is not known to others, or not readily
available to others from sources other than Garcia, or is not in the public
domain. In the event of a breach or a threatened breach by Garcia of the
provisions of this paragraph 3, the Company shall be entitled to an injunction
restraining Garcia from disclosing the aforementioned proprietary or
confidential information, and/or from rendering any services to any person,
firm, corporation, association or other entity to whom such proprietary or
confidential information has been disclosed or is threatened to be disclosed.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Garcia.
4. RESTRICTIVE COVENANTS.
(a) Garcia hereby acknowledges and recognizes the highly competitive
nature of the Company's business and, accordingly, agrees that in consideration
of the premises contained herein and the Non-Compete Fee to be paid hereunder,
he shall not, other than on behalf of the Company or any affiliate of the
Company, during the Term, and for a period of two (2) years from and after the
Term; (i) directly or indirectly engage in any Competitive Activity (as
hereinafter defined) within the United States of America, whether such
engagement shall be as an officer, director, consultant, agent, lender,
shareholder, or other participant; or (ii) assist others in engaging in any
Competitive Activity.
(b) As used herein, the term "Competitive Activity" shall mean (i)
the solicitation of purchase orders for vitamins or any other related products
or services from, or the marketing or sale of vitamins or any other related
products or services to, any customer of the Company, or any person at a
potential customer of the Company with whom the Company maintained a
professional relationship during Garcia's employment, (ii) contacting any
strategic partner of the Company or any person at a potential strategic partner
of the Company with whom the Company maintained a professional relationship
during Garcia's employment, in each case, with the intention of entering into a
joint venture or other similar business relationship, and (iii) any other
activities directly or indirectly involving the manufacturing of vitamins,
vitamin supplements or related products, or the marketing thereof.
(c) In the event of a breach or threatened breach by Garcia of the
provisions of this paragraph 4, the Company shall be entitled to an injunction
restraining him from such breach, since the remedy at law would be inadequate
and insufficient. In addition, the Company will be entitled to such damages as
it can show it has sustained by reason of such breach, and in its discretion
from time to time shall be entitled to withhold, and offset against and deduct
from, any remaining payments pursuant to paragraph 2 hereof the amount of such
damages. Any party hereto shall be entitled to recover their respective
attorneys' fees, client costs and disbursements relating to a dispute over such
offset from the other patty hereto as the court may determine to be equitable.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing any other remedies available for such breach or threatened breach or
any other breach of this Agreement.
3
<PAGE> 4
5. DEATH OR DISABILITY. As an inducement for Garcia to enter into this
Agreement, the Company ages that all amounts payable to Garcia pursuant to
paragraph 2 hereof, shall be paid to Garcia, or to Garcia's estate in the event
of his death, notwithstanding his disability or death, and neither Garcia nor
the estate of Garcia shall be required to repay any amount paid to Garcia prior
to Garcia's death or disability. All such payments shall be paid on the dates
contemplated in paragraph 2.
6. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS BY GARCIA. Garcia
hereby represents and warrants that he has been a shareholder and an employee of
Windmill Marketing for more than nineteen (19) years, has a strong familiarity
with Windmill Marketing's financial condition, and is aware of and understands
the terms and conditions of Windmill Marketing's redemption of both Earl
Weisman's and David Langerman's shares of the Company's common stock. Garcia
also acknowledges having (A) been advised by the Company that it will be
represented by the law firm of Morrison Cohen Singer & Weinstein in connection
with this Agreement and the transactions contemplated hereby, (B) been advised
by the Company to retain his own legal counsel to review this Agreement and to
seek advice from such counsel regarding this Agreement and the transactions
contemplated hereby, (C) had ample and sufficient time and opportunity to search
for and to retain such counsel for such purposes, and (D) nonetheless, decided
not to retain legal counsel or other professional representation in connection
with this Agreement or the transactions contemplated hereby. Garcia agrees that,
based upon the foregoing, this Agreement should not and shall not be construed
against the Company.
7. NOTICES. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally or sent by registered or certified
mall (postage prepaid, return receipt requested) or overnight courier to the
parties at the following addresses:
(a) If to the Company, to:
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Attention: Edward M. Frankel, President
Telecopier; (201) 575-6782
with copies to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention; Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
4
<PAGE> 5
(b) If to Garcia, to:
Mr. Dan Garcia
307 Plymouth Avenue
Brightwaters, New York 11718
or to such other persons or at such other addresses or telecopier locations as
shall be furnished by either party by like notice to the other, and such notice
or communication shall be deemed to have been given or made as of the date so
delivered or mailed.
8. SUCCESSORS AND ASSIGNS: SURVIVAL. All of the terms of this Agreement
will be binding upon, inure to the benefit of, and be enforceable by the parties
hereto and their respective successors and assigns, and nothing herein contained
is intended to confer any right, remedy or benefit upon any other person. All of
the terms of this Agreement which are representations and warranties shall
survive the date hereof.
9. ENTIRE AGREEMENT. This Agreement, together with the exhibits hereto,
represents the entire agreement and understanding of the parties with reference
to the transactions set forth herein and no representations or warranties have
been made in connection with this Agreement other than those expressly set forth
herein or in the exhibits, certificates and other documents delivered in
accordance herewith. This Agreement supersedes all prior negotiations,
discussions, correspondence, communications, understandings, and agreements
between the parties relating to the subject matter of this Agreement and all
prior drafts of this Agreement, all of which are merged into this Agreement. No
prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action or suit involving this
Agreement.
10. WAIVERS AND AMENDMENTS. The parties may by written notice to each
other (a) extend the time for the performance of any of the obligations or other
actions of the other; (b) waive any inaccuracies in the representations or
warranties of the other contained in this Agreement; (c) waive compliance with
any of the covenants of the other contained in this Agreement; (d) waive
performance of any of the obligations of the other created under this Agreement;
or (e) waive fulfillment of any of the conditions to its own obligations under
this Agreement. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach, whether or not similar. This Agreement may be amended, modified or
supplemented only by a written instrument executed by the parties hereto.
11. SEVERABILITY. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
5
<PAGE> 6
12. TITLES AND HEADINGS. The Paragraph headings in this Agreement are
solely for convenience of reference and shall not affect the meaning or
interpretation of this Agreement or of any term or provision hereof.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
14. GOVERNING LAW; CONVENIENCE OF FORUM; CONSENT TO JURISDICTION. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New Jersey. The parties to this Agreement, acting for themselves and
for their respective beneficiaries, heirs, successors and assigns, without
regard to domicile, citizenship or residence, hereby expressly and irrevocably
elect as the sole judicial forum for the adjudication of any matters involving
money damages and arising under or in connection with this Agreement, and
consent and subject themselves to the jurisdiction of, the courts of the State
of New York located in New York County, and/or the United States District Court
for the same location, in respect of any matter arising under this Agreement.
15. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereto, this being in addition to
any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
GARDEN STATE NUTRITIONALS, INC.
BY: /s/ Edward M. Frankel
----------------------------
Edward M. Frankel, President
/s/ Dan Garcia
-------------------------------
DAN GARCIA
6
<PAGE> 7
GARDEN STATE NUTRITIONALS, INC.
100 Lehigh Drive
Fairfield, New Jersey 07004
April 29, 1996
Mr. Dan Garcia
307 Pymouth Avenue
Brightwaters, New York 11718
Dear Dan:
This letter will confirm that the January 1, 1995 Consulting,
Non-Competition and Confidentiality Agreement between us is hereby amended by
deleting Section 2(c). Please confirm the foregoing by signing where indicated
below.
Very truly yours,
GARDEN STATE NUTRITIONALS, INC.
By: /s/ EDWARD M. FRANKEL
-----------------------------
Edward M. Frankel, President
CONFIRMED:
/s/ DAN GARCIA
- -------------------
Dan Garcia 5/3/96
<PAGE> 1
Exhibit 10.7
LOAN AGREEMENT
Loan Agreement dated November 12, 1992, among Garden State
Nutritionals, Inc. having its principal place of business at 100 Lehigh Drive,
Fairfield, New Jersey 07004 ("Borrower") and guarantor(s) identified by their
execution below ("Borrower" and "Guarantor(s)" collectively referred to
hereafter as "the Obligors") and Chemical Bank New Jersey, National
Association, a national banking association (the "Bank"). Borrower has applied
to Bank for a loan in the principal amount of $1,151,250.00 (the "Loan") the
proceeds of which shall be used for the purpose of enabling Borrower to
purchase the premises commonly known as 21-25 Dwight Place, Fairfield, New
Jersey (the "Premises"). Bank has made the Loan upon the following terms and
conditions.
(1) PAYMENT.
-------
THE NOTE
a. The Borrower shall repay the Loan according to the
terms of its Commercial Purpose Loan Note (the "Note")
dated November 12, 1992, or any renewal, extension,
replacement, or modification thereof.
PREPAYMENT
b. Upon at least five (5) and not more than fifteen (15)
business days' prior irrevocable written notice to
Bank, Borrower may prepay the loan in whole or in part
at any principal payment date, accompanied by the
interest accrued through the date of the prepayment in
multiples of $200,000, however Borrower shall also
directly reimburse Bank at the time of any such
prepayment for any loss incurred or to be incurred by
Bank in the redeployment of the funds associated with
the fixed rate option. A prepayment penalty shall be
calculated as follows: The difference between the
fixed rate and the current yield on a U.S. Treasury
obligation with a maturity approximately equal to the
remaining fixed rate period, times the total amount of
principal prepaid on the loan, times the remaining
fixed rate period (360 day basis), discounted to
present value. Said prepayment penalty shall also
apply in the event the Loan is prepaid as a result of
a sale or further encumbrancing of the Mortgaged
Premises.
(2) REPRESENTATIONS AND WARRANTIES.
In order to induce Bank to enter into this Agreement and to
make the Loan, each Obligor represents and warrants to Bank
that:
a. (As to each Obligor that is not an individual) it:
(i) is duly organized, validly existing and in
good standing under the laws of the
jurisdiction of its incorporation or
formation;
<PAGE> 2
(ii) is duly qualified and in good standing in
every jurisdiction in which it presently
engages in business and in which such
qualification is required;
(iii) has the power, authority and legal right to
own, or lease and enjoy undisturbed, the
assets of the business and engage in business
as now conducted;
(iv) has the power, authority and legal right to
enter into, execute and deliver this
Agreement, the Note, the Mortgage, the
Guaranty, the Security Agreement, and any
other agreements or documents furnished in
connection with the Loan;
(v) the execution, delivery and performance of
this Agreement, the borrowings by the
Borrower hereunder and the execution and
delivery of the Note, Security Agreement and
the Mortgage and any other agreements or
documents furnished in connection with the
Loan, (a) have been duly authorized by all
requisite corporate action, (b) will not
violate (i) any provision of law applicable
to the Obligor, any governmental rule or
regulation, or the charter or By-laws of the
Obligor or (ii) any order of any court or
other agency of government binding on the
company or any indenture, agreement or other
instrument to which the Obligor is a party,
or by which it or any of its property is
bound, and (c) will not be in conflict with,
result in a breach of or constitute (with due
notice and/or lapse of time) a default under,
any such indenture, agreement or other
instrument, or result in the creation or
imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the
property or assets of the Obligor other than
as contemplated by this Agreement; and
(vi) such Obligor has no subsidiaries except that
Borrower owns 100% of Natural Vitamin
Concepts, Inc.
FINANCIAL STATEMENTS ACCURATE; NO CHANGE
b. All financial statements of such Obligor previously
delivered to Bank, whether or not in connection with
this Loan, are complete, correct, present fairly the
financial condition of that entity, were prepared by
an independent certified public accountant, reflect
every liability (whether direct or contingent) and
there has been no material adverse change in the
financial condition of such Obligor or the business or
operations of the Obligor since the date of the most
recent financial statements delivered to Bank by such
Obligor;
OTHER AGREEMENTS
c. This Agreement will not violate any other indenture or
other agreement nor any law, order, rule or regulation
of any government instrumentality applicable to such
Obligor or by which its property is bound nor will it
result in the creation or imposition of any other
lien, except for those being created by the Mortgage
and the Security Agreement related hereto;
FIRST LIEN
-2-
<PAGE> 3
d. Any security interests created in collateral for the
Loan constitute valid, first and prior perfected liens
in favor of Bank;
LITIGATION
e. There are no suits or proceedings pending or threatened
against any Obligor to the best knowledge of each
Obligor or affecting any of its properties (of which
such Obligor has any knowledge) except those disclosed
and explained by letter of counsel annexed hereto as
Exhibit B; whether or not a letter of Borrower's
counsel is required for this purpose, Bank shall have
received, on or immediately prior to the date of this
Agreement, the favorable written opinion of Borrower's
counsel addressed to Bank confirming the accuracy of
the representations and warranties set forth in
Sections 2(a), (c) and (d) hereof;
TAXES
f. All assessed deficiencies resulting from Internal
Revenue Service examinations of the Federal income tax
returns of each Obligor, have been discharged or
reserved against. Each Obligor has filed or caused to
be filed all Federal, state and local tax returns which
are required to be filed, and has paid or has caused to
be paid all taxes as shown on said returns or on any
assessment received by it, to the extent that such
taxes have become due, except any such taxes that are
immaterial in amount and reserved against.
ERISA
g. Such Obligor, if required, is in compliance in every
material respect with the applicable provisions of the
Employee Retirement Income Security Act of 1974
("ERISA") and regulations or published interpretations
thereof and has not had a Reportable Event occur with
respect to any Plan as defined in ERISA; and
FEDERAL RESERVE REGULATIONS
h. Such Obligor is not engaged principally in nor has as
an important activity in the business of extending
credit for the purpose of purchasing or carrying
"margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) nor
will any part of the proceeds of this Loan be used, now
or ultimately, to purchase or carry such stock or
extend such credit or violate in any way Regulations G,
T, U or X of such Board of Governors.
(3) AFFIRMATIVE COVENANTS.
Each Corporate Obligor (that is not an individual) covenants and agrees
that, from the date hereof until the full satisfaction of the
obligations under this Agreement and the Note:
CORPORATE EXISTENCE AND PROPERTIES
-3-
<PAGE> 4
a. It shall preserve, protect, renew and keep in full force and
effect its existence, rights, licenses, permits, patents,
trademarks, trade names and franchises; comply with all laws
and regulations applicable to it; not materially alter the
nature or scope of business as presently conducted by it and
preserve, repair and maintain all property utilized in the
conduct of its business;
b. Maintain insurance with financially sound insurers on its
properties against such risks as fire, public liability, lack
of fidelity by its employees all as reasonably required by Bank
in accordance with the Bank's five year term loan approval
letter dated 11/3/92 incorporated herein by reference as
Exhibit A;
FINANCIAL STATEMENTS
c. It shall furnish to Bank the following financial information:
(i) not later than 90 days after the end of its fiscal
year audited financial and operating statements of
Obligor prepared in accordance with generally accepted
accounting principles consistently applied and
certified in a manner satisfactory to Bank by
independent certified public accountants acceptable to
Bank;
(ii) not later than 60 days after the end of each fiscal
quarter balance sheets and statements of income and
changes in financial condition, on a comparative basis
and in sufficient detail as acceptable to Bank, their
accuracy certified in a manner satisfactory to Bank by
the President or Chief Financial Officer (the
Treasurer or successor, if any, designated by the
Board of Directors of the applicable Obligor) of the
applicable Obligor; and
(iii) with each set of statements described above the
certificate of the President or Chief Financial
Officer that sets forth covenant compliance
calculations and that no event has occurred or exists
which alone or with notice, the passage of time, or
both, would constitute an Event of Default; and
(iv) not later than May 30th of each year prior to the
projected year ending August 31st, furnish Bank with
annual financial projections in a form satisfactory to
Bank.
ACCESS TO PREMISES AND RECORDS
d. Upon written request, Bank's representatives shall be permitted
access to any or all of such Obligor's properties and financial
records, to make extracts from such records and to discuss the
business, finances and affairs with its officers;
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<PAGE> 5
NOTICES
e. Obligors shall promptly give written notice to Bank of:
ERISA
(i) the details of any Reportable Event as defined in
ERISA which has occurred;
EVENTS OF DEFAULT
(ii) the occurrence of any event which alone or with
notice, the passage of time or both, would constitute
an Event of Default; Litigation
(iii) the commencement of any proceeding or litigation
which, if adversely determined, would adversely affect
its financial condition or ability to conduct
business; or
ADDITIONAL GUARANTORS
(iv) the formation of any subsidiary of Borrower after the
date of this Agreement which notice shall be
accompanied by the Resolution of the Board of
Directors of such subsidiary to execute this Agreement
as an additional Guarantor, together with execution by
Amendment of such Guaranty.
ADDITIONAL COVENANTS OF BORROWER
f. Borrower shall maintain 100% ownership in the company known
as Natural Vitamin Concepts, Inc. during the term of the Loan.
g. Borrower shall maintain business relations with all companies,
including affiliates, on an arm's length basis in accordance
with generally accepted accounting principles.
(4) NEGATIVE COVENANTS.
-------------------
Borrower covenants and agrees that, from the date hereof until the full
satisfaction of obligations under this Agreement and the Note, it will
not without Bank's prior written consent:
INDEBTEDNESS
a. Create, incur or assume any indebtedness for borrowed money
other than that provided under this Agreement or otherwise
consented to by Bank.
-5-
<PAGE> 6
LIENS
b. Create, incur or permit to exist against any of its properties
or assets, real or personal, tangible or intangible, now owned
or hereafter acquired, any mortgage or other lien or
encumbrance, except:
(i) deposits or pledges relating to the payment of
Workman's Compensation, Unemployment Insurance, old
age pension or other Social Security;
(ii) deposits or pledges relating to the performance of
bids, tenders, contracts or leases;
(iii) deposits or pledges relating to statutory obligations
and surety or appeal bonds necessary to the
continuance of the business in the ordinary course;
(iv) liens for taxes not delinquent or being contested in
good faith and by appropriate proceedings and for
which adequate reserves are maintained; and
CONTINGENT OBLIGATIONS
c. Assume, guarantee, endorse or otherwise become directly or
contingently liable for the obligations of any other person
except for the Guaranty in connection with this Agreement and
the endorsement of negotiable instruments for the deposit or
collection in the ordinary course of business;
CAPITAL EXPENDITURES
d. Expend for fixed assets during any one fiscal year an amount in
excess of $150,000.00; except for those capital expenditures
made in association with the Premises which shall not exceed
$350,000.00 and except for those capital expenditures made for
improvements to the 100 Lehigh Drive, Fairfield, New Jersey
building which shall not exceed $250,000.00 and except for
those expenditures made in connection with the restoration of
the Premises following a casualty loss or condemnation;
NET WORTH
e. Permit Tangible Net Worth at any time to be less than
$5,000,000.00. "Tangible Net Worth" is defined, at any date as
(1) the aggregate amount at which all assets of Borrower would
be shown on a balance sheet at such date after deducting
capitalized research and development costs, capitalized
interest, debt discount and expense, goodwill, patents,
trademarks, copyrights, franchises, licenses and such other
assets as are properly classified as "intangible assets"
(except that Borrower may include in its calculations of
Tangible Net Worth the intangible asset currently carried on
its books relating to a non-competition agreement with a
former shareholder) less (2) the aggregate amount of all
indebtedness, liabilities (including tax and other proper
accruals) and reserves of Borrower excluding Approved
Subordinated Debt, if any;
-6-
<PAGE> 7
DEBT: NET WORTH
f. Permit the ratio of Total Liabilities to Tangible Net Worth at
any time to exceed 1.25:1. ("Total Liabilities" is defined as
all liabilities which would properly appear on the liability
side of a balance sheet, other than capital stock, capital
surplus, retained earnings, minority interest, deferred
credits, Approved Subordinated Debt, and contingency reserves,
under generally accepted accounting principles).
WORKING CAPITAL
g. Permit Working Capital (defined as current assets less current
liabilities) to be less than $3,500,000.00.
PROFITS
h. Permit net profits to be less than $250,000.00 in any fiscal
year.
OWNERSHIP
i. Permit any change in the ownership of Borrower, except that
Borrower's majority Shareholder may acquire the minority
interest in Borrower without the consent of Bank.
(5) AGREEMENT OF INDIVIDUAL GUARANTOR(S). Each Individual Guarantor
agrees:
a. To execute in favor of and in form satisfactory to Bank, a
subordination of any present or future indebtedness of Borrower
to such Guarantor;
b. To execute a guaranty of payment of Borrower's obligations
hereunder to Bank; and
c. To notify Bank of any material adverse change in the financial
condition of Obligors as and when Guarantor shall acquire
knowledge thereof.
d. To the extent that the language in any Guaranty Agreement is
inconsistent with this agreement, this Agreement shall control.
(6) EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
a. Any representation or warranty made herein, in the Mortgage or
Security Agreement or in any other instrument, agreement or
certificate furnished in connection with any of the foregoing
shall prove false or misleading in any material respect;
b. Any occurrence delineated in the Note as an Event of Default;
-7-
<PAGE> 8
c. Any occurrence delineated in the Mortgage or Security Agreement
as an Event of Default;
d. Any Obligor shall default in the due observance or performance
of any negative covenant contained in this Agreement, Mortgage
or any Security Agreement;
e: Any Obligor shall default in the due observance or performance
of any covenant, condition or agreement (other than those
referred to in sectons (b) and (d) immediately above) contained
in thes Agreement, any Mortgage, Note or Security Agreement to
which it is a party whether to Bank or any other holder of such
instrument; and
f. A Reportable Event shall have occurred with respect to any Plan
as defined in ERISA and (i) Bank has notified the affected
obligor in writing that it has determined that such Reportable
Event constitutes reasonable grounds for termination of such
Plan by the Pension Benefit Guaranty Corporation or the
appointment of a trustee to administer the Plan, by an
appropriate U.S. District Court or (ii) such termination
proceedings are commenced or such appointment occurs;
g. Any Obligor shall default in any other loan, extension of
credit, guaranty agreement or any other agreement such Obligor
has with Bank, whether related to the Loan or otherwise except
for payments such Obligor is disputing in good faith in the
normal course of business and for which such Obligor has
maintained adequate reserves;
h. Transfer of title to the Premises;
i. Borrower shall have failed to make timely payments on its debts
as they become due, (except for payments Borrower is disputing
in good faith in the normal course of business and for which
the Borrower has maintained adequate reserves), filed for
bankruptcy, made general assignment for the benefit of
creditors, or filed an answer admitting the material
allegations of a petition in bankruptcy;
j. A writ of execution shall be issued against all or any part of
the substantial properties of Borrower, or any judgment
involving monetary damage shall be entered against Borrower or
Guarantor(s) aggregating more than $50,000;
k. Seizure or foreclosure of any of the properties of Borrower
pursuant to process of law or by respect of legal self-help,
involving monetary damages aggregating more than $50,000;
l. Default by Borrower or Guarantor(s) in any of the terms or
conditions of any agreement covering the payment of borrowed
money, except for payments being disputed in good faith in the
normal course of business and for which adequate reserves have
been maintained;
m. Any material adverse change in the business of Borrower or
Guarantor(s);
-8-
<PAGE> 9
n. Any change in ownership of Borrower or Guarantor(s) with the
exception of the acquisition of the minority interest in
Borrower by Borrower's majority Shareholder, without the prior
express written consent of the Bank, which consent shall not be
unreasonably withheld by the Bank;
o. Borrower or Corporate Guarantor(s) shall have entered into any
secondary financing or shall have consented to the placing of
any lien on the Premises, whether or not such financing or lien
is prior to or subordinate to the lien of the Mortgage;
p. Borrower or Guarantor(s) shall have made loans, advances or
investments other than Permitted Investments from the business.
The Borrower or Guarantor(s) shall have purchased or otherwise
acquired, any capital stock, warrants, rights, options,
obligations or other securities of, made any capital
contribution to, or otherwise invested in, any Person in excess
of $250,000; provided, however, that nothing in this subsection
shall prevent Borrower from purchasing Permitted Investments
(readily marketable direct obligations of the United States of
America and certificates of deposit issued by commercial banks
of recognized standing operating in the United States of
America and prime commercial paper and readily marketable
securities (herein defined as securities listed on a recognized
exchange, for which there is a liquid market, consistent with
the type of investment pattern Borrower has established with
Bank)), in excess of the aforementioned amount;
q. Borrower shall have provided its guaranty in support of other
obligations without the express prior written consent of Bank;
r. Guarantor(s) shall have provided its or their guaranty in
support of other obligations without giving prior written
notification to Bank;
s. Guarantor(s) shall have incurred additional indebtedness, or
made loans from its or their business without the consent of
Bank, except for ordinary trade debt;
t. Borrower shall have violated any terms of the Indemnification
Agreement with Showa Denko America, Inc., dated August 2, 1990
that could dilute Borrower's coverage under said agreement;
u. Failure to comply with any of the terms and conditions of the
Bank's five-year term loan approval letter dated 11/3/92
(Exhibit A) the terms and conditions of which are incorporated
herein by reference with the same force and effect as if they
were set forth herein at length.
then, the Note shall be immediately due and payable in full, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything contained herein, in
the Mortgage, Note, Security Agreement or elsewhere to the contrary
notwithstanding.
-9-
<PAGE> 10
(7) MISCELLANEOUS.
-------------
EXPENSES
a. Borrower will pay all out-of-pocket losses, costs and expenses
incurred by Bank in connection with the Loan hereunder, the
enforcement of any provision of this Agreement, or any Note or
the collection of any amount due hereunder or thereunder
including but not limited to, the reasonable fees and
disbursements of counsel to Bank incurred in the course of so
enforcing such rights.
NO WAIVER
b. No failure or delay by Bank in exercising any right, power or
remedy hereunder upon a breach hereof shall constitute a waiver
of any such term, condition, covenant, agreement, right, or
power of Bank or prevent Bank from exercising any such rights,
power or remedy at any later time or times.
SURVIVAL OF COMMITMENT
c. The terms and conditions of the Bank's five year term loan
approval letter dated 11/3/92 (Exhibit A) shall not merge into
this Agreement, but shall survive execution of this Agreement.
In the event of any uncertainty, inconsistency or lack of
clarity between this Agreement and said approval letter, this
Agreement shall govern and supersede said approval letter.
AMENDMENTS
d. Bank shall not be deemed to have waived any of the terms,
agreements, conditions and covenants hereof, except by a
writing signed by an officer of Bank and delivered to Borrower.
This Agreement may be amended by a supplemental Agreement
setting forth such amendment or amendments when properly
executed by Borrower and Bank. Guarantors hereby waive notice
of any amendment to this Agreement except any amendment to
section (5) concerning the agreement of individual guarantors.
GAAP
e. All accounting terms used herein shall have the meaning
assigned to them by generally accepted accounting principles,
unless otherwise defined.
LAW GOVERNING
f. This Agreement and all rights hereunder shall be governed by
the laws of the State of New Jersey and applicable laws of the
United States and shall be binding upon the Obligors, their
heirs, executors, administrators, successors and assigns and
shall inure to the benefit of Bank, its successors and assigns.
The obligations and conditions of this
- 10 -
<PAGE> 11
Agreement shall continue until all indebtedness and liability
of the Obligors to Bank hereunder has been paid and satisfied
in full.
NOTICES
g. Any notice shall be conclusively deemed to have been received
by a party hereto and to be effective on the day on which
delivered to such party at the address set forth below, or if
sent by registered or certified mall, return receipt requested,
on the third business day after the day on which mailed,
addressed to such party at said address:
(i) if to Chemical Bank New Jersey, National Association,
at Two Tower Center, P.O. Box 1094, East Brunswick,
New Jersey 08816-1094, Attn: Lawrence Palumbo, Jr.,
Vice President;
(ii) if to the Company at 100 Lehigh Drive, Fairfield, New
Jersey 07004, Attn: Edward Frankel, President;
(iii) as to each such party at such other address as such
party shall have designated to the other in a written
notice complying as to delivery with the provisions of
this Section.
ASSIGNMENT
h. Bank shall have the option of selling, assigning or
transferring all or any part of the Loan to any other financial
institution without the permission of Borrower. This Agreement
or the Loan shall not be assigned, sold or transferred by
Borrower.
(8) ADDITIONAL PROVISIONS.
---------------------
a. Borrower shall maintain a loan to value ratio of no less than
75% during the term of the loan. If an updated appraisal
reflects a loan to value ratio below 75%, Borrower shall be
required to pay to Bank such amounts as would reduce the loan
and bring that ratio to 75%, or provide such additional
collateral as will satisfy Bank in Bank's discretion.
b. Guarantor, Windmill Marketing Services, Inc. covenants and
agrees that it shall not have losses in excess of $100,000.00
in any fiscal year and that it shall not have losses in any two
consecutive fiscal years.
c. In addition to the five percent (5%) late charge assessed to
Borrower on the amount of any required payment, including
interest, principal and taxes, not received by Bank within five
(5) days after the date it is due, if there shall occur an
Event of Default hereunder or under any other instrument
executed and delivered to Bank in connection herewith, Borrower
shall, on demand, pay a default rate of interest on the entire
principal amount outstanding at a rate equal to the fixed rate
set forth in the Note plus 2%.
d. When and if the Premises, or any part thereof, shall be leased,
Borrower shall give ten (10) days' prior written notice of its
intention to lease said Premises to Bank. Any such lease(s)
shall be assigned to Bank as additional security for the Loan,
such collateral
- 11 -
<PAGE> 12
assignment to be in a form acceptable to Bank's counsel.
GARDEN STATE NUTRITIONALS, INC., Borrower
By: Edward Frankel
--------------------------------------
Edward Frankel, President
WINDMILL MARKETING SERVICES, INC., Guarantor
By: Edward Frankel
--------------------------------------
Edward Frankel, President
NATURAL VITAMIN CONCEPTS, INC., Guarantor
By: Edward Frankel
--------------------------------------
Edward Frankel, President
Agreed to and Accepted:
CHEMICAL BANK NEW JERSEY, NATIONAL ASSOCIATION
By: /s/ Lawrence Palumbo, Jr.
-------------------------------------------
- 12 -
<PAGE> 13
10/27/92 Commitment Letter to be attached.
Exhibit A
<PAGE> 14
PENDING LITIGATION
1. Pittel v. Garden State Nutritionals, Inc., - DOL 10/25/88 - Product
Liability Suit - Defense assumed by Borrower's insurer, Chubb &
Son, Inc., and reserve of $15,000.00 established by Chubb.
2. Lloyd T. Whitaker, as Trustee of the Estate of Olympia Holding Corp.,
Debtor v. Windmill Marketing Services, Inc. - United States
Bankruptcy Court, Middle District of Florida, Case No.
90-4223-BKC-3P7, Adversary No.92-19852 - Suit by bankruptcy
trustee of estate of common carrier seeking reimbursement for
underpayment of freight charges in amount of $6,327.75.
Exhibit B
<PAGE> 15
[CHEMICAL LOGO]
Chemical Bank New Jersey NA
Two Tower Center
P.O. Box 1094
East Brunswick, NJ 08816-1094
908/220-3000
November 3, 1992
Edward Frankel, President
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
RE: CHEMICAL BANK - GARDEN STATE NUTRITIONALS, INC.
Dear Mr. Frankel:
I am pleased to inform you that Chemical Bank New Jersey, National Association
(the "Bank") has approved a five-year term loan (the "Loan") to Garden State
Nutritionals, Inc. (the "Borrower") in the Amount set forth below to be used to
purchase the 33,764 square foot building on 2.2 acres of land at 21-25 Dwight
Place, Fairfield, New Jersey, for the purchase price of $1,535,000.
The general terms and conditions of this financing will include, but are not
limited to:
1. Borrower: Garden State Nutritionals, Inc. a New Jersey corporation
located at 100 Lehigh Drive in Fairfield, New Jersey.
2. Amount: The Loan shall be in the original principal amount of One
Million One Hundred Fifty One Thousand Two Hundred and
Fifty Dollars ($1,151,250), or 75% of the purchase
price, whichever is less.
3. Guarantors: Windmill Marketing Services , Inc. a New Jersey corporation
and Natural Vitamin Concepts, Inc., a New Jersey
Corporation, both located at 100 Lehigh Drive in
Fairfield, New Jersey. All guarantees are guarantees of
payment on the aforementioned debt.
4. Term: The Loan shall mature five years from the date of the Loan
closing, at which time the Borrower shall pay to the
Bank the then entire outstanding principal balance of
the Loan, together with all accrued and unpaid interest
thereon, and all other unpaid fees, expenses and other
sums due under the Loan Documents.
5. Interest: Interest will be charged and payable monthly at a fixed rate
to be set by the Bank in its sole discretion at the time
of closing. An computations of interest shall be
calculated on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as appropriate,
divided by a 360 day factor. The interest charged upon
any event of default, will be the rate set forth in the
Note plus 2%, until any such default is cured and/or
waived by the Bank. AN INDICATIVE RATE FOR THIS LOAN, AS
OF 11-3-92, WAS 7.85% (AMORTIZED STRAIGHT LINE OVER 10
YEARS). THE FIXED RATE SET AT CLOSING COULD DIFFER FROM
THESE INDICATIVE RATES.
Exhibit A
<PAGE> 16
Edward Frankel, President
November 3, 1992
Page 2
6. Loan
Payments: The loan shall be repaid based on a ten year, straight line
amortization schedule resulting in 60 monthly principal
payments, 59 of which shall be in the amount of $9,593.75 per
month, along with the calculated monthly interest. Each such
principal payment shall be due and payable on the first day of
each month following closing together with interest on the
outstanding principal amount of the Loan. Since the Loan term is
for five years, the 60th monthly payment shall be a balloon
payment equal to the then entire principal balance outstanding
of $585,218.75.
7. Purpose: To provide the Borrower the balance of the purchase money
consideration to enable it to purchase the premises commonly
known as 21-25 Dwight Place, Fairfield, New Jersey.
8. Late
Charges: The Borrower shall pay a five percent (5%) late charge to be
calculated on the amount of any required payment, including
interest, principal, taxes, etc., not received by the Bank
within five (5) days after the date it is due.
9. Pre-
payment: Upon at least five business days' notice to the Bank the
Borrower may, in a minimum amount of $200,000, prepay the Loan
in whole or in part. The Loan will be subject to a prepayment
penalty for any loss incurred by the Bank in the redeployment of
funds allocated for this transaction. This penalty is to be
calculated as follows:
Full prepayment only shall be permitted provided the Borrower
gives the Lender not less than five (5) business days' nor more
than fifteen (15) business days' prior irrevocable written
notice and such prepayment is accompanied by payment of accrued
interest to and including the date of prepayment together with
the Lender's standard fixed rate yield maintenance prepayment
premium, which is based upon the difference between the fixed
rate and appropriate reinvestment rate, discounted to present
value. Prepayments will only be made on principal repayment
dates.
In the event a prepayment of the Loan is made by virtue of a
sale or further encumbrancing of the Premises or is voluntarily
made after an Event of Default has occurred under the Mortgage,
the applicable prepayment penalty as calculated hereunder shall
be due and payable.
10. Commitment
Fee: In consideration of the Bank having negotiated, prepared and
delivered this Commitment Letter and agreeing to make the loan
in accordance with the terms of this Commitment Letter, the
Borrower shall pay to the Bank a non-refundable Commitment Fee
in the amount of $11,512.50, which Commitment Fee shall be
earned and payable upon the acceptance of this Commitment Letter
by the Borrower. The Commitment Fee shall be equal to 1% of the
loan in any case.
<PAGE> 17
Edward Frankel, President
November 3, 1992
Page 3
11. Security & Closing Documents:
There shall be delivered to the Bank as evidence and security for
the repayment of the Loan, all documentation required by Bank's
counsel including, without limitation, the following Loan
documentation (hereinafter the "Loan Documents").
11.1 A Note in the amount of $1,151,250 duly executed by the Borrower
(hereinafter the "Note");
11.2 A Mortgage constituting a valid first lien on the Premises duly executed
by the Borrower (hereinafter the "Mortgage");
11.3 A loan Agreement setting forth the terms and conditions hereof and any
other items reasonably required by Bank's counsel (hereinafter
the "Loan Agreement").
11.4 An unconditional guaranty of payment duly executed by the Guarantors,
Windmill Marketing Services, Inc., Natural Vitamin Concepts,
Inc., (hereinafter the "Guaranty").
11.5 A perfected first priority security interest pursuant to a Security
Agreement and UCC-1 Financing Statement(s) covering those items
of personal property now owned and hereafter acquired by the
Borrower which are attached to, affixed to or otherwise
permanently connected to the Premises and are normally regarded
as real estate fixtures, including all accessions, substitutions
and replacements (hereinafter the "Security Agreement" and
"Financing Statement");
11.6 A collateral assignment of leases with respect to the Premises
(hereinafter the "Assignment of Leases");
11.7 All-risk insurance with extended coverage insuring the Premises in at
least an amount equal to 100% of the insurable value of the
Premises, excluding land, with a standard New Jersey
(noncontributory) mortgagee clause endorsement in favor of the
Bank, Two Tower Center, P.O. Box 1094, East Brunswick, New Jersey
08816-1094 must be furnished prior to the Closing Date. The
Borrower must maintain a $2MM product liability insurance policy.
11.8 If the Premises are located in a National Flood Plain, a policy of flood
insurance naming the Bank as first mortgagee must be delivered to
the Bank no later than the Closing Date. A flood zone
certification must be furnished to the Bank prior to the Closing
Date.
11.9 Comprehensive public liability insurance; minimum coverage of $1MM per
person, $1MM per incident, and $500M property insurance, and
blanket coverage of $3MM.
11.10 Other insurance as is commonly carried by similar owners.
11.11 An Alta Standard Mortgage Title Insurance Commitment insuring, among
other things, that the mortgage on the Premises in the amount of
$1,151,250 is valid first lien together with an approved attorney
and closing protection letter.
11.12 A current boundary and location survey certified to the tide insurance
company and the
<PAGE> 18
Edward Frankel, President
November 3, 1992
Page 4
Bank, prepared by a licensed surveyor satisfactory to the Bank.
11.13 An appraisal of the Premises prepared by an appraiser designated by the
Bank in form and substance acceptable to the Bank has been
delivered to the Bank and has been found to be acceptable.
If the Closing Date shall be later than ninety (90) days after the Appraisal
Date, the Bank shall have the option to require reappraisal of
the Premises which reappraisal must meet all the requirements for
the original appraisal and the cost of which must be paid by the
Borrower. In addition, the Bank may require, from time to time,
updated appraisals. These appraisals of the Premises will be
prepared by an appraiser designated by the Bank in form and
substance acceptable to the Bank, must meet all the requirements
of the original appraisal, and the cost of which must be paid by
the Borrower.
11.14 Evidence of approvals of all governmental authorities and public
utility companies having jurisdiction over the Premises;
including, without limitation, environmental, utilities, zoning,
variances.
11.15 Opinion of Borrower's Counsel verifying that the loan Documents have
been duly authorized, executed and are in force in accordance
with their terms, that the Borrower and Guarantors are validly
existing corporations in good standing, that the making and
execution of the loan Documents are duly authorized and
consistent with corporate charter, minutes and by-laws, and such
other items as Bank's Counsel may require.
11.16 An environmental audit of the Premises prepared by an environmental
consultant designated and approved by the Bank, in form and
substance acceptable to the Bank, was delivered to the Bank and
was found to be acceptable, subject to paragraphs a through d
noted below. The Bank reserves the right, under the following
conditions: 1) An environmental event occurs on the subject
property, or 2) the Bank is notified that an environmental event
has occurred on the subject property, or on an adjacent property,
or 3) the Borrower defaults on the loan Agreement in any way, to
retain, at the Borrower's expense, an independent professional
consultant to review any report prepared on behalf of or by the
Borrower and/or to conduct its own investigation of the Premises
and the Borrower hereby grants to the Bank, its agents,
employees, consultants and contractors the right to enter upon
the Premises and to perform such tests on the Premises as are
necessary to conduct such a review or investigation. The Borrower
and Guarantor(s) (as herein above defined), if any, shall execute
any and all documentation concerning environmental issues as the
Bank may request, and such documentation shall include, but not
be limited to, an indemnification that shall survive foreclosure,
and such documentation shall be satisfactory to the Bank and the
Bank's counsel. Without limiting the generality of the
foregoing, the following specific areas of environmental concerns
must be addressed as indicated prior to closing:
a. Asbestos containing building materials (non-friable
tiles) were identified in the Premises. The Borrower is advised
that the aforementioned substance is present in 21-25 Dwight
Place. In the event that the Borrower undertakes to
<PAGE> 19
Edward Frankel, President
November 3, 1992
Page 5
dispose of the non-friable asbestos tiles, the Borrower confirms
that it shall do so in accordance with all applicable
regulations.
b. One pad mounted electrical transformer presumed to be
containing PCBs was identified. THE BORROWER WILL COMPLY WITH ALL
LAWS APPLICABLE TO THE MAINTENANCE, TESTING AND/OR REPLACEMENT OF
THE SUBJECT TRANSFORMER AND THE REMEDIATION OF ANY SPILLS AS MAY
BE REQUIRED THEREBY.
c. Lead in Water was identified as a possibility. It is our
requirement that a further study be conducted on the lead levels
prior to closing. Depending on such study, appropriate
remediation will be required to the Bank's satisfaction.
d. Abandoned chemical substances left on the property from past
printing operations were disclosed. The Bank requires that there
shall be proper disposal of the substances along with any other
refuse left by past tenants WITHIN 90 DAYS OF CLOSING.
If the aforementioned concerns are not addressed to the Bank's
satisfaction within the prescribed time periods, then the
Borrower shall be deemed to be in default of the Loan Agreement.
11.17 Corporate resolution(s) of the Borrower and Corporate Guarantors.
11.18 Such other and further documents as the Bank or the Bank's counsel may
require.
12. Events of Default:
The Loan Documents shall include a customary Events of Default
provision including, but without limitation, the following Events
of Default (hereinafter the "Events of Default"):
12.1 If any representation or warranty made by the Borrower or the Guarantor
in the Loan Agreement or any other Loan Documents shall prove to
have been inaccurate in any substantial and material respect as
of the date or dates with respect to which it is deemed to have
been made.
12.2 The Borrower shall have failed to make timely interest payments, within
the S day cure period.
12.3 The Borrower shall have failed to make timely principal payments,
within the 5 day cure period.
12.4 The Borrower shall have failed to make timely payments on its debts as
they become due,(except for payments the Borrower is disputing in
good faith in the normal course of business and for which the
Borrower has maintained adequate reserves), file for bankruptcy,
made general assignment for the benefit of creditors, or have
filed an answer admitting the material allegations of a petition
in bankruptcy.
12.5 The Borrower shall have transferred title to the Premises.
<PAGE> 20
Edward Frankel, President
November 3, 1992
Page 6
12.6 A writ of execution shall be issued against all or any part of the
substantial properties of the Borrower, or any judgment involving
monetary damage shall be entered against the Borrower or the
Guarantor(s) aggregating more than $50,000.
12.7 Seizure or foreclosure of any of the properties of the Borrower
pursuant to process of law or by respect of legal self-help,
involving monetary damages aggregating more than $50,000.
12.8 Default by the Borrower or the Corporate Guarantors in any of the terms
or conditions of any agreement covering the payment of borrowed
money, except for payments the Borrower is disputing in good
faith in the course of normal business and for which the Borrower
or the Corporate Guarantors have maintained adequate reserves.
12.9 Any material adverse change in the business of the Borrower or the
Guarantor(s).
12.10 Any change in ownership of the Borrower or Guarantors without the prior
express written consent o the Bank, EXCEPT THE ACQUISITION BY
EDWARD FRANKEL OF THE MINORITY INTEREST IN THE BORROWER, which
consent shall not be unreasonably withheld by the Bank.
12.11 The Borrower or the Corporate Guarantors shall have entered into any
secondary financing or shall have consented to the placing of any
lien On the Premises, whether or not such financing or lien is
prior to or subordinate to the lien of the Mortgage.
12.12 The Borrower or the Guarantor shall have made loans, advances or
investments, other than Permitted investments, from the business
without the consent of the Bank. The Borrower, or Guarantors
shall have purchased or otherwise acquired, any capital stock,
warrants, rights, options, obligations or other securities of,
make any capital contribution to, or otherwise invest in, any
Person in excess of $250M; provided, however, that nothing in
this subsection shall prevent the Borrower from purchasing
Permitted Investments (readily marketable direct obligations of
the United States of America and certificates of deposit issued
by commercial banks of recognized standing operating in the
United States of America and prime commercial paper and readily
marketable securities (herein defined as securities listed On a
recognized exchange, for which there is a liquid market,
consistent with the type of investment pattern the Borrower has
established with the Bank) in excess of the aforementioned
amount.
12.13 The Borrower shall have provided its guaranty in support of other
obligations without the express prior written consent of the
Bank.
12.14 The Guarantor(s) shall have provided its or their guaranty in support
of other obligations without notifying the Bank in writing prior
to such a guaranty,
12.15 The Guarantor(s) shall have incurred additional indebtedness, or made
loans from its
<PAGE> 21
Edward Frankel, President
November 3, 1992
Page 7
or their business without the consent of the Bank, except for
ordinary trade debt.
12.16 The Borrower shall have violated any terms of the Indemnification
Agreement with Showa Denko America that could dilute the
Borrower's coverage under said agreement.
13. Covenants and Representations:
The Loan Documents shall include the following financial
covenants and representations:
13.1 The Borrower shall furnish the Bank with audited financial and
operating statements, prepared by an independent certified public
accountant, within ninety (90) days after the end of each fiscal
year.
13.2 The Borrower shall furnish the Bank with financial and operating
statements for each quarterly period within 60 days after the end
of each said fiscal quarterly period.
13.3 The Borrower shall furnish the Bank with annual financial projections
on or before May 30th of the year prior to the projected year
ending August 31st.
13.4 The Borrower shall provide the Bank with a certificate prep- and
certified by the Chief Financial Officer certifying the accuracy
of the financial statements and indicating whether any defaults
exist on an annual and quarterly basis, in conjunction with the
aforementioned reporting requirements and timing.
13.5 The Guarantors shall provide the Bank with financial and operating
statements of the type required by the Borrower, and on the
schedule proscribed for the Borrower.
13.6 The Borrower shall maintain:
a. Net Worth of not less than $5,000,000.
b. Ratio of total liabilities divided by net worth of no
greater than 1.25X.
c. Working Capital, defined as current assets less current
liabilities, of not less than $3,500,000.
d. The Borrower will not make capital expenditures or
acquisitions in excess of $150,000 for any given year, except for
those capital expenditures made in association with the new
building (350M) and improvements to the 100 Lehigh Drive building
(250M) AND THOSE CAPITAL EXPENDITURES MADE IN CONNECTION WITH THE
RESTORATION OF THE MORTGAGED PREMISES FOLLOWING A CASUALTY LOSS
OR CONDEMNATION. without the consent of the Bank.
e. The Borrower shall not show profits of less than 250M
for any fiscal
<PAGE> 22
Edward Frankel, President
November 3, 1992
Page 8
year.
f. The Borrower shall maintain 100% ownership in the
company known commonly as Natural Vitamin Concepts, Inc. during
the tenor of the loan.
g. The Borrower shall maintain business relations with all
companies, including affiliates, on an arms-length basis in
accordance with GAAP.
h. The Borrower shall maintain a loan to value ratio of no
less than 75% during the tenor of the loan. If an updated
appraisal reflects a loan to value ratio below 75%, the Borrower
shall be required to pay the Bank such amounts as would reduce
the loan and bring that ratio to 75 %, or provide such additional
collateral as will satisfy the Bank,at its discretion.
13.7 Windmill Marketing Services, Inc. will not incur a loss in excess of
$100M in any fiscal year, nor shall Windmill Marketing Services,
Inc. incur a loss of any kind in any two consecutive fiscal
years.
13.8 Insurance or Condemnation Proceeds -Dispositions. In the event of
partial or total destruction of the Premises by fire or in the
event the Premises or a part thereof are condemned by a
governmental agency, the proceeds of such insurance or
condemnation shall be payable to the Bank (ie. the Bank shall be
named sole loss payee) for the benefit of the Bank to be held in
escrow and to be disbursed and applied as follows: The Bank shall
have the option either to (a) use said insurance or condemnation
proceeds to reduce the outstanding principal balance of the Loan,
or to (b) use said proceeds for the purpose of restoring the
damaged or condemned property to a value substantially equivalent
to that value before the loss or condemnation.
13.9 Right of Set-Off by the Bank: For so long as the Bank shall be the
holder of the Note, it shall have the right after the occurrence
of an Event of Default immediately and without notice or other
acts to set off against any of the Borrower's or the Guarantor's
obligations to it as note holder, any sum owed by the Bank in any
capacity to the Borrower or the Guarantor, whether due or not, or
any property of the Borrower or the Guarantor in the possession
of the Bank, and the Bank shall be deemed to have exercised such
right of set-off and to have made a charge against such sum or
property upon the occurrence of any Event of Default, even though
the actual book entries may be made at some time subsequent
thereto.
13.10 Super Lien: The Borrower agrees to all reasonable representations and
covenants required by the Bank so as to protect the Bank from the
effects of the "Spill Compensation and Control Act" (N.J.S.A.
58:10-23.11 et seq.). In addition, the Borrower shall agree to
pay the cost of any soil borings or toxic waste investigations
which may be reasonably required by the Bank, if: 1) an
environmental event should occur on the subject property, or 2)
the Bank is notified that an environmental event shall have
occurred on the subject property, or on an adjacent property, or
3) the Borrower should default under the loan Agreement.
<PAGE> 23
Edward Frankel, President
November 3, 1992
Page 9
13.11 The Borrower will maintain an account with the Bank containing
sufficient funds to cover its monthly interest and principal
payment. The Bank shall charge this account monthly for interest
and principal on the sixth day of each month and the Borrower
shall immediately restore the account with sufficient funds to
cover the anticipated interest and principal for the following
month.
13.12 Hazardous Materials: The Bank, in its sole discretion, may require
evidence that the Premises do not contain (a) friable asbestos or
asbestos contaminating material; (b) urea-formaldehyde foam
insulation; (c) transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls
in excess of 50 parts per million on or servicing the Premises,
except that transformer that was identified in the Phase I
environmental audit, ; (d) any other chemical, material or
substance which is prohibited, limited or regulated by any
federal, state, county, regional or local authority. In addition,
the Borrower agrees to submit, if so requested by the Bank, a
report prepared by a consultant approved by the Bank, certifying
that the Premises are not now being used, nor have been used in
the past, for any activities involving, directly or indirectly,
the use, generation, treatment, storage, or disposal of any
hazardous or toxic chemical, material substance or waste. Annexed
hereto, and made a part hereof, as Exhibit A, is the Bank's
outline of minimum acceptable scope of work for a Phase I
Environmental Hard Audit. The Bank reserves the right, under the
following conditions: 1) an environmental event should occur on
the subject property, or 2) the Bank is notified that an
environmental event shall have occurred on the subject property,
or on an adjacent property, or 3) the Borrower should default
under the Loan Agreement.. to retain, at the Borrower's expense,
an independent professional consultant to review any report
prepared by the Borrower and/or to conduct its own investigation
of the Premises and Borrower hereby grants to the Bank, its
agents, employees, consultants and contractors the right to enter
upon the Premises and to perform such tests on the Premises as
are necessary to conduct such a review or investigation. The
Borrower shall represent and warrant to the Bank that the
Borrower and all Guarantors are in compliance with all laws and
regulations governing hazardous waste, asbestos and any other
environmental issues Bank and its special counsel deem to be
appropriate. The Borrower and all Guarantor: shall indemnify the
Bank against, and agree to hold the Bank harmless from, any loss,
cost, damage, expense or claim (including, without limitation,
attorney's fees) arising by reason of the Presence on the
Premises of any hazardous waste or other hazardous materials or
on account of any environmental problems with resect to the
Premises; and the foregoing indemnity and hold harmless
provisions shall survive any foreclosure or a conveyance made
pursuant to a deed in lieu of foreclosure. The Borrower and all
Guarantor: shall execute any and all documentation concerning
environmental issues as the Bank may request and such
documentation shall be satisfactory to the Bank and its special
counsel.
13.13 The Borrower shall notify the Bank in writing as soon as it shall have
knowledge of any Event of Default.
<PAGE> 24
Edward Frankel, President
November 3, 1992
Page 10
14. General Conditions:
The following terms and conditions shall apply to this Commitment
Letter and the Loan:
14.1 This Commitment Letter shall not be assigned by the Borrower.
14.2 The closing date of the Loan must occur no later than ninety (90) days
from the date of the Borrower's acceptance of this Commitment
Letter.
14.3 Notwithstanding the place of acceptance of this Commitment Letter or
the place of the closing of the Loan, this Commitment Letter and
the Loan described herein shall be deemed to be governed by the
laws of the State of New Jersey, and the Borrower and the
Guarantor(s) shall submit to the jurisdiction of the courts of
New Jersey and of the United States of America.
14.4 The provisions of this Commitment Letter are subject to the accuracy of
all information, representations, exhibits or other materials
submitted with or in support of the Borrower's Loan request. Any
change incident thereto prior to the consummation of the LLan
closing shall, at the option of the Bank, void all obligations of
the Bank, under the terms of this Commitment Letter. Any changes
to this letter subject the entire document to the Bank's final
credit approval and legal review.
14.5 No change in the provisions of this Commitment Letter shall be valid or
binding unless acknowledged and confirmed in writing by an
officer of the Bank, and the Borrower;
14.6 The Borrower's acceptance of this Commitment Letter shall constitute
its unconditional agreement to pay all reasonable fees, expenses
and charges with respect to the Loan (whether or not the closing
of the Loan ever occurs) including, without limiting the
generality thereof, title insurance, survey cost, appraisals,
recording and filing fees, the fees and expenses of the counsel
for the Bank; the fees and expenses of the Bank's environmental
inspector, if any, and any other taxes, fees and assessments
payable in connection with this Loan.
The Bank shall not be required to pay any premium or any charge or any
brokerage fee or commission or similar compensation in connection
with this Commitment Letter and the Loan and, by accepting this
Commitment, the Borrower agrees to defend, indemnify and hold the
Bank harmless against and from any and all claims for any such
matters.
14.7 The Bank shall have the option of selling, assigning or transferring
all or any part of the Loan to any other financial institution
without the permission of the Borrower.
If the foregoing is in accordance with your understanding, please
indicate your acceptance of this Commitment Letter by executing
the enclosed copy and returning same to the Bank, together with
your check in the amount of $11,512 whereupon this Commitment
Letter shall constitute a binding
<PAGE> 25
Edward Frankel, President
November 3, 1992
Page 11
agreement in accordance with its terms. If your acceptance has not
been received by the Bank within ten (10) days from the date
hereof, this Commitment Letter shall be deemed null and void and
withdrawn, and the Bank shall have no further liability or
obligations to you.
Very truly yours,
Chemical Bank New Jersey,
National Association
By: /s/ Lawrence Palumbo, Jr.
-------------------------
Lawrence Palumbo, Jr.
Vice President
Received and Accepted this 3rd day of November, 1992
Garden State Nutritionals, Inc.
By: /s/ EDWARD M. FRANKEL
------------------------
Edward Frankel, President
<PAGE> 26
FIRST AMENDMENT TO LOAN AGREEMENT, NOTE,
MORTGAGE AND SECURITY AGREEMENT
THIS AMENDMENT is dated as of September 28, 1995, by and between GARDEN
STATE NUTRITIONALS, INC., a New Jersey corporation (the "Borrower"), and
CHEMICAL BANK, a New York banking association, as successor to Chemical Bank New
Jersey, N.A., a national banking association (the "Lender").
WHEREAS, the Borrower and Lender entered into a Loan Agreement dated
November 12, 1992 (the "Loan Agreement") for a loan in the principal amount of
$1,151,250 the proceeds of which were used by Borrower to purchase the premises
commonly known as 21-25 Dwight Place, Fairfield, New Jersey (the "Loan");
WHEREAS, the Loan is evidenced by that certain Commercial Purpose Loan
Note (the "Note"), and is secured as set forth in that certain Mortgage (the
"Mortgage") and that certain Security Agreement (the "Security Agreement"), each
dated as of November 12, 1992 (the Mortgage and the Security Agreement are
referred to collectively as the "Collateral Documents") by the Borrower in favor
of the Lender; and
WHEREAS, the Borrower and the Lender desire to amend certain provisions
of the Loan Agreement, the Note and the Collateral Documents as set forth below.
NOW THEREFORE IT IS HEREBY AGREED:
1. DEFINITIONS. For purposes of this Amendment, terms not otherwise
defined herein shall have the respective meanings assigned to such terms in the
Loan Agreement and Collateral Documents. In addition, the following capitalized
terms used herein shall have the meanings set forth in this Section 1:
"ACCOUNTS": shall have the meaning provided under the UCC.
"ACCOUNTS RECEIVABLE": for purposes of determining the Collateral
Floor, an amount equal to eighty (80%) percent of the Borrower's Accounts which
are payable to Borrower within ninety (90) days of the invoice date, not
including those Accounts payable to Borrower by Guarantor.
"AFFILIATE": as to the Borrower, any other entity (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, the Borrower. For purposes of this definition,
"control" of an entity means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such entity or (b) direct or cause the direction of the
management and policies of such entity whether by contract or otherwise.
"CAPITAL EXPENDITURE": any expenditure by the Borrower for (i) rent or
other amounts payable under a Capital Lease Obligation, (ii) an asset which will
be used in a year or years subsequent to the year in which the expenditure is
made and which asset is properly classifiable in relevant financial statements
of the Borrower as property, equipment, improvements or fixed
<PAGE> 27
assets, or (iii) any similar type of asset capitalized in accordance with GAAP;
all without duplication.
"CAPITAL LEASE OBLIGATIONS": of the Borrower as of the date of
determination, the obligations of the Borrower to pay rent and other amounts
under any lease of (or other arrangement conveying the right to use) real or
personal property. or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of the
Borrower under GAAP.
"CAPITAL STOCK": any and all shares. interests, participations or
other equivalents (however designated) of Capital Stock of a corporation, any
and all equivalent ownership interests in an entity (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"COLLATERAL FLOOR": the aggregate value of (i) Accounts Receivable,
(ii) forty (40%) percent of Inventory, (iii) fifty (50%) percent of Equipment
and (iv) up to $750,000 in cash/negotiable securities.
"CURRENT ASSETS": as determined in accordance with GAAP.
"CURRENT LIABILITIES": as determined in accordance with GAAP.
"DEBT SERVICE COVERAGE RATIO": (i) the sum of (x) net profits before
taxes. Interest Expense, non-cash Interest Expense, depreciation, and
amortization MINUS (y) Capital Expenditures, Dividends and distributions,
DIVIDED BY (ii) Principal Payment and Interest Expense on the Loan at the time
at which the Debt Service Coverage Ratio is being determined.
"DIVIDENDS" all distributions of any kind or in respect of any class of
Capital Stock, except for distributions made solely in shares of Capital Stock
of the same class or nature, and all payments made in respect of the redemption,
repurchase or acquisition of any such Capital Stock, unless such Capital Stock
is redeemed, repurchased or acquired through the exchange thereof with Capital
Stock of the same class or nature.
"EARNINGS BEFORE TAXES": for any period (on a trailing twelve month
basis in the case of fiscal year end) the Borrower's Net Income increased by
the Income Tax Expense for such period, determined in accordance with GAAP.
"Equipment": shall have the meaning provided under the UCC.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GUARANTOR": Windmill Marketing Services, Inc., a New Jersey
corporation.
"INCOME TAX EXPENSE": for any period, the federal, state, local and
foreign income tax expense of the Borrower for such period determined in
accordance with GAAP.
"INDEBTEDNESS": of the Borrower at any date:
(a) all indebtedness of the Borrower for borrowed money or for the
deferred purchase price of property or services,
(b) any other indebtedness which is evidenced by a note, bond,
debenture or similar instrument,
2
<PAGE> 28
(c) all Capital Lease Obligations of the Borrower,
(d) all obligations of the Borrower in respect of outstanding
letters of credit, acceptances and similar obligations created for the account
of the Borrower,
(e) all liabilities secured by any Lien on any property owned by
the Borrower even though the Borrower has not assumed or otherwise become liable
for the payment thereof,
(f) net liabilities of the Borrower under interest rate cap
agreements, interest rate swap agreements, foreign currency exchange agreements
and other hedging agreements or arrangements (calculated on a basis satisfactory
to the Lender and in accordance with accepted practice),
(g) withdrawal liabilities of the Borrower or any Affiliate or
Subsidiary under a Plan, and
(h) any Indebtedness of any partnership in which the Borrower is a
general partner.
"INTANGIBLE ASSETS": of the Borrower, those assets of the
Borrower which are: (i) deferred assets, other than all prepaid items, (ii)
goodwill and other assets which would be classified as intangible assets on a
balance sheet of the Borrower prepared in accordance with GAAP, (iii)
unamortized debt discount and expense, (iv) assets permanently located outside
of the United States, and (v) costs in excess of fair value of net assets
acquired.
"INTEREST EXPENSE": for the Borrower for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any such Indebtedness,
the interest portion of any deferred payment obligation and the non- principal
component of rentals in respect of Capital Lease Obligations), paid or accrued
or scheduled to be paid or accrued by the Borrower during such period, all as
determined in accordance with GAAP.
"INVENTORY": shall have the meaning provided under the UCC.
"LEHIGH DRIVE LOCATION": premises commonly known as 100 Lehigh
Drive, Fairfield, New Jersey.
"LIEN": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance. lien (statutory or other), other charge or
security interest; or any preference, priority or other agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
Capital Lease Obligations having substantially the same economic effect as any
of the foregoing).
"MATURITY DATE": November 1, 1997
"NET INCOME": of the Borrower, the net income of the Borrower
determined in accordance with GAAP, excluding all extraordinary items.
"PLAN": an employee pension benefit plan (as defined by Section
3 (2) of ERISA) maintained by the Borrower or the Guarantor for its employees.
"PRINCIPAL PAYMENT": the amount that is reported on Borrower's
financial statements as the current portion of the principal due under the Note.
3
<PAGE> 29
"SHAREHOLDERS EQUITY": the sum of a corporation's
stated capital, paid-in surplus and unrestricted retained earnings, all
as determined in accordance with GAAP.
"SUBORDINATED DEBT": any unsecured Indebtedness of the
Borrower (i) no part of the principal of which is stated to be payable
or is required to be paid (whether by way of mandatory sinking fund,
mandatory redemption, mandatory prepayment or otherwise) prior to the
Maturity Date and the payment of the principal of and interest on which
and other obligations of the Borrower in respect thereof are
subordinated to the prior payment in fill of the principal of and
interest (including post-petition interest) on the Note and all other
obligations and liabilities of the Borrower to the Lender hereunder on
terms and conditions approved in writing by the Lender including,
without limitation, provisions prohibiting any payment of principal,
interest or any other sum on such Indebtedness after a Default or an
Event of Default has occurred hereunder, and (ii) otherwise containing
terms, covenants and conditions satisfactory in form and substance to
the Lender, as evidenced by its prior written approval thereof.
"SUBSIDIARY": as to the Borrower, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of
a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by the
Borrower. Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to any existing or
future Subsidiary or Subsidiaries of the Borrower.
"TANGIBLE NET WORTH": Shareholders Equity less
Intangible Assets, all as determined in accordance with GAAP.
"TOTAL UNSUBORDINATED LIABILITIES": the aggregate, as of the
time at which it is being determined, of all Indebtedness of the Borrower,
excluding Subordinated Debt.
"UCC": shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York or in such other
jurisdiction as may be required by applicable law.
"WORKING CAPITAL": as of any date, the amount by which
Current Assets exceed Current Liabilities.
2. AMENDMENTS TO LOAN AGREEMENT.
----------------------------
2.01. Section 4(d) of the Loan Agreement is deleted in its
entirety and the following is substituted therefor:
Permit Capital Expenditures to exceed $300,000 in any
fiscal year; notwithstanding this limitation on Capital
Expenditures, the Borrower may make Capital Expenditures during
the term of the Loan in an aggregate amount up to $1,200,000 on
the Lehigh Drive Location.
2.02. Section 4(e) is deleted in its entirety and the following is
substituted therefor.
Permit the Collateral Floor to be no less than
$7,000,000 at any time.
4
<PAGE> 30
2.03 Section 4(f) is deleted in its entirety and the following is
substituted therefor:
Maintain the ratio of Total Unsubordinated Liabilities to
Tangible Net Worth to be equal to or less than:
(a) 2.75:1.00 from the date hereof until December 31,
1995;
(b) 2.0:1.00 between December 31, 1995 and December 31,
1996; and
(c) 1.75:1.00 from December 31, 1996 to the Maturity
Date.
2.04. Section 4(g) is deleted in its entirety and the following is
substituted therefor:
Permit Working Capital to be no less than $5,000,000 at any
time.
2.05. Section 4(h) is deleted in its entirety and the following is
substituted therefor:
Permit Earnings Before Taxes to be no less than $ 2,500,000 in
any fiscal year.
2.06. Section 4(j) "Debt Service Coverage Ratio" is added as
follows:
Not permit the Debt Service Coverage Ratio to be less than
1:50:1:00 at any time.
3. The Note, the Mortgage and the Security Agreement are
amended to provide that all references to the Loan Agreement set forth
therein shall be deemed to refer to the Loan Agreement as amended
herein. In the event any terms of the Loan Agreement, the Note or
Collateral Documents conflict with this Amendment, the terms of this
Amendment prevail.
4. Except as set forth herein, all other terms of the Loan
Agreement, the Note, the Mortgage, and the Security Agreement shall
remain unchanged and in full force and effect.
5
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above-written.
ATTEST: GARDEN STATE NUTRITIONALS, INC.
a New Jersey corporation
/s/ Keith Frankel By: /S/ Edward Frankel
- -------------------------- -----------------------------
Keith Frankel Name: Edward Frankel
Secretary Title:President
CHEMICAL BANK
BY: /s/ Stephen W. Revis
------------------------------
Name: Stephen W. Revis
Title:V. P.
<PAGE> 32
COMMERCIAL PURPOSE LOAN NOTE
$1,151,250.00 November 12, 1992
FOR VALUE RECEIVED, the undersigned (each jointly and severally
if more than one person and hereinafter referred to as "Debtor")
promises to pay to the order of CHEMICAL BANK NEW JERSEY, NATIONAL
ASSOCIATION (hereinafter "Bank"), at any of its banking offices the
principal sum of One Million One Hundred Fifty-One Thousand Two Hundred
Fifty ($1,151,250.00) Dollars to be paid as follows:
Principal payable in 60 monthly installments, 59 of which shall
be in the amount of $9,593.75 each, commencing on the first day of
December 1992, and continuing the same day of each month thereafter and
in one final installment of $585,218.75 on the first day of
November, 1997. Interest from the date hereof shall accrue on the
unpaid Principal balance hereof at the rate 7.85% per annum and shall be
payable monthly as billed.
DISBURSEMENT OF PROCEEDS - Each Debtor hereby represents and warrants
to Bank that the Principal of this Note will be used solely for
business, commercial or agricultural purposes and agrees that any
disbursement of the Principal of this Note, or any portion thereof, to
any one or more Debtors, shall be conclusively deemed to
constitute disbursement of such Principal to and for the benefit of all
Debtors.
PREPAYMENTS - Upon at least five (5) and not more than fifteen (15)
business days' prior irrevocable written notice to Bank, Debtor may
prepay the loan in whole or in part at any principal payment date,
accompanied by the interest accrued through the date of the
prepayment in multiples of $200,000, however Debtor shall also directly
reimburse Bank at the time of any such prepayment for any loss incurred
or to be incurred by Bank in the redeployment of the funds associated
with the fixed rate option. Prepayment penalty shall be calculated as
follows: The difference between the fixed rate and the current yield on
a U.S. Treasury obligation with a maturity approximately equal
to the remaining fixed rate period, times the total amount of principal
prepaid on the loan, times the remaining fixed rate period (360 day
basis), discounted to present value. Said prepayment penalty shall also
apply in the event the Loan is prepaid as a result of a sale or further
encumbrancing of the Mortgaged Premises.
SECURITY INTEREST - As security for the prompt payment as and when due
of all amounts due under this Note, including any renewals,
extensions and/or modifications thereof, together with all other
existing and future liabilities and obligations of Debtor or any of
them, to Bank, whether absolute or contingent, of any nature whatsoever
and out of whatever transactions arising (hereinafter collectively
referred to as the "Liabilities"), in addition to any other security
agreement or document granting Bank any rights in any of Obligor's
("Obligor", as used herein, shall include Debtor and all
endorsers, sureties and d guarantors) property for the purpose
of securing the Liabilities, Obligor hereby grants to Bank a lien and
security interest in and to all property of Obligor, or any of them,
which at any time Bank shall have in its possession, or which is in
transit to it, including without limitation any balance or share
belonging to Obliger, or Bank and any other amounts which may be owing
from time to time by Bank to Obligor or any of them. Said lien
and security interest shall be independent of any right of set-off which
Bank may have. Such right of set-off shall be deemed to occur at the
time Bank first restricts access of Obligor to property in Bank's
possession, although such set-off may be entered upon Bank's books and
records at a later time.
RIGHT TO COMPLETE NOTE - Bank may at any time and from time to time
without notice to any Obliger: (1) date this Note as of the date when
the loan evidenced hereby was made; (2) complete any blank spaces
according to the terms upon which Bank has granted such loan; and (3)
cause the signature of one or more persons to be added as additional
Debtors without in any way affecting or limiting the liability of the
existing Obligors to Bank.
EVENTS OF DEFAULT - Each of the following shall be an "Event of Default"
hereunder: (1) the nonpayment when due, or if this is a demand
obligation, upon demand, of any amount payable under this Note or of any
amount when due under or on any of the Liabilities, except that the
nonpayment of a monthly installment of principal and interest shall
not constitute an Event of Default unless such nonpayment continues
for more than five (5) days after the due date and there are
insufficient funds in Debtor's account with Bank to cover an
automatic debit of the account by Bank or the failure of any Obligor to
observe or perform any agreement of any nature whatsoever with Bank; (2)
if any Obligor becomes insolvent or
<PAGE> 33
makes an assignment for the benefit of creditors, or if any
petition is filed by or against any Obligor under any provision of any
state or federal law or statute alleging that such Obligor is insolvent
or unable to pay debts as they mature or under any provision of the
United States Bankruptcy Code; (3) the entry of any judgment against
any Obligor involving monetary damages aggregating more than $50,000.00
which remains unsatisfied for fifteen (15) days; (4) the issuing of
any attachment, levy or garnishment against any property of any
obligor in execution of a judgment involving monetary damages
aggregating more than $50,000.00; (5) the occurrence of any substantial
change in the financial condition of any Obligor which, in the sole,
reasonable judgment of Bank, is materially adverse; (6) the dissolution,
merger, consolidation or reorganization of any Obligor which is a
corporation or partnership, without the express prior written consent of
Bank unless otherwise permitted pursuant to the terms of the
Commitment Letter of November 3, 1992 (the "Commitment"); (7) the
revocation of a guaranty by any Obligor; (8) if any information or
signature furnished to Bank by any Obligor at any time in connection
with any of the Liabilities, or in connection with any guaranty or
surety agreement applicable to any of the Liabilities, is false or
incorrect; (9) the failure of any Obligor to timely furnish to Bank
such financial and other information as Bank may reasonably request or
require pursuant to the terms of the Commitment; or (10) an Event of
Default as said term is defined in a certain Loan Agreement dated even
date herewith between Debtor and the Bank.
BANK'S RIGHTS UPON DEFAULT- Notwithstanding anything to the contrary
contained herein or elsewhere, or the fact that Debtor may be required
to make Principal and/or interest payments from time to time, if this
Note is payable upon demand, Bank may demand payment of all outstanding
Principal and accrued interest at any time. In addition, upon the
occurrence of any Event of Default, Bank may:
(1) accelerate the maturity of this Note and demand immediate
payment of all outstanding Principal and accrued interest;
(2) exercise its right of set-off and all of the rights,
privileges and remedies of a secured party under the New Jersey Uniform
Commercial Code and all of its rights and remedies under any security
agreement, pledge agreement, mortgage, power, this Note or any other note, or
other agreement, instrument or document issued in connection with or arising
out of any of the Liabilities, all of which remedies shall be cumulative and
not alternative. The net proceeds of any collateral held by Bank as security
for any of the Liabilities shall be applied first to the expenses of Bank in
preparing the collateral for sale, selling and the like, including, without
limitation, attorney's fees and expenses incurred by Bank (including fees and
expenses of any litigation incident to any of the foregoing), and second, in
such order as Bank may elect, in its sole discretion, to the complete
satisfaction of all of the Liabilities together with all interest thereon.
Obligor waives and releases any right to require Bank to collect any of the
Liabilities to Bank from any other collateral under any theory of
marshalling of assets or otherwise, and specifically authorizes
Bank to apply any collateral proceeds in which Obligor has any right,
title or interest against any of Obligor's Liabilities to Bank in
any manner that Bank may determine;
(3) make a late charge of not less than $10.00 nor more
than 5% of any amount due and unpaid for a period of 5 days or more;
(4) upon five (5) days' written notice to Debtor, begin
accruing interest, at the rate set forth above plus 2% (the "Default
Interest Rate") per annum on the unpaid Principal balance provided,
however, that no interest shall accrue hereunder in excess of the
maximum amount of interest then allowed by law. Debtor agrees to pay
such accrued interest upon demand. The default rate set forth herein
is strictly a measure of liquidated damages based upon Bank's excess
costs involved in the redeployment of Bank funds and is not meant to
be construed as a penalty.
MISCELLANEOUS - Debtor agrees to timely furnish to Bank such financial
and other information as it may reasonably request or require. Debtor
hereby waives protest, notice of protest, presentment, dishonor,
notice of dishonor, demand, and notice of demand. If this Note is
placed in the hands of an attorney for collection, Debtor shall
reimburse Bank for any and all of its attorneys fees (which Debtor
agrees are reasonable) whether or not suit be brought, together with all
actual costs and expenses of any legal proceedings. Interest shall be
calculated hereunder for the actual number of days that the Principal
is outstanding, based on a year of three hundred sixty (360) days,
unless otherwise specified. If this Note bears interest at a rate based
on the Prime Rate charged by Bank from time to time, changes in the rate
of interest hereon shall become effective on the days on which Bank
announces changes in its Prime Rate.
-2-
<PAGE> 34
Bank's Prime Rate of Interest shall mean that rate of interest (which is
not necessarily the lowest rate of interest charged by Bank) so
designated and established by Bank as that rate may change from time to
time. The rights and privileges of Bank under this Note shall inure to
the benefit of its successors and assigns. All representations,
warranties and agreements of Obligor made in connection with this Note
shall bind Obligor's personal representatives, heirs, successors and
assigns. If any provision of this Note shall for any reason be held
to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof, but this Note shall be
construed as if such invalid or unenforceable provision had
never been contained herein. The waiver of any Event of Default or the
failure of Bank to exercise any right or remedy to which it may be
entitled shall not be deemed a waiver of any subsequent Event of Default
or of Bank's right to exercise that or any other right or remedy to
which Bank is entitled. The undersigned hereby authorizes Bank, in its
sole discretion, to disclose any financial or other information about
the undersigned to any present, future or prospective participant,
or successor in interest in any loan, advance or other financial
accommodation to Borrower from Bank, or any regulatory body or agency
having jurisdiction over Bank. This Note has been delivered to and
accepted by Bank in and shall be governed by the laws of the State of
New Jersey. The parties agree to the jurisdiction of the federal and
state courts located in New Jersey in connection with any matter arising
hereunder, including the collection and enforcement hereof. Debtor
waives trial by Jury. The Additional Provisions, if any, below, are
hereby made a part hereof and are incorporated herein.
ADDITIONAL PROVISIONS
The Bank has been given a Mortgage, Security Agreement and Loan
Agreement all dated the same date as this Agreement to protect the Bank
if the Debtor fails to fulfill its obligations as set forth in this
Note. All of the terms and conditions of said Mortgage, Security
Agreement and Loan Agreement are incorporated herein by reference.
Debtor has duly executed this Note the day and year first above written, and
has hereunto set Debtor's hand and seal.
ATTEST: GARDEN STATE NUTRITIONALS, INC.
/s/ STEPHEN YOUNG By: /s/ EDWARD FRANKEL (SEAL)
- ---------------------------------- ----------------------------------
Stephen Young, Assistant Secretary Edward Frankel, President
-3-
<PAGE> 1
Exhibit 10.8
LOAN AGREEMENT
--------------
GARDEN STATE NUTRITIONALS, INC.
and
CHEMICAL BANK
September 28, 1995
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2. Other Definitional Provisions 7
Section 2. AMOUNT AND TERMS OF COMMITMENT 7
2.1. Term Loan 7
2.2. Use of Proceeds 7
2.3 Note 7
2.4. Optional Prepayments 8
2.5 Application of Prepayments 8
2.6. Interest Rates and Payment Dates 8
2.7. Payments 9
2.8. Increased Costs 9
2.9. Indemnity 10
Section 3. REPRESENTATIONS AND WARRANTIES 10
3.1. Financial Condition 10
3.2. No Material Adverse Change 11
3.3. Existence; Compliance with Law 11
3.4. Corporate Power; Authorization;
Enforceable Obligations 11
3.5. No Legal Bar 12
3.6. No Material Litigation 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.7. No Default 12
3.8. Ownership of Property; Liens 12
3.9. No Burdensome Restrictions 12
3.10. Taxes 13
3.11. Federal Regulations 13
3.12. Investment Company Act; Public Utility
Holding Company Act; Other Regulations 13
3.13. Subsidiaries 13
3.14. Security Interests 13
3.15. Third Party Representations 14
Section 4. CONDITIONS PRECEDENT 14
4.1. Conditions to Closing 14
Section 5. AFFIRMATIVE COVENANTS 16
5.1. Financial Statements 16
5.2. Certificates; Other Information 16
5.3. Payment of Obligations 17
5.4. Conduct of Business and Maintenance of
Existence 17
5.5. Maintenance of Property; Insurance 18
5.6. Inspection of Property; Books and
Records; Discussions 18
5.7. Notices 18
Section 6. NEGATIVE COVENANTS 19
6.1. Limitation on Indebtedness 19
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
6.2. Limitation on Liens 19
6.3. Limitation on Contingent Obligations 20
6.4. Limitations on Fundamental Changes 20
6.5. Limitation on Sale of Assets 21
6.6. Limitation on Investments, Loans and
Advances 21
6.7. Limitation on Optional Payments and
Modifications of Debt Instruments 21
6.8. Transactions with Affiliates 21
6.9. Sale and Leaseback 22
6.10. Limitation on Negative Pledge Clauses 22
6.11. Corporate Documents 22
6.12. Fiscal Year 22
6.13. Limitation on Conduct of Business 22
Section 7. FINANCIAL COVENANTS 22
7.1. Ratio of Total Unsubordinated Liabilities to Tangible Net Worth 23
7.2. Working Capital 23
7.3. Earnings Before Taxes 23
7.4. Collateral Floor 23
7.5. Capital Expenditures 23
7.6. Debt Service Coverage Ratio 23
Section 8. EVENTS OF DEFAULT 23
Section 9. PURCHASING LENDERS; PARTICIPATIONS 25
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
9.1. Purchasing Lenders and Participations 25
9.2. Disclosure of Information 26
Section 10. MISCELLANEOUS 26
10.1. Amendments and Waivers 26
10.2. Notices 26
10.3. No Waiver; Cumulative Remedies 27
10.4 Survival of Representations and
Warranties 27
10.5. Payment of Expenses and Taxes 27
10.6. Successors and Assigns 28
10.7. Adjustments; Set-off 29
10.8. Counterparts 29
10.9. Severability
10.10. Integration 29
10.11. Governing Law 29
10.12. Submission To Jurisdiction; Waivers 29
10.13. Acknowledgments 30
10.14. Waivers of Jury Trial 30
SCHEDULES AND EXHIBITS
Schedule 3.14-1 Filings and Recordings
Schedule 3.14-2 Existing Permitted Liens
Schedule 6.1 Indebtedness
Schedule 6.3 Contingent Obligations
Exhibit A Form of Note
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Exhibit B Form of Guaranty Agreement
Exhibit C Form of Security Agreement
</TABLE>
<PAGE> 7
LOAN AGREEMENT
--------------
LOAN AGREEMENT, dated as of September 28, 1995; by and between GARDEN
STATE NUTRITIONALS, INC., a New Jersey corporation (the "Borrower"), and
CHEMICAL BANK, a New York banking organization, (the "Lender").
Section 1. DEFINITIONS
1.1. Defined Terms.
As used in this Agreement. the following terms shall have the
following meanings:
"ACCOUNTS": shall have the meaning provided under the UCC.
"ACCOUNTS RECEIVABLE": for purposes of determining the Collateral
Floor, an amount equal to eighty (80%) percent of the Borrower's Accounts which
are payable to Borrower within ninety (90) days of the invoice date. not
including those Accounts payable to Borrower by Guarantor.
"AFFILIATE": as to the Borrower. any other entity (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by.
or is under common control with, the Borrower. For purposes of this definition,
"control" of an entity means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the
election of directors of such entity or (b) direct or cause the direction of
the management and policies of such entity whether by contract or otherwise.
"AGREEMENT": this Loan Agreement. as amended, supplemented or
otherwise modified from time to time.
"BOARD": the Board of Governors of the Federal Reserve System of the
United States.
"BUSINESS DAY": a day other than Saturday, Sunday or other day on
which commercial banks in New York are authorized or required by law to be
closed.
"CAPITAL EXPENDITURE": any expenditure by the Borrower for (i) rent or
other amounts payable under a Capital Lease Obligation, (ii) an asset which
will be used in a year or years subsequent to the year in which the expenditure
is made and which asset is properly classifiable in relevant financial
statements of the Borrower as property, equipment, improvements or fixed
assets, or (iii) any similar type of asset capitalized in accordance with GAAP;
all without duplication.
"CAPITAL LEASE OBLIGATIONS": of the Borrower as of the date of
determination, the obligations of the Borrower to pay rent and other amounts
under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of the
Borrower under GAAP.
<PAGE> 8
"CAPITAL STOCK" any and all shares, interests, participations
or other equivalents (however designated) of Capital Stock of a
corporation. any and all equivalent ownership interests in an entity
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
CLOSING DATE": September 28, 1995.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": any and all present and future real and personal,
tangible and intangible property and rights in which the Lender is granted a
Lien by the Borrower.
"COLLATERAL FLOOR": the aggregate value of (I) Accounts Receivable,
(ii) forty (40%) percent of Inventory, (iii) fifty (50%) percent of Equipment
and (iv) up to $750,000 in cash/negotiable securities.
"COMMITMENT": the obligation of the Lender to make a Loan to the
Borrower hereunder in an aggregate principal amount of $7,000,000.
"CONTINGENT OBLIGATION": as to the Borrower, any guarantee of
payment or performance by the Borrower of any Indebtedness or other
obligation of any other entity or individual, or any agreement to
provide financial assurance with respect to the financial condition, or
the payment of the obligations of, such other entity or individual
(including, without limitation, reimbursement agreements with respect to
letters of credit or acceptances, other than letters of credit issued by
or acceptances created by. the Lender for the account of the Borrower or
any Affiliate of the Borrower, grants of security interests to support
the obligations of another entity or individual and keepwell agreements
which have the effect of assuring or holding harmless any third entity
or individual against loss with respect to one or more obligations owed
to such third entity or individual); provided, however, that the term
Contingent Obligation shall not include endorsements of instruments for
deposit. or collection in the ordinary course of business or any
obligation the Borrower shall undertake upon entering into a lease for
real property. The amount of any Contingent Obligation of the Borrower
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made, and (b) the maximum amount for which the
Borrower may be liable pursuant to the terms of the instrument embodying
such Contingent Obligation. unless such primary obligation and the
maximum amount for which the Borrower may be liable are not stated or
determinable, in.which case the amount of such Contingent Obligation
shall be the Borrower S maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"CONTRACTUAL OBLIGATION": as to the Borrower, any provision of any
security issued by the Borrower or of any agreement, instrument or other
undertaking to which the Borrower is a party or by which it or any of its
property is bound.
"CURRENT ASSETS": as determined in accordance with GAAP.
"CURRENT LIABILITIES": as determined in accordance with GAAP.
-2-
<PAGE> 9
"DEBT SERVICE COVERAGE RATIO": (i) the sum of (x) net profits
before taxes, interest Expense. non-cash Interest Expense, depreciation, and
amortization minus (y) Capital Expenditures. Dividends and distributions,
divided by (ii) Principal Payment and interest Expense on the Loan at the time
at which the Debt Service Coverage Ratio is being determined.
"DEFAULT" any of the events specified in Section 7, whether or
not any requirement for the giving of, notice, the lapse of time. or both. or
any other condition. has been satisfied.
"DISTRIBUTION": as defined in subsection 2.2.
"DIVIDENDS": all distributions of any kind or in
respect of any class of Capital Stock, except for distributions made
solely in shares of Capital Stock of the same class or nature, and all
payments made in respect of the redemption, repurchase or acquisition of
any such Capital Stock, unless such Capital Stock is redeemed,
repurchased or acquired through the exchange thereof with Capital Stock
of the same class or nature.
"DOLLARS" AND THE SIGN "$": refer to currency of the United
States of America.
"DWIGHT PLACE LOCATION": real property commonly known as 21-25
Dwight Place, Fairfield, New Jersey.
"EARNINGS BEFORE TAXES": for any period (on a trailing twelve
month basis in the case of fiscal year end) the Borrower's Net Income increased
by the Income Tax Expense for such period. determined in accordance with GAAP.
"EQUIPMENT": shall have the meaning provided under the UCC.
"ERISA": the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto) and any regulations promulgated
thereunder, all as amended from time to time.
"EVENT OF DEFAULT": as defined in Section 7.
": as defined in Section 7.
"FIXED RATE BREAKAGE FEE": the sum calculated to
compensate the Bank for loss in the case of prepayment of the Loan. The
amount of the Fixed Rate Breakage Fee shall be a sum equal to the
present value at the time of such prepayment of the product of: (i) (A)
the difference between the interest rate on tile Loan and the current
yield on a U.S. Treasury obligation with a maturity approximately equal
to the Maturity Date of the Loan, MULTIPLIED BY (B) the principal amount
prepaid on the Loan; MULTIPLIED BY (ii) a fraction, the numerator of
which is the number of days from the date of such prepayment to the
Maturity Date and the denominator of which is 360.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government.
<PAGE> 10
"GUARANTY": the Guaranty Agreement in the form of Exhibit B attached
hereto.
"GUARANTOR": Windmill Marketing Services, Inc., a New Jersey
corporation.
"INCOME TAX EXPENSE": for any period, the federal, state, local and
foreign income tax expense of the Borrower for such period determined in
accordance with GAAP.
"INDEBTEDNESS": of the Borrower at any date:
(a) all indebtedness of the Borrower for borrowed money or for
the deferred purchase price of property or services,
(b) any other indebtedness which is evidenced by a note, bond,
debenture or similar instrument.
(c) all Capital Lease Obligations of the Borrower,
(d) all obligations of the Borrower in respect of outstanding
letters of credit, acceptances and similar obligations created for the
account of the Borrower,
(e) all liabilities secured by any Lien on any property owned
by the Borrower even though the Borrower has not assumed or otherwise
become liable for the payment thereof,
(f) net liabilities of the Borrower under interest rate cap agreements,
interest rate swap agreements, foreign currency exchange agreements and other
hedging agreements or arrangements (calculated on a basis satisfactory to the
Lender and in accordance with accepted practice),
(g) withdrawal liabilities of the Borrower or any Affiliate or
Subsidiary under a Plan, and
(h) any Indebtedness of any partnership in which the Borrower is a
general partner.
"INDEMNIFIED LIABILITIES": as defined in subsection 9.5.
"INTANGIBLE ASSETS": of the Borrower, those assets of the Borrower
which are: (i) deferred assets, other than all prepaid items, (ii) goodwill and
other assets which would be classified as intangible assets on a balance sheet
of the Borrower prepared in accordance with GAAP, (iii) unamortized debt
discount and expense, (iv) assets permanently located outside of the United
States, and (v) costs in excess of fair value of net assets acquired.
"INTEREST EXPENSE": for the Borrower for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any such Indebtedness, the interest
portion of any deferred payment obligation and the non-principal component of
rentals in respect of Capital Lease Obligations), paid or accrued or scheduled
to be paid or accrued by the Borrower during such period, all as determined in
accordance with GAAP.
-4-
<PAGE> 11
"INTEREST PAYMENT DATE": the last day of each ninety (90) day period
while the Loan is outstanding.
"INVENTORY": shall have the meaning provided under the UCC.
"LEHIGH DRIVE LOCATION": premises commonly known as 100 Lehigh Drive,
Fairfield. New Jersey.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement. encumbrance. lien (statutory or other), other charge or security
interest: or any preference. priority or other agreement or preferential
arrangement of any kind or nature whatsoever (including. without limitation,
any conditional sale or other title retention agreement and any Capital Lease
Obligations having substantially the same economic effect as any of the
foregoing).
"LOAN": the loan made by the Lender pursuant to this Agreement.
"LOAN DOCUMENTS": this Agreement. the Note. the Guaranty, the Security
Agreement and any and all other instruments. agreements, documents and
certificates executed or delivered in connection with any thereof. as any of
the foregoing may be amended, supplemented or otherwise modified from time to
time.
"MATERIAL ADVERSE CHANGE": a change in circumstances which will have a
material adverse effect on (a) the business, operations, property, condition
(financial or otherwise) or prospects of the Borrower taken as a whole, or (b)
the validity or enforceability of (i) this Agreement, the Note or the other
Loan Documents or (ii) the rights or remedies of the Lender hereunder or
thereunder.
"MATURITY DATE": September 27, 2002.
"NET INCOME": of the Borrower, the net income of the Borrower
determined in accordance with GAAP, excluding all extraordinary items.
"NOTE": the promissory note of the Borrower, in substantially the form
of Exhibit A annexed hereto, as the same may be amended, restated or
supplemented from time to time after the date hereof.
"PERMITTED INVESTMENTS": any debt or equity security issued by an
issuer whose debt securities are of investment grade quality, as that term is
defined by Fitch Investors, L.P.. Moody's Investors Service, Inc. or Standard
and Poor's Corporation.
"PLAN": an employee pension benefit plan (as defined by Section 3 (2)
of ERISA) maintained by the Borrower or the Guarantor for its employees.
"PRIME RATE": the rate of interest publicly announced from time to
time by the Lender in New York, New York as its prime rate.
-5-
<PAGE> 12
"PRINCIPAL PAYMENT": the amount that is reported on Borrower's
financial statements as the current portion of the principal due under the
Note.
"REQUIREMENT OF LAW": as to the Borrower, the certificate of
incorporation and by-laws or other organizational or governing documents of the
Borrower, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon the Borrower or any of its property or to which the Borrower
or any of its property is subject.
"RESPONSIBLE OFFICER": the chief executive officer of the Borrower,
the president of the Borrower (if not the chief executive officer) and the
chief operating officer of the Borrower and. with respect to financial
matters, the chief financial officer of the Borrower.
"SECURITY AGREEMENT": the Security Agreement in the form of Exhibit C
attached hereto as the same may be amended, supplemented or otherwise modified
from time to time.
"SHAREHOLDERS EQUITY": the sum of a corporation's stated capital,
paid-in surplus and unrestricted retained earnings, all as determined in
accordance with GAAP.
"SUBORDINATED DEBT": any unsecured Indebtedness of the Borrower (i) no
part of the principal of which is stated to be payable or is required to be
paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory
prepayment or otherwise) prior to the Maturity Date and the payment of the
principal of and interest on which and other obligations of the Borrower in
respect thereof are subordinated to the prior payment in full of the principal
of and interest (including post-petition interest) on the Note and all other
obligations and liabilities of the Borrower to the Lender hereunder on terms
and conditions approved in writing by the Lender including, without limitation,
provisions prohibiting any payment of principal, interest or any other sum on
such Indebtedness after a Default or an Event of Default has occurred
hereunder, and (ii) otherwise containing terms, covenants and conditions
satisfactory in form and substance to the Lender, as evidenced by its prior
written approval thereof.
"SUBSIDIARY": as to the Borrower, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corp oration, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled. directly or indirectly through one or more intermediaries, or both,
by the Borrower. Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to any existing or future
Subsidiary or Subsidiaries of the Borrower.
"TANGIBLE NET WORTH": Shareholders Equity less intangible Assets, all
as determined in accordance with GAAP.
"TAXES": as defined in subsection 2.9.
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<PAGE> 13
"TOTAL UNSUBORDINATED LIABILITIES": the aggregate, as of the time at
which it is being determined, of all Indebtedness of the Borrower, excluding
Subordinated Debt.
"UCC": shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York or in such other
jurisdiction as may be required by applicable law.
WORKING CAPITAL": as of any date. the amount by which Current Assets
exceed Current Liabilities.
1.2. OTHER DEFINITIONAL PROVISIONS.
------------------------------
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the other Loan Documents
or any certificate or other document made or delivered pursuant hereto.
(b) As used herein and in the Note. and any certificate or other
document made or delivered pursuant hereto. accounting terms relating to the
Borrower not defined in subsection 1.1 and accounting terms partly defined in
subsection 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section.
Subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
Section 2. AMOUNT AND TERMS OF COMMITMENT
2.1. TERM LOAN.
---------
Subject to the terms and conditions hereof, and provided that no
Default or Event of Default has occurred and is continuing, the Lender agrees
to lend to the Borrower, in a single advance in immediately available fluids on
the Closing Date, the amount of Seven Million Dollars ($7,000,000).
2.2. USE OF PROCEEDS.
---------------
The Borrower shall use the proceeds of the Loan to fluid a portion of
a distribution (the "Distribution") by the Borrower to its shareholders.
2.3. NOTE.
----
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<PAGE> 14
The Loan shall be evidenced by the Note. Lender is hereby authorized to
record the date and amount of each payment or prepayment of principal of the
Loan, and any such recordation shall constitute prima facie evidence of the
accuracy of the information so recorded. The Note shall (a) be dated as of even
date herewith, (b) be stated to be payable in twenty-eight (28) equal,
consecutive, quarterly installments, commencing January 1, 1996, and maturing on
the Maturity Date and (c) provide for the payment of interest in accordance with
subsection 2.6.
2.4. OPTIONAL PREPAYMENTS.
--------------------
(a) From time to time the Borrower may prepay the Loan, in whole or
in part. together with the Fixed Rate Breakage Fee, upon at least five (5) and
not more than fifteen (15) Business Days' irrevocable notice to the Lender,
specifying the date and amount of prepayment; provided, however, each prepayment
of less than the full outstanding principal balance of the Note shall be in an
aggregate principal amount of $100,000 or a whole multiple thereof unless the
aggregate principal amount outstanding on the Loan is less than $100,000, in
which event, such prepayment may be less than $100,000. Prepayment shall be
subject to the provisions of subsection 2.10.
(b) If any notice of prepayment is given. the amount specified in
such notice shall be due and payable on the date specified therein, together
with the Fixed Rate Breakage Fee. The Fixed Rate Breakage Fee shall be payable
by the Borrower upon an optional or mandatory prepayment, whether upon
acceleration after the occurrence of an Event of Default or otherwise.
(c) Partial prepayments of the Loan shall be applied to the
installments of principal due under the Loan in the inverse order of scheduled
maturity.
2.5. APPLICATION OF PREPAYMENTS.
---------------------------
Each prepayment pursuant to Section 2.4 shall be applied first, to the
payment of any delinquent interest payments on the Note, in the order of
delinquency, and thereafter to the principal amount of the Note, until it is
paid in full.
2.6. INTEREST RATES AND PAYMENT DATES.
---------------------------------
(a) The unpaid principal balance from day to day outstanding of the
Loan shall bear interest at the rate of seven and 74/100 percent (7.74%) per
annum. Interest on the Loan shall accrue from the Closing Date and be payable,
on the Interest Payment Date, for interest accrued through the last day of the
immediately preceding quarterly period beginning ninety (90) days from the
Closing Date until the Maturity Date.
(b) If all or a portion of the principal amount of the Loan, any
interest payable thereon or any commitment fee or other amount payable hereunder
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which is
two percent (2%) in excess of the interest rate otherwise applicable to the Loan
from the date of such nonpayment until such amount is paid in full (after as
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<PAGE> 15
well as before judgment). Overdue interest shall be compounded and bear
interest on each date for payment of interest on the Loan.
2.7. PAYMENTS.
--------
(a) All payments (including prepayments) made by the Borrower
hereunder and under the Note, whether on account of principal, interest. fees
or otherwise. shall be made without set off or counterclaim and shall be made
prior to 2:00 p.m., New York City time. on the due date thereof to the Lender,
at the Lender's office specified in subsection 10.2. in Dollars and in
immediately available funds.
(b) If any principal payment becomes due and payable on a day
other than a Business Day, such payment date shall be extended to the next
succeeding Business Day, and interest thereon shall be payable at the then
applicable rate during such extension.
(c) Each payment and prepayment of principal and interest on the
Note shall be made in Federal or other immediately available funds without
set-off or counterclaim to the Lender. The Borrower hereby authorizes the Bank
to charge its account #2610565935 for all principal and interest payments due
hereunder and Lender agrees to send notice of each such charge to the Borrower
promptly thereafter.
2.8. INCREASED COSTS.
----------------
(a) If the adoption of, or any change in, any Requirement of Law
or in the interpretation or application thereof or compliance by Lender with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date
hereof:
(1) shall subject Lender to any tax of any kind whatsoever
with respect to this Agreement, the Loan or the Note, or change the basis of
taxation of payments to such Lender in respect thereof (except for changes in
the rate of tax on the overall net income of Lender);
(2) shall impose on Lender any other condition;
and the result of any of the foregoing is to increase the cost to Lender, by an
amount which Lender deems to be material, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay Lender, upon its demand, any additional amounts necessary to
compensate Lender for such increased cost or reduced amount receivable. If
Lender becomes entitled to claim any additional amounts pursuant to this Section
2.8, it shall promptly notify the Borrower of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to this Section 2.8 submitted by Lender to the Borrower shall be
conclusive in the absence of clearly demonstrable error. This covenant shall
survive the termination of this Agreement and the payment of the Note and all
other amounts payable hereunder.
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<PAGE> 16
(b) In the event that Lender shall have determined that
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by Lender or any corporation
con trolling Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any Governmental Authority made
subsequent to the date hereof does or shall have the effect of reducing the rate
of return on Lender's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which Lender or such corporation
could have achieved but for such change or compliance (taking into consideration
Lender's or such corporation's policies with respect to capital adequacy) by an
amount deemed by Lender to be material, then from time to time, after submission
by Lender to the Borrower of a written request therefor, the Borrower shall pay
to Lender such additional amount or amounts as will compensate Lender for such
reduction.
2.9. INDEMNITY.
----------
(a) The Borrower agrees to indemnify Lender and to hold
Lender harmless from and against, and reimburse Lender for (including, without
limitation, payment of the Fixed Rate Breakage Fee), any loss or expense which
Lender may sustain or incur as a consequence of:
(1) default by the Borrower in payment when due of
the principal amount of or interest on the Loan, or
(2) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement.
Section 3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan,
the Borrower hereby represents and warrants to the Lender that:
3.1. FINANCIAL CONDITION.
(a) The balance sheets of the Borrower as at December 31,
1994 and the related statements of income and of cash flows for the fiscal
periods ended on each such date, reported on by Horowitz, Waldman, Berretta &
Maldow, copies of which have heretofore been furnished to Lender. are prepared
in accordance with GAAP and present fairly the financial condition of the
Borrower as at such date, and the results of its operation for the fiscal period
then ended.
(b) The unaudited balance sheet of the Borrower as at June
30, 1995, and the related unaudited statement of income for the six-month period
ended on such date, copies of which have heretofore been furnished to Lender,
are prepared in accordance with GAAP and present fairly the financial condition
of the Borrower as at such date, and the results of its operation for the six-
month period then ended (subject to normal year-end audit adjustments).
(c) All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods
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<PAGE> 17
involved (except as approved by such accountants or Responsible Officer. as the
case may be, and as disclosed therein) subject to the absence of footnotes,
interim statements and normal year end adjustments.
(d) The Borrower did not have, at the date of the most
recent balance sheet referred to above, any material Contingent Obligation,
contingent liability or liability for taxes. or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction or other financial
derivative, which is not reflected in the foregoing statements or in the notes
thereto.
(e) During the period from June 30, 1995, to and including
the date hereof there has been no sale, transfer or other disposition by the
Borrower of any material part of its business or property and, no purchase or
acquisition of any business or property (including any Capital Stock of any
other entity) material in relation to the financial condition of the Borrower at
June 30, 1995.
3.2. NO MATERIAL ADVERSE CHANGE.
--------------------------
Since June 30.1995, there has been no development or event nor to the
best of the Borrower's knowledge, any prospective development or event, which
has had or could reasonably be expected to have a Material Adverse Change.
3.3. EXISTENCE; COMPLIANCE WITH LAW.
-------------------------------
The Borrower (a) is duly organized, validly existing and in good
standing under the laws of the State of New Jersey, (b) has the power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent that
the failure to be so qualified could not, in the aggregate, reasonably be
expected to have a Material Adverse Change, and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Change.
3.4. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
(a) Each of the Borrower and the Guarantor has the corporate
power and authority, and the legal right, to make, deliver and perform this
Agreement, the Note, the Guaranty and each other Loan Document to which it is a
party and to borrow hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of this Agreement, the Note
and each other Loan Document to which it is a party and to authorize the
execution, delivery and performance of this Agreement, the Note and each other
Loan Document to which it is a party.
(b) No consent or authorization of, approval by, notice to,
filing with or other act by or in respect of, any Governmental Authority or any
other entity or individual is required in
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<PAGE> 18
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or the Note or any
other Loan Document.
(c) This Agreement has been, and the Note, Guaranty and
other Loan Documents to which it is a party will be. duly executed and delivered
on behalf of the Borrower and the Guarantor.
(d) This Agreement constitutes, and the Note, Guaranty and
other Loan Documents when executed and delivered will constitute, a legal, valid
and binding obligation of the Borrower and the Guarantor, enforceable against
the Borrower and the Guarantor in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5. NO LEGAL BAR.
------------
The execution. delivery and performance of this Agreement and the Note,
the borrowings hereunder and the use of the proceeds thereof will not violate
any Requirement of Law or Contractual Obligation of the Borrower and will not
result in, or require, the creation or imposition of any Lien on any of its
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation, except to the extent that any such violation could not, in the
aggregate. reasonably be expected to have a Material Adverse Change.
3.6. NO MATERIAL LITIGATION.
----------------------
No litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or against any of its properties or
revenues (a) with respect to this Agreement or the Note or any of the
transactions contemplated hereby, or (b) which could reasonably be expected to
have a Material Adverse Change.
3.7. NO DEFAULT.
----------
The Borrower is not in default under or with respect to any of its
Contractual Obligations in any respect which could reasonably be expected to
have a Material Adverse Change. No Default or Event of Default has occurred and
is continuing.
3.8. OWNERSHIP OF PROPERTY; LIENS.
----------------------------
The Borrower owns the Dwight Place Location. The Borrower has good and
indefeasible title in all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of such property is
subject to any Lien except as permitted by subsection 6.2.
3.9. NO BURDENSOME RESTRICTIONS.
--------------------------
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<PAGE> 19
No Requirement of Law or Contractual Obligation of the
Borrower has a Material Adverse Change.
3.10. TAXES.
-----
(a) The Borrower has filed or caused to be filed all tax
returns which, to the knowledge of the Borrower, are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the
Borrower, as the case may be); no tax Lien has been filed, and. to the knowledge
of the Borrower, no claim is being asserted, with respect to any such tax, fee
or other charge.
(b) The Borrower is an S Corporation for federal tax
purposes. Substantially simultaneously herewith, the Borrower is making a
Distribution in the current year. The use of the Loan proceeds by the Borrower
to fund a portion of the Distribution is not a taxable event under the Code.
3.11. FEDERAL REGULATIONS.
-------------------
No part of the proceeds of the Loan will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board as now and from time to time
hereafter in effect or for any purpose which violates the provisions of any
Regulations of the Board. If requested by the Lender at any time, the Borrower
will furnish to the Lender a statement in conformity with the requirements of FR
Form U-1 referred to in Regulation U.
3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT;
-----------------------------------------------------------
OTHER REGULATIONS.
-----------------
The Borrower is not an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company" as defined in, or
otherwise subject to regulation under, the Public Utility Holding Company Act of
1935.
3.13. SUBSIDIARIES.
------------
The Borrower has no Subsidiaries.
3.14. SECURITY INTERESTS.
------------------
At all times after execution and delivery of the Security Agreement
by the Borrower and completion of the filings and recordings listed on Schedule
3.14-1, the security interests created for the benefit of the Lender pursuant to
such Security Agreement will constitute valid, perfected
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<PAGE> 20
security interests in the collateral subject thereto. subject to no other Liens
whatsoever except as provided in Schedule 3.14-2 and permitted by Section 6.2
attached hereto.
3.15. THIRD PARTY REPRESENTATIONS.
---------------------------
Each of the representations and warranties made by the Guarantor in the
Guaranty and by the Borrower in its Security Agreement is true and correct in
all material respects.
SECTION 4. CONDITIONS PRECEDENT
4.1. CONDITIONS TO CLOSING.
---------------------
The agreement of Lender to make the Loan is subject to the satisfaction
of the following conditions precedent:
(a) THE LOAN AGREEMENT AND NOTE. The Lender shall have
received this Agreement and the Note, executed and delivered by a duly
authorized officer of the Borrower.
(b) THE GUARANTY. The Lender shall have received the
Guaranty, conforming to the requirements hereof and executed by a duly
authorized officer of the Guarantor.
(c) SECURITY AGREEMENT.
------------------
(1) The Lender shall have received a Security
Agreement conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower.
(2) Any documents (including, without limitation.
financing statements) required to be filed, registered or recorded in order to
create, for the benefit of the Lender, a perfected, first priority Lien, subject
only to liens described on Schedule 3.14-2 and permitted by Section 6.2, shall
have been properly prepared for filing, registration or recording in each office
in each jurisdiction in which such filings, registrations and recordations are
required to perfect such first priority security interests created by the
Security Agreement, and the Lender shall be satisfied that all such recordings
and filings will be completed promptly following making of the initial Loan
hereunder and that all necessary filing, recording and other fees and all taxes
and expenses related to such filings, registrations and recordings will be paid
in fill by the Borrower.
(d) CORPORATE PROCEEDINGS.
---------------------
(1) The Lender shall have received a certificate of the
Secretary or an Assistant Secretary of the Borrower dated as of the Closing Date
and certifying (A) that attached thereto is a true, complete and correct copy of
resolutions duly adopted by the Board of Directors of the Borrower authorizing
(i) the execution, delivery and performance of this Agreement, the Note and the
other Loan Documents to which it is a parry, and (ii) the borrowing and granting
of Liens contemplated hereunder, and (B) that such resolutions have not been
amended, modified, revoked or rescinded, and (C) as to the incumbency and
specimen signature of each officer executing any Loan
-14-
<PAGE> 21
Documents on behalf of the Borrower; and such certificate and the resolutions
attached thereto shall be in form and substance satisfactory to the Lender.
(2) The Lender shall have received a certificate of the
Secretary or an Assistant Secretary of the Guarantor dated as of the Closing
Date and certifying (A) that attached thereto is a true, complete and correct
copy of resolutions duly adopted by the Board of Directors of such Guarantor
authorizing the execution, delivery and performance of the Guaranty and that
such resolutions have not been amended. modified. revoked or rescinded and (B)
as to the incumbency and specimen signature of each officer executing the
Guaranty on behalf of such Guarantor: and such certificate and the resolutions
attached thereto shall be in form and substance satisfactory to the Lender.
(e) CORPORATE DOCUMENTS.
-------------------
(1) The Lender shall have received true and complete
copies of the certificate of incorporation and by-laws of the Borrower,
certified as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of the Borrower.
(2) The Lender shall have received true and complete
copies of the certificate of incorporation and by-laws of the Guarantor,
certified as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of the Guarantor.
(f) FACILITY FEE. The Lender shall have received payment of the
sum of $50,000 representing the non-refundable facility fee payable by the
Borrower in connection with the Commitment. The Lender acknowledges receipt of
$10,000 as of the date hereof in partial payment of such facility fee. which
amount shall be credited against the facility fee.
(g) UCC FILING SEARCHES. The Lender shall have received the
results of Uniform Commercial Code filings made with respect to the Borrower in
the states in which its chief executive offices are located and all other states
in which filings &e required to be made pursuant to subsection 4.1 (c)(2),
together with copies of financing statements disclosed by such searches and such
searches shall disclose no Liens, except for liens permitted under subsection
6.2 or, if unpermitted Liens are disclosed, the Lender shall have received
satisfactory evidence of release of such Liens.
(h) LEGAL OPINIONS. The Lender shall have received the
signed legal opinion of counsel to the Borrower and the Guarantor, dated the
Closing Date, and covering such matters incident to the transactions
contemplated by this Agreement as the Lender reasonably may require.
(i) COLLATERAL FLOOR. The Borrower shall have established
and maintains a Collateral Floor of no less than $7,000,000.
(j) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower and the Guarantor in or pursuant to the Loan
Documents shall be true and correct in all material respects on and as of such
date as if made on and as of such date.
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<PAGE> 22
(k) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on the Closing Date.
(l) ADDITIONAL MATTERS. All corporate and other proceedings,
and all documents. instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Lender, and the Lender shall have
received such other documents in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably request.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Loan remains
outstanding and unpaid or any other amount is owing to the Lender hereunder, the
Borrower shall:
5.1. FINANCIAL STATEMENTS.
--------------------
Furnish to Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, the audited balance sheet of
the Borrower as at the end of such year and the related statements of income and
retained earnings and of cash flow for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit, by independent certified public accountants reasonably
acceptable to the Lender; and
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal year
of the Borrower, the unaudited balance sheet of the Borrower as at the end of
such quarter and the related unaudited statements of income and retained
earnings for such quarter and the portion of the fiscal year through the end of
such quarter, setting forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer as being fairly stated in all
material respects when considered in relation to the financial statements of the
Borrower (subject to normal year-end audit adjustments and the absence of
footnotes):
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
5.2. CERTIFICATES; OTHER INFORMATION.
-------------------------------
Furnish to Lender:
(a) it is understood that the financial statements will be
prepared in accordance with GAAP and, as such, the existence of any Default or
Event of Default would be noted therein.
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<PAGE> 23
(b) concurrently with the delivery of the financial
statements referred to in subsection 5.1(a) and (b) a schedule prepared by
independent certified public accountants showing, in reasonable detail, the
calculation of all financial covenants set forth in Section 7 hereof;
(c) concurrently with the delivery of the financial
statements referred to: (I) in subsections 5.1(a) and 5.1(b), a certificate of
the President or Vice President of Finance stating that, to the best of his or
her knowledge, the Borrower during such period has observed or performed all of
its covenants and other agreements, and satisfied every condition, contained in
this Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that he or she has obtained no
knowledge of any Default or Event of Default, except as specified in such
certificate; and (ii) in subsection 5.1(b), a schedule showing, in reasonable
detail, the calculation of all financial covenants set forth in Section 7
hereof;
(d) as soon as available, but in any event, within 45 days
after the delivery of the financial statements referred to in Section 5.1(a), a
copy of the projections by the Borrower of the operating budget of the Borrower
for the succeeding fiscal year, such projections to be accompanied by a
certificate of a Responsible Officer to the effect that such projections have
been prepared on a reasonable basis and that such Responsible Officer has no
reason to believe they are incorrect or misleading in any material respect;
(e) promptly after the same are received by the Borrower,
management letters, if ever prepared, provided to the Borrower by its
independent certified public accountants: and
(f) promptly, such additional financial and other
information as Lender from time to time reasonably may request.
5.3. PAYMENT OF OBLIGATIONS.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, all its obligations of whatever
nature, except where reserves in conformity with GAAP with respect thereto have
been provided on the books of the Borrower.
5.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.
(a) Continue to engage in business of the same general
type as now conducted by it and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business except as otherwise permitted pursuant to subsections 6.4 and
6.5; comply with all Contractual Obligations and Requirements of Law (excluding,
for purposes of this subsection, Requirements of Law specifically addressed in
other subsections of this Section 5) except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Change.
(b) Borrower will use its best efforts to cause the
Guarantor to take all reasonable and necessary actions to reinstate its charter
with the New Jersey Secretary of State.
<PAGE> 24
5.5. MAINTENANCE OF PROPERTY; INSURANCE.
----------------------------------
Procure and maintain insurance on the tangible Collateral against the
risks of fire, theft and such other risks as Lender may require, by insurers
satisfactory to Lender, and deliver to Lender a fully paid policy or policies of
insurance with a lender's loss payee endorsement providing that the coverage of
said policy shalt not be terminated without thirty (30) days written notice to
Lender and which are otherwise satisfactory in form and substance to Lender;
provided that, so long as no Event of Default has occurred and is continuing,
insurance proceeds in an aggregate amount up to $25,000 in any fiscal year shall
be paid over by the Lender to the Borrower and provided further that, in
connection with any other insurance proceeds received by the Lender as proceeds
of the Collateral, in determining whether to apply such proceeds to repayment
of the Loan or to make such proceeds available to the Borrower, the Lender shall
consider in good faith the Borrower's proposals for the use of such proceeds to
replace the Collateral.
5.6. INSPECTION OF PROPERTY; ROOKS AND RECORDS; DISCUSSIONS.
------------------------------------------------------
Keep proper books of record and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and permit
representatives of Lender to visit and inspect any of its properties and examine
and make abstracts from any of its books and records at any reasonable time and
as often as may reasonably be desired including, without limitation, to conduct
a field audit of the Borrower's and the Guarantor's assets, at the Borrower's
and Guarantor's expense, on a semi-annual basis; and to discuss, upon telephone
notice to the Borrower, the business, operations, properties and financial and
other condition of the Borrower with officers and employees of the Borrower and,
upon telephone notice to the Borrower, with its independent certified public
accountants. Subject to subsection 9.2 hereof, the Lender agrees, when
inspecting any books or records in any form of the Borrower, to utilize
procedures that shall assure maximum confidentiality with respect to the books
and records of the Borrower.
5.7. NOTICES.
--------
Promptly give notice to the Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or (ii) litigation, investigation or proceeding which
may exist at any time between the Borrower and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may be,
would have a Material Adverse Change;
(c) any litigation or proceeding affecting the Borrower in which
the amount involved is $250,000 or more and not covered by insurance or in which
injunctive or similar relief is sought; and
(d) the occurrence of any event having a Material Adverse Change.
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<PAGE> 25
Each notice pursuant to this subsection shall be accompanied by a
statement of a ponsible Officer setting forth details of the occurrence referred
to therein and stating what action the Borrower proposes to take with respect
thereto.
SECTION 6. NEGATIVE COVENANTS
------------------
The Borrower hereby agrees that, so long as the Loan remains
outstanding and unpaid or any other amount is owing to the Lender hereunder, the
Borrower shall not directly or indirectly :
6.1. LIMITATION ON INDEBTEDNESS.
---------------------------
Create, incur, assume or suffer to exist any Indebtedness, except:
(a) indebtedness in respect of the Loan and other
obligations of the Borrower under this Agreement;
(b) Indebtedness incurred by the Borrower or one of its
Affiliates in respect of a proposed commercial mortgage in an amount of up to
$6,000,000 and term loan in an amount of up to $1,000,000 entered into with
Lender or another financial lending institution;
(c) Indebtedness of the Borrower incurred in connection with
Capital Expenditures permitted under subsection 7.5;
(d) Indebtedness listed on Schedule 6.1 and renewals,
extensions and modifications thereof which do not increase the principal amount
thereof;
(e) Subordinated Debt; and
(f) Indebtedness supported by Permitted Investments.
6.2. LIMITATION ON LIENS.
-------------------
Create, incur, assume or suffer to exist any Lien upon any of its
property. assets or revenues, whether now owned or hereafter acquired, except
for:
(a) Liens created pursuant to the Security Agreement;
(b) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower in conformity with
GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
secure amounts not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings;
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<PAGE> 26
(d) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower;
(g) Liens listed on Schedule 3.14-2, securing Indebtedness
permitted by subsection 6.1(d), provided that no such Lien is amended after the
date of this Agreement to cover any additional property or to secure additional
Indebtedness; and
(h) Liens securing Indebtedness of the Borrower permitted by
subsection 6.1(c) incurred in connection with Capital Expenditures, provided
that such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, such Liens do not at any time
encumber any property other than the property financed by such Indebtedness, the
Liens are not modified to secure other Indebtedness and the amount of
Indebtedness secured thereby is not increased and the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 100% of the
original purchase price of such property.
(i) Liens created pursuant to the Indebtedness incurred
under Subsection 6.1(b).
6.3. LIMITATION ON CONTINGENT OBLIGATIONS.
------------------------------------
Create, incur, assume or suffer to exist any Contingent Obligation
except:
(a) guarantees created pursuant to this Agreement;
(b) Contingent Obligations subject to the Indebtedness incurred
under Subsection 6.1(b); and
(c) Contingent Obligations described on Schedule 6.3.
6.4. LIMITATIONS ON FUNDAMENTAL CHANGES.
----------------------------------
Enter into any merger, consolidation or amalgamation, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets, or make any material
change in its present method of conducting business.
-20-
<PAGE> 27
6.5. LIMITATION ON SALE OF ASSETS.
----------------------------
Convey, sell, lease, assign, transfer or otherwise dispose of any of
its property, business or assets (including, without limitation, receivables and
leasehold interests), whether now owned or hereafter acquired, except:
(a) obsolete or worn Out property disposed of in the ordinary
course of business:
(b) the sale or other disposition of any property (other than
inventory) in the ordinary course of business;
(c) the sale of inventory in the ordinary course of business: and
(d) the sale or discount without recourse of accounts receivable
only in connection with the compromise thereof or the assignment of past-due
accounts receivable for collection.
6.6. LIMITATION ON INVESTMENTS, LOANS AND ADVANCES.
---------------------------------------------
Purchase, hold or acquire beneficially any stock, other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make or permit to exist any investment or acquire any interest whatsoever in,
any other entity, except
(a) extensions of trade credit to customers in the ordinary course
of business;
(b) Permitted Investments;
(c) loans made to employees of Borrower up to an aggregate amount
of $50,000 each year; and
(d) investments made in joint ventures or other business ventures
up to an aggregate amount of $500,000 during the term of the Loan.
6.7. LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
---------------------------------------------------------
INSTRUMENTS.
-----------
Make any optional payment or prepayment on or redemption, defeasance
or purchase of any Indebtedness (other than Indebtedness under this Agreement),
including, without limitation, any Subordinated Debt, or amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms relating to the payment or prepayment or principal of or interest on,
any such Indebtedness, other than any amendment, modification or change which
would extend the maturity or reduce the amount of any payment of principal
thereof or which would reduce the rate or extend the date for payment of
interest thereon.
6.8. TRANSACTIONS WITH AFFILIATES.
----------------------------
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<PAGE> 28
Enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of the Borrower's business, (c) upon fair
and reasonable terms no less favorable to the Borrower than it would obtain in a
comparable arm's length transaction with an entity which is not an Affiliate,
(d) related to the Borrower entering into a lease agreement for the use of
premises owned by an Affiliate, or (e) a dividend to Borrower's shareholders,
which shall be permitted by Lender provided that, at the time of any such
dividend, no Event of Default has occurred and is continuing or would result
therefrom.
6.9. SALE AND LEASEBACK.
Enter into any arrangement with any entity or individual providing for
the leasing by the Borrower of real or personal property which has been or is to
be sold or transferred by the Borrower to such Person.
6.10. LIMITATION ON NEGATIVE PLEDGE CLAUSES.
-------------------------------------
Enter into any agreement with any entity or individual other than the
Lender pursuant to this Agreement or any other Loan Documents which prohibits or
limits the ability of the Borrower to create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired; provided that the Borrower may enter into such an agreement
in connection with any Lien permitted by this Agreement, when such prohibition
or limitation is by its terms effective only against the assets subject to such
Lien.
6.11. CORPORATE DOCUMENTS.
-------------------
Amend its Certificate of Incorporation (except to increase the number
of authorized shares of capital stock) in any way which will have a Materially
Adverse Change.
6.12. FISCAL YEAR.
-----------
Permit the fiscal year of the Borrower to end on a day other than
December 3 1 provided, however, that the Borrower may change its fiscal year
one time during the term of the Loan.
6.13. LIMITATION ON CONDUCT OF BUSINESS.
---------------------------------
Enter into any business either directly or indirectly except for
businesses in which the Borrower is engaged on the date of this Agreement and
businesses directly related to such existing businesses.
SECTION 7. FINANCIAL COVENANTS
The Borrower hereby agrees that, so long as the Loan remains
outstanding and unpaid the Borrower shall:
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<PAGE> 29
7.1 RATIO OF TOTAL UNSUBORDINATED LIABILITIES TO TANGIBLE NET
---------------------------------------------------------
WORTH.
-----
Maintain the ratio of Total Unsubordinated Liabilities to Tangible Net
Worth to be equal to or less than:
(a) 2.75:1.00 from the Closing Date until December 31,
1995;
(b) 2.0:1.00 between December 31, 1995 and December 31,
1996; and
(c) 1.75:1.00 from December 31, 1996 to the Maturity
Date.
7.2 WORKING CAPITAL.
---------------
Permit Working Capital to be no less than $5,000,000 at any time.
7.3 EARNINGS BEFORE TAXES.
---------------------
Permit Earnings Before Taxes to be no less than $ 2,500,000 in
any fiscal year.
7.4 COLLATERAL FLOOR.
----------------
Permit the Collateral Floor to be no less than $7,000,000 at any time.
7.5 CAPITAL EXPENDITURES.
--------------------
Not permit Capital Expenditures to exceed $300,000 in any fiscal
year; notwithstanding this limitation on Capital Expenditures, the
Borrower may make Capital Expenditures during the term of the Loan in an
aggregate amount up to $1,200,000 on the Lehigh Drive Location.
7.6 Debt Service Coverage Ratio.
---------------------------
Not permit the Debt Service Coverage Ratio to be less than 1:50 :
1:00 at any time.
SECTION 8. EVENTS OF DEFAULT
If any of the following events (each, an "Event of Default")
shall occur and be continuing:
8.1 The Borrower shall fail to pay any principal
of the Loan when due in accordance with the terms hereof; or the
Borrower shall fail to pay any interest on the Loan, or any other amount
payable hereunder, when due; or
8.2 Any representation or warranty made or deemed
made by the Borrower or the Guarantor herein or in any other Loan
Document or which is contained in any certificate, document or financial
or other statement furnished at any time under or in connection with
this Agreement shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
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<PAGE> 30
8.3 The Borrower shall default in the observance or performance of
any agreement contained in Section 6 or 7; or
8.4 The Borrower or other entity or individual shall default in the
observance or performance of any other agreement contained in this Agreement
(other than as provided in subsections 8.1 through 8.3) or any other Loan
Document, and such default shall continue unremedied for a period of the lesser
of 30 days from the Borrower's knowledge or Lender's giving the Borrower written
notice of such default; or
8.5 The Borrower shall:
(a) default in any payment of principal of or interest of
any Indebtedness (other than the Note) or in the payment of any Contingent
Obligation, beyond the period of grace (not to exceed 30 days), if any, provided
in the instrument or agreement under which such Indebtedness or Contingent
Obligation was created; or
(b) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Contingent
Obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause. or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or such
Contingent Obligation to become payable; or
8.6 (a) The Borrower shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the
Borrower shall make a general assignment for the benefit of its creditors; or
(b) There shall be commenced against the Borrower any
case, proceeding or other action of a nature referred to in paragraph (a) above
which (i) results in the entry of an order for relief or any such adjudication
or appointment or (ii) remains undismissed, undischarged or unbonded for a
period of 50 days; or
(c) There shall be commenced against the Borrower any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 50 days from the entry thereof; or
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<PAGE> 31
(d) The Borrower shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (a), (b) or (c) above; or
(e) The Borrower shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they become
due; or
8.7 One or more judgments or decrees shall be entered against the
Borrower or the Guarantor involving in the aggregate a liability (not paid or
fully covered by insurance) of $100,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 50 days the entry thereof; or
8.8 (a) Edward Frankel, Keith Frankel and Frank Frankel do
not own, in the aggregate, all of the issued and outstanding shares of Capital
Stock of the Borrower with Edward Frankel owning at least 51% of the Capital
Stock of the Borrower; or
(b) Edward Frankel and Keith Frankel are not members of
the board of directors of the Borrower; or
(c) Edward Frankel is not involved in the day-to-day
management of the business of the Borrower; or
8.9 An event shall occur which, in the sole discretion of the
Lender, has a Material Adverse Change;
then, and in any such event (A) if such event is an Event of Default specified
in clauses (a), (b), (d), or (e) of subsection 8.6 above with respect to the
Borrower, automatically the Loan (with accrued interest thereon) shall
immediately become due and payable, and (B) if such event is any other Event of
Default, the Lender may declare the Loan hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Note to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section 8, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 9. PURCHASING LENDERS; PARTICIPATIONS
9.1. PURCHASING LENDERS AND PARTICIPATIONS.
The Borrower acknowledges that the Lender may, after the date hereof,
sell, assign, securities or participate interests in the Loan to such banks,
insurance companies, pension funds, trusts or other institutional lenders or
entities, parties or investors as may be selected by the Lender in its sole
and absolute discretion and on terms and conditions satisfactory to the Lender
in its sole and absolute discretion. The Lender shall at all times during the
term of the Loan act as agent, lead lender and servicer for any purchasing
lenders and particiapnts in the Loan. Subject to the applicable terms and
provisions of relevant sale and assignment and/or participation agreements, the
Lender shall retain all rights with respect to the enforcement, collection and
administration of the Loan and securitiy therefor. The Borrower agrees to
cooperate in all respects with the Lender in
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<PAGE> 32
connection with the sale or participation of interests in the Loan and shall
execute and deliver such estoppels, certificates and instruments and documents
as may be requested by the Lender. The Borrower shall not incur or be
responsible for any additional costs, fees or expenses of any nature whatsoever
as a result of Lender's sale or participation of interests in the Loan.
9.2. DISCLOSURE OF INFORMATION.
-------------------------
The Borrower authorizes Lender to disclose to any participant or
purchasing lender and any prospective participant or purchasing lender, or any
regulatory body or agency having jurisdiction over Lender, any and all
information relating to the Borrower and Guarantor which has been furnished to
Lender by or on behalf of the Borrower provided Lender agrees to utilize
procedures that shall assure maximum confidentiality with respect to such
information.
SECTION 10. MISCELLANEOUS
10.1. AMENDMENTS AND WAIVERS.
----------------------
(a) Neither this Agreement, the Note, any other Loan Document,
nor any terms hereof or thereof may be amended, supplemented or modified except
in a writing executed by the Borrower and the Lender (and any entity or
individual to which Lender may have sold a co-lender (as opposed to a
participation) interest in the Loan).
(b) Any such waiver and any such amendment, supplement or
modification shall be binding upon the Borrower, the Lender and all future
holders of the Note. In the case of any waiver, the Borrower and the Lender
shall be restored to their former position and rights hereunder and under the
outstanding Note and any other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
10.2. NOTICES.
-------
All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (or by telex, fax or similar
electronic transfer confirmed in writing), and. unless otherwise expressly
provided herein, shall be deemed to have been duly given or made (a) if hand-
delivered or sent by recognized overnight courier (with a receipt required for
delivery), when delivered or (b) if given by mail, when deposited in the mails
by certified mail, return receipt requested, or (c) if by fax or similar
electronic transfer, when sent and receipt has been confirmed, addressed as
follows:
If to the Borrower, to: Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Attn: Edward Frankel
Telephone: (201) 575-9200
Telecopy: (201) 575-6782
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<PAGE> 33
with a copy to: Morrison, Cohen, Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attn: Stephen A. Cohen, Esq.
Telephone: (212) 735-8705
Telecopy: (212) 735-8708
If to the Lender, to: Chemical Bank
270 Park Avenue, 43rd Floor New
York, New York 10017-2070
Attention: Stephen Revis, Vice President
Telephone: (212) 270-5910
Telecopy: (212) 270-7481
with a copy to: Chemical Bank
4 Campus Drive
Parsippany, New Jersey 07054
Attention: Kathleen Addison, Vice President
Telephone: (201) 734-1054
Telecopy: (201) 734-1121
Any party and any holder of the Note from time to time may change its address
for notices by notice to the Lender and the Borrower in the manner provided in
this subsection.
10.3. NO WAIVER; CUMULATIVE REMEDIES.
------------------------------
(a) No failure to exercise and no delay in exercising, on
the part of the Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof.
(b) No single or partial exercise of any right, remedy,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
(c) The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
10.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
All representations and warranties made hereunder and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Note.
10.5. Payment of Expenses and Taxes.
-----------------------------
The Borrower agrees:
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<PAGE> 34
(a) to pay or reimburse the Lender for all its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement and the Note and the other Loan Documents and any other documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Lender,
(b) to pay or reimburse the Lender for all its reasonable
costs and expenses incurred in connection with the enforcement or preservation
of any rights under this Agreement, the Note, the other Loan Documents and any
such other documents, including, without limitation, fees and disbursements of
counsel to the Lender,
(c) to pay, indemnify, and hold the Lender harmless from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the Note, the
other Loan Documents and any such other documents, and
(d) to pay, indemnify, and hold the Lender harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions (whether sounding in contract, in tort or on any other
ground), judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of, or in any other way arising out of or
relating to, this Agreement, the Note, the other Loan Documents and any other
documents contemplated by or referred to herein or therein or any action taken
or omitted to be taken by the Lender with respect to any of the foregoing
(all the foregoing, collectively, the "indemnified liabilities"), provided, that
the Borrower shall have no obligation hereunder to the Lender with respect to
indemnified liabilities arising from:
(1) the gross negligence or willful misconduct of the
Lender, or
(2) legal proceedings commenced against the Lender by any
holder of any securities of the Lender or any creditor of the Lender arising out
of and based solely upon rights afforded any such holder of securities or such
creditor in its capacity as such.
The agreements in this subsection shall survive repayment of the Note and all
other amounts payable hereunder.
10.6. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lender, all future holders of the Note and their respective
successors and assigns, except that the Borrower
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<PAGE> 35
may not assign, transfer or delegate any of its rights or obligations under
this Agreement without the prior written consent of Lender.
10.7. ADJUSTMENTS; SET-OFF.
--------------------
In addition to any rights and remedies of the Lender provided by law,
Lender shall have the right, without prior notice to the Borrower, any such
notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Note (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by Lender or any branch or agency thereof
to or for the credit or the account of the Borrower. Lender agrees promptly to
notify the Borrower after any such set-off and application made by Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
10.8. COUNTERPARTS.
------------
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A set
of the copies of this Agreement signed by all the parties shall be lodged with
the Borrower and the Lender.
10.9. SEVERABILITY.
------------
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.10. INTEGRATION.
-----------
This Agreement represents the entire agreement of the Borrower and the
Lender with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11. GOVERNING LAW.
-------------
This Agreement and the Note and the rights and obligations of the
parties under this Agreement and the Note shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
10.12. SUBMISSION TO JURISDICTION; WAIVERS.
-----------------------------------
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<PAGE> 36
The Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to or arising out of this Agreement and the other Loan
Documents to which it is a party, or the conduct of any party with respect
thereto, or for recognition and enforcement of any judgment in respect thereof,
to the nonexclusive general jurisdiction of the Courts of the State of New York,
the courts of the United States of America for the District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives to the fullest extent permitted by law any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 9.2 or at such other address2 of
which the Lender shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential
damages.
10.13. ACKNOWLEDGMENTS.
---------------
The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Note and the other Loan
Documents;
(b) the Lender has no fiduciary relationship to the
Borrower, and the relationship between Lender, on one hand, and the Borrower, on
the other hand, is solely that of debtor and creditor; and
(c) no joint venture exists between the Borrower and the
Lender.
10.14. WAIVERS OF JURY TRIAL.
---------------------
THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR THE NOTE OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above-written.
ATTEST: GARDEN STATE NUTRITIONALS, INC.
a New Jersey corporation
/s/ Keith Frankel By: /s/ Edward Frankel
- --------------------------- -----------------------------
Keith Frankel Name: Edward Frankel
Secretary Title: President
CHEMICAL BANK
By: /s/ Stephen W. Revis
------------------------------
Name: Stephen W. Revis
Title: V. P.
<PAGE> 38
SCHEDULE 3.14-1
FILINGS AND RECORDINGS
----------------------
1. UCC-1 Filing
Secretary of State of New Jersey
dated September 28, 1995
with Chemical Bank as secured party
2. UCC-1 Filing
County of Essex, New Jersey
dated September 28, 1995
with Chemical Bank as secured party
<PAGE> 39
SCHEDULE 3.14-1-2
EXISTING PERMITTED LIENS
------------------------
1. #1483172
Filing: New Jersey Secretary of State
Secured Party: Chemical Bank New Jersey, N.A.
Date: November 16,1992
Property: Fixtures on real property known as
21-25 Dwight Place, Fairfield, N.J.
2. #1468873
Filing: New Jersey Secretary of State
Secured Party: Capsugel, Division of Warner Lambert Co.
Date: August 17, 1992
Property: Semi-automatic Capsule Filling Machine
3. #71588
Filing: Essex County
Secured Party: Chemical Bank New Jersey, N.A.
Date: November 16, 1992
Property: Fixtures on real property known as
21-25 Dwight Place, Fairfield, N.J.
<PAGE> 40
SCHEDULE 6.1
INDEBTEDNESS
------------
1) With respect to the lease of miscellaneous office equipment
which is not material to the financial results of the Company.
2) Autos leased by the Company for its Employees.
3) Mortgage Loan held by Chemical Bank on the premises located at
21 Dwight Place, Fairfield, NJ.
4) Indebtedness outstanding to former stockholders.
5) Other indebtedness incurred in the ordinary course of
business.
<PAGE> 41
SCHEDULE 6.3
CONTINGENT OBLIGATIONS
----------------------
1) Letters of Credit issued in the normal course of business.
2) Guarantees required with respect to the purchase and/or lease
of a new facility or the purchase of equipment needed for the new facility.
3) Consulting agreements with former shareholders.
<PAGE> 1
Exhibit 10.9
STATE OF NEW JERSEY, COUNTY of } ss.: BE IT REMEMBERED,
that on 19 , before me, the subscriber,
personally appeared
who, I am satisfied, the person named in and who executed the
within Instrument, and thereupon acknowledged that signed,
sealed and delivered the same as act and deed, for the uses
and purposes therein expressed.
------------------------------------
STATE OF NEW JERSEY, COUNTY OF } ss.: BE IT REMEMBERED,
that on 19 , before me, the subscriber,
personally appeared
who, being by me duly sworn on h oath, deposes and makes proof to my
satisfaction, that he is the Secretary of
the Corporation named in the within Instrument;
that is the
President of said Corporation; that the execution, as well as the making of
this Instrument, has been duly authorized by a proper resolution of the Board
of Directors of the said Corporation; that deponent well knows the corporate
seal of said Corporation; and that the seal affixed to said Instrument is the
proper corporate seal and was thereto affixed and said Instrument signed and
delivered by said President as and for the voluntary act and
deed of said Corporation, in presence of deponent, who thereupon subscribed
h name thereto as attesting witness.
Sworn to and subscribed before me, )
the date aforesaid. )
Prepared by: Daniel F. Peck, Jr., Esq.
Kraft & Hughes, Gateway I,
Newark, New Jersey 07102
LEASE.
============================
VITAREAL ASSOCIATES, L.P.
TO
GARDEN STATE NUTRITIONALS,
INC.
============================
Dated, as of June 30 , 1985
============================
Expires,
Rent, $
<PAGE> 2
as of
THIS LEASE AGREEMENT, made/the 30th day of June 1985,
BETWEEN
LANDLORD
Vitareal Associates, L.P., a New Jersey limited partnership residing or
located at 100 Lehigh Drive in the Township of Fairfield in the County of Essex
and State of New Jersey, herein designated as the Landlord,
AND
TENANT
Garden State Nutritionals, Inc. a New Jersey corporation about to be
residing or located at 100 Lehigh Drive in the Township of Fairfield in the
County of Essex and State of New Jersey, herein designated as the Tenant;
PREMISES
WITNESSETH THAT, the Landlord does hereby lease to the Tenant and the
Tenant does hereby rent from the Landlord, the following described premises:
Approximately 23,832 square feet of a 34,832 square foot office, manufacturing
and warehouse building located at 100 Lehigh Drive, Fairfield, New Jersey, a
more complete description of the real property is attached hereto as Exhibit
"A" and is made a part hereof.
TERM
USE
for a term of one year commencing on June 30, 1985, and ending on June
29, 1986 unless otherwise extended by the Landlord and Tenant, to be used and
occupied only and for no other purpose than as a general office, manufacturing
and warehousing facility for the production, distribution and storage of
vitamins and other nutritional food products.
UPON THE FOLLOWING CONDITIONS AND COVENANTS:
1ST: The Tenant covenants and agrees to pay to the Landlord, as rent
for and during the term hereof, the sum of
in the following manner:
PAYMENT OF RENT
See Rider #1
REPAIRS AND CARE
2ND: The Tenant has examined the premises and has entered into this
lease without any representation on the part of the Landlord as to the
condition thereof. The Tenant shall take good care of the premises and shall at
the Tenant's own cost and expense, make all repairs, including painting and
decorating and shall maintain the premises in good condition and state of
repair, and at the end or other expiration of the term hereof, shall deliver up
the rented premises in good order and condition, wear and tear from a
reasonable use thereof, and damage by the elements not resulting from the
neglect or fault of the Tenant, excepted. The Tenant shall neither encumber nor
obstruct the sidewalks, driveways, yards, entrances, hallways and stairs, but
shall keep and maintain the same in a clean condition, free from debris, trash,
refuse, snow and ice.
COMPLIANCE WITH LAWS ETC.
3RD: The Tenant shall promptly comply with all laws, ordinances, rules,
regulations, requirements and directives of the Federal, State and Municipal
Governments or Public Authorities and of all their departments, bureaus and
subdivisions, applicable to and affecting the said premises, their use and
occupancy, for the correction, prevention and abatement of nuisances,
violations or other grievances in, upon or connected with the said premises,
during the term hereof; and shall promptly comply with all orders, regulations,
requirements and directives of the Board of Fire Underwriters or similar
authority and of any insurance companies which have issued or are about to
issue policies of insurance covering the said premises and its contents, for
the prevention of fire or other casualty, damage or injury, at the Tenant's own
cost and expense.
ASSIGNMENT
4TH: The Tenant shall not assign, mortgage or hypothecate this lease,
nor sublet or sublease the premises or any part thereof; nor occupy or use the
leased premises or any part thereof, nor permit or suffer the same to be
occupied or used for any purposes other than as herein limited, nor for any
purpose deemed unlawful, disreputable, or extra hazardous, on account of fire
or other casualty.
ALTERATIONS
IMPROVEMENTS
5TH: *No alterations, additions or improvements shall be made, and no
climate regulating, air conditioning, cooling, heating or sprinkler systems,
television or radio antennas, heavy equipment, apparatus and fixtures, shall be
installed in or attached to the leased premises, without the written consent of
the Landlord. Unless otherwise provided herein, all such alterations, additions
or improvements and systems, when made, installed in or attached to the said
premises, shall belong to and become the property of the Landlord and shall be
surrendered with the premises and as part thereof upon the expiration or sooner
termination of this lease, without hindrance, molestation or injury.
FIRE AND OTHER CASUALTY
6TH: In case of fire or other casualty, the Tenant shall give immediate
notice to the Landlord. If the premises shall be partially damaged by fire, the
elements or other casualty, the Landlord shall repair the same as speedily as
practicable, but the Tenant's obligation to pay the rent hereunder shall not
cease. If, in the opinion of the Landlord, the premises be so extensively and
substantially damaged as to render them untenantable, then the rent shall cease
until such time as the premises shall be made tenantable by the Landlord.
However, if, in the opinion of the Landlord, the premises be totally destroyed
or so extensively and substantially damaged as to require practically a
rebuilding thereof, then the rent shall be paid up to the time of such
destruction and then and from thenceforth this lease shall come to an end. In
no event however, shall the provisions of this clause become effective or be
applicable, if the fire or other casualty and damage shall be the result of the
carelessness, negligence or improper conduct of the Tenant or the Tenant's
agents, employees, guests, licensees, invitees, subtenants, assignees or
successors. In such case, the Tenant's liability for the payment of the rent
and the performance of all the covenants, conditions and terms hereof on the
Tenant's part to be performed shall continue and the Tenant shall be liable to
the Landlord for the damage and loss suffered by the Landlord. If the Tenant
shall have been insured against any of the risks herein covered, then the
proceeds of such insurance shall be paid over to the Landlord to the extent of
the Landlord's costs and expenses to make the repairs hereunder, and such
insurance carriers shall have no recourse against the Landlord for
reimbursement.
INSPECTION AND REPAIR
7TH: The Tenant agrees that the Landlord and the Landlord's agents,
employees or other representatives, shall have the right to enter into and upon
the said premises or any part thereof, at all reasonable hours, for the purpose
of examining the same or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof. This clause shall not be
deemed to be a covenant by the Landlord nor be construed to create an
obligation on the part of the Landlord to make such inspection or repairs.
RIGHT TO EXHIBIT
8TH: The Tenant agrees to permit the Landlord and the Landlord's
agents, employees or other representatives to show the premises to persons
wishing to rent or purchase the same, and Tenant agrees that on and after June,
1986 next preceding the expiration of the term hereof, the Landlord or the
Landlord's agents, employees or other representatives shall have the right to
place notices on the front of said premises or any part thereof, offering the
premises for rent or for sale; and the Tenant hereby agrees to permit the same
to remain thereon without hindrance or molestation.
*Except for certain renovations and improvements which are presently being made
by the Landlord on behalf of the Tenant, for which the Tenant shall bear the
sole cost and expense,
<PAGE> 3
GLASS, ETC. DAMAGE REPAIRS
9TH: In case of the destruction of or any damage to the glass in the
leased premises, or the destruction of damage of any kind whatsoever to the
said premises, caused by the carelessness negligence or improper conduct on the
part of the Tenant or the Tenant's agents, employees, guests, licensees,
invitees, subtenants, assignees or successors, the Tenant shall repair the said
damage or replace or restore any destroyed parts of the premises, as speedily
as possible, at the Tenant's own cost and expense.
SIGNS
10TH: The Tenant shall not place nor allow to be placed any signs of
any kind whatsoever, upon, in or about the said premises or any part thereof,
except of a design and structure and in or at such places as may be indicated
and consented to by the Landlord in writing. In case the Landlord or the
Landlord's agents, employees or representatives shall deem it necessary to
remove any such signs in order to paint or make any repairs, alterations or
improvements in or upon said premises or any part thereof, they may be so
removed, but shall be replaced at the Landlord's expense when the said repairs,
alterations or improvements shall have been completed. Any signs permitted by
the Landlord shall at all times conform with all municipal ordinances or other
laws and regulations applicable thereto.
NON-LIABILITY OF LANDLORD
11TH: The Landlord shall not be liable for any damage or injury which
may be sustained by the Tenant or any other person, as a consequence of the
failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer,
waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the
like or of the electrical, gas, power, conveyor, refrigeration, sprinkler,
airconditioning or heating systems, elevators or hoisting equipment; or by
reason of the elements; or resulting from the carelessness, negligence or
improper conduct on the part of any other tenant or of the Landlord or the
Landlord's or this or any other Tenant's agents, employees, guests, licenses,
invitees, subtenants, assignees or successors; or attributable to any
interference with, interruption of or failure, beyond the control of the
landlord, of any services to be furnished or supplied by the Landlord.
MORTGAGE PRIORITY
12TH: This lease shall not be a lien against the said premises in
respect to any mortgages that may hereafter be placed upon said premises. The
recording of such mortgage or mortgages shall have preference and precedence
and be superior and prior in lien to this lease, irrespective of the date of
recording and the Tenant agrees to execute any instruments, without cost, which
may be deemed necessary or desirable, to further effect the subordination of
this lease to any such mortgage or mortgages. A refusal by the Tenant to
execute such instruments shall entitle the Landlord to the option of cancelling
this lease, and the term hereof is hereby expressly limited accordingly.
SECURITY
13TH: the Tenant has this day deposited with the Landlord the sum of $
as security for the payment of the rent hereunder and the full and faithful
performance by the Tenant of the covenants and conditions on the part of the
Tenant to be performed. Said sum shall be returned to the Tenant, without
interest, after the expiration of the term hereof, provided that the Tenant has
fully and faithfully performed all such covenants and conditions and is not in
arrears in rent. During the term hereof, the Landlord may, if the Landlord so
elects, have recourse to such security, to make good any default by the Tenant,
in which event the Tenant shall, on demand, promptly restore said security to
its original amount. Liability to repay said security to the tenant shall run
with the reversion and title to said premises, whether any change in ownership
thereof be by voluntary alienation or as the result of judicial sale,
foreclosure or other proceedings, or the exercise of a right of taking or entry
by any mortgagee. The Landlord shall assign or transfer said security, for the
benefit of the Tenant, to any subsequent owner or holder of the reversion or
title to said premises, in which case the assignee shall become liable for the
repayment thereof as herein provided, and the assignor shall be deemed to be
released by the Tenant from all liability to return such security. This
provision shall be applicable to every alienation or change in title and shall
in no wise be deemed to permit the Landlord to retain the security after
termination of the Landlord's ownership of the revision or title. The Tenant
shall not mortgage, encumber or assign said security without the written
consent of the Landlord.
INCREASE OF INSURANCE RATES
14TH: If for any reason it shall be impossible to obtain fire and
other hazard insurance on the buildings and improvements on the leased premises,
in an amount and in the form and in insurance companies acceptable to the
Landlord, the Landlord may, if the Landlord so elects at any time thereafter,
terminate this lease and the term hereof, upon giving to the Tenant fifteen
days notice in writing of the Landlord's intention so to do, and upon the
giving of such notice, this lease and the term thereof shall terminate. If by
reason of the use to which the premises are put by the Tenant or character of
or the manner in which the Tenant's business is carried on, the insurance rates
for fire and other hazards shall be increased, the Tenant shall upon demand,
pay to the Landlord, as rent, the amounts by which the premiums for such
insurance are increased. Such payment shall be paid with the next installment
of rent but in no case later than one month after such demand, whichever occurs
sooner.
UTILITIES
15TH: The Tenant shall pay when due all the rents or charges for water
or other utilities used by the Tenant, which are or may be assessed or imposed
upon the leased premises or which are or may be charged to the Landlord by the
suppliers thereof during the term hereof, and if not paid, such rents or
charges shall be added to and become payable as additional rent with the
installment of rent next due or within 30 days of demand therefor, whichever
occurs sooner.
CONDEMNATION
EMINENT DOMAIN
16TH: If the land and premises leased herein, or of which the leased
premises are a part, or andy portion thereof, shall be taken under eminent
domain or condemnation proceedings, or if suit or other action shall be
instituted for the taking or condemnation thereof, or if in lieu of any formal
condemnation proceedings or actions, the Landlord shall grant an option to
purchase and or shall sell and convey the said premises or any portion thereof,
to the governmental or other public authority, agency, body or public utility,
seeking to take said land and premises or any portion thereof, then this lease,
at the option of the Landlord, shall terminate, and the term hereof shall end
as of such date as the Landlord shall fix by notice in writing; and the tenants
shall have no claim or right to claim or be entitled to any portion of any
amount which may be awarded as damages or paid as the result of such
condemnation proceedings or paid as the purchase price for such option, sale or
conveyance in lien of formal condemnation proceedings; and all rights of the
Tenant to damages, if any, are hereby assigned to the Landlord. The Tenant
agrees to execute and deliver any instruments, at the expense of the Landlord,
as may be deemed necessary or required to expedite any condemnation proceedings
or to effectuate a proper transfer of title to such governmental or other
public authority, agency, body or public utility seeking to take or acquire the
said lands and premises or any portion thereof. The Tenant covenants and agrees
to vacate the said premises, remove all the tenant's personal property
therefrom and deliver up peaceable possession thereof to the Landlord or to
such other party designated by the Landlord in the aforementioned notice.
Failure by the Tenant to comply with any provisions in the clause shall subject
the Tenant to such costs, expenses, damages and losses as the Landlord may
incur by reason of the Tenant's breach hereof.
REMEDIES UPON TENANT'S DEFAULT
17TH: If there should occur any default on the part of the Tenant in
the performance of any conditions and covenants herein contained, or if during
the term hereof the premises or any part thereof shall be or become abandoned
or deserted, vacated or vacant, or should the Tenant be evicted by summary
proceedings or otherwise, the Landlord, in addition to any other remedies
herein contained or as may be permitted by law, may either by force or
otherwise, without being liable for prosecution therefor, or for damages,
re-enter the said premises and the same have and again posses and enjoy; and as
agent for the Tenant or otherwise, re-let the premises and receive the rents
therefor and apply the same, first to the payment of such expenses, reasonable
attorney fees and costs, as the Landlord may have been put to in-entering and
repossessing the same and in making such repairs and alterations as may be
necessary; and second to the payment of the rents due hereunder. The Tenant
shall remain liable for such rents as may be in arrears and also the rents as
may accrue subsequent to the re-entry by the Landlord, to the extent of the
difference between the rents reserved hereunder and the rents, if any, received
by the Landlord during the remainder of the unexpired term hereof, after
deducting the aforementioned expense, fees and costs; the same to be paid as
such deficiencies arise and are ascertained each month.
TERMINATION ON DEFAULT
18TH: Upon the occurrence of any of the contingencies set forth in the
preceding clause, or should the Tenant be adjudicated a bankrupt, insolvent or
placed in receivership, or should proceedings be instituted by or against the
tenant for bankruptcy, insolvency, receivership, agreement of composition or
assignment for the benefit of creditors, or if this lease or the estate of the
Tenant hereunder shall pass to another by virtue of any court proceedings, writ
of execution levy, sale, or by operation of law, the Landlord may, if the
Landlord so elects, at any time thereafter, terminate this lease and the term
hereof, upon giving to the Tenant or to any trustee, receiver, assignee or
other person in charge of or acting as custodian of the assets or property of
the Tenant, five days notice in writing, of the Landlord's intention so to do.
Upon the giving of such notice, this lease and the term hereof shall end on the
date fixed in such notice as if the said date was the date originally fixed in
this lease for the expiration hereof; and the Landlord shall have the right to
remove all persons, goods, fixtures and chattels therefrom, by force or
otherwise, without liability for damages.
REMOVAL OF TENANT'S PROPERTY
19TH: Any equipment, fixtures, goods or other property of the Tenant,
not removed by the Tenant upon the termination of the lease, or upon any
quitting, vacating or abandonment of the premises by the Tenant, or upon the
Tenant's eviction, shall be considered as abandoned and the Landlord shall have
the right, without any notice of the Tenant, to sell or otherwise dispose of
the same, at the expense of the Tenant, and shall not be accountable to the
Tenant for any part of the proceeds of such sale, if any.
REIMBURSEMENT OF LANDLORD
20TH: If the Tenant shall fail or refuse to comply with and perform
any conditions and covenants of the within lease, the Landlord may, if the
Landlord so elects, carry out and perform such conditions and covenants, at the
cost and expense of the tenant, and the said cost and expense shall be payable
on demand, or at the option of the Landlord shall be added to the installment
of rent due immediately thereafter but in no case later than one month after
such demand, whichever occurs sooner, and shall be due and payable as such.
This remedy shall be in addition to such other remedies as the Landlord may
have hereunder by reason of the breach by the Tenant of any of the covenants
and conditions in this lease contained.
NON-PERFORMANCE BY LANDLORD
21ST: This lease and the obligation of the Tenant to pay the rent
hereunder and to comply with the covenants and conditions hereof, shall not be
affected, curtailed, impaired or excused because of the Landlord's inability to
supply any service or material called for herein, by reason of any rule, order,
regulation or preemption by any governmental entity, authority, department,
agency or subdivision or for any delay which may arise by reason of
negotiations for the adjustment of any fire or other casualty loss or because
of strikes or other labor trouble or for any cause beyond the control of the
Landlord.
VALIDITY OF LEASE
22ND: The terms, conditions, covenants and provisions of this lease
shall be deemed to be severable. If any clause or provision herein contained
shall be adjudged to be invalid or unenforceable by a court of competent
jurisdiction or by operation of any applicable law, it shall not affect the
validity of any other clause or provision herein, but such other clauses or
provisions shall remain in full force and effect.
<PAGE> 4
NON-WAIVER BY LANDLORD
23RD: The various rights, remedies, options and elections of the
Landlord, expressed herein, are cumulative, and the failure of the Landlord to
enforce strict performance by the Tenant of the conditions and covenants of
this lease or to exercise any election or option or to resort or have recourse
to any remedy herein, conferred or the acceptance by the Landlord of any
installment of rent after any breach by the Tenant, in any one or more
instances, shall not be construed or deemed to be a waiver or a relinquishment
for the future by the Landlord of any such conditions and covenants, options,
elections or remedies, but the same shall continue in full force and effect.
NOTICES
24TH: All notices required under the terms of this lease shall be
given and shall be complete by mailing such notices by certified or registered
mail, return receipt to the address of the parties as shown at the head of this
lease, or to such other address as may be designated in writing, which notice
of change of address shall be given in the same manner.
TITLE AND QUIET ENJOYMENT
25TH: The Landlord covenants and represents that the Landlord is the
owner of the premises herein leased and has the right and authority to enter
into, execute and deliver this lease; and does further covenant that the Tenant
on paying the rent and performing the conditions and covenants herein
contained, shall and may peaceably and quietly have, hold and enjoy the leased
premises for the term aforementioned.
ENTIRE CONTRACT
26TH: This lease contains the entire contract between the parties. No
representative, agent or employee of the Landlord has been authorized to make
any representations or promises with reference to the within letting or to
vary, alter or modify the terms hereof. No additions, changes or modifications,
renewals or extensions hereof, shall be binding unless reduced to writing and
signed by the Landlord and the Tenant.
Continued on Rider #1
CONFORMATION WITH LAWS AND REGULATIONS
The Landlord may pursue the relief or remedy sought in any invalid
clause, by conforming the said clause with the provisions of the statues or the
regulations of any governmental agency in such case made and provided as if the
particular provisions of the applicable statutes or regulations were set forth
herein at length.
In all reference herein to any parties, persons, entities or
corporations the use of any particular gender or the plural or singular number
is intended to include the appropriate gender or number as the text of the
within instrument may require. All the terms, covenants and conditions herein
contained shall be for and shall inure to the benefit of and shall bind the
respective parties hereto, and their heirs, executors, administrators, personal
or legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set heir hands
and seals, or caused these presents to be signed by their proper corporate
officers and their proper corporate seal to be hereto affixed, the day and year
first above written.
VITAREAL ASSOCIATES, L.P., as
Landlord
By: /s/ Edward M. Frankel
-------------------------------
Edward M. Frankel, as
managing general partner
[SEAL] /s/ Howard ??? GARDEN STATE NUTRITIONALS, INC.,
-------------------- ----------------------------------
as Tenant
By: /s/ Edward M. Frankel
-------------------------------
Edward M. Frankel, Vice President
<PAGE> 5
RIDER #1 TO LEASE AGREEMENT
MADE AS OF THIS 30TH DAY OF JUNE, 1985
BY AND BETWEEN
VITAREAL ASSOCIATES, L.P., AS LANDLORD
AND
GARDEN STATE NUTRITIONALS, INC., AS TENANT
The provisions of the Lease Agreement made as of the 30th day of June,
1985, by and between Vitareal Associates, L.P. and Windmill Marketing Services
Incorporated are hereby amended, modified and supplemented by the following
terms:
BASIC RENTS 27TH: Tenant shall pay to Landlord Basic Rent at an ANNUAL
rate of ONE HUNDRED FORTY-EIGHT THOUSAND NINE HUNDRED FIFTY
AND 00/100 ($148,950.00) DOLLARS, which Basic Rent shall be
due and payable monthly, with the first payment commencing on
the date hereof, and all subsequent monthly payments
thereafter on the last day of each month up through and
including May 31, 1986. The Tenant and the Landlord hereby
agree that such Basic Rent is based upon an annual rental of
23,832 square feet of space in the leased premises at $6.25
per square foot per annum. Tenant and Landlord hereby
covenant and agree that the Basic Rent shall be increased by
an amount, on a monthly basis, which is the product of the
following amounts divided by 12: (i) the increase in
percentage points, or fractions thereof, of the Prime Rate of
Horizon Bank, National Association (the "Bank") over 10% per
annum; (ii) 0.8, and (iii) $1,800,000.00. This adjustment
shall be made, on a pro rata basis, during each month of the
term of this Lease, when the Prime Rate of the Bank shall
exceed 10% per annum.
Example: If on August 1, 1985, the Bank's Prime Rate
increases to 11% and remains at 11% for the entire month,
August's present Basic Rent of $12,412.50 will be adjusted as
follows: 1% x 0.8 x $1,800,000 = 14,400 divided by 12 =
$1,200.00. So the new Basic Rent payment for August would be
$13,612.50.
<PAGE> 6
ADDITIONAL
RENT: 28TH: The Landlord and the Tenant intend that this Lease be
interpreted as a "net/net lease" and that this Lease yield to
the Landlord a net return from the leased premises equal to
the amount of the Basic Rent. Accordingly, the Landlord shall
have no obligation to furnish services of any kind to the
Tenant, and the Tenant shall, as Additional Rent, bear the
sole cost and expense, on a pro-rata basis with other tenants
in the leased premises, of all public or private utility
charges, real estate taxes, assessments, insurance coverage,
repairs and maintenance and any other costs, expenses, charges
or fees incurred by the Landlord in connection with the care,
maintenance, management, operation, control, use and occupancy
of the leased premises. The Tenant shall not, however, be
liable for payments under any Landlord mortgage on the leased
premises. The Tenant hereby acknowledges that the Landlord
will undertake to make certain renovations and improvements to
the leased premises on behalf of the Tenant, and the Tenant
hereby agrees that as part of the Additional Rent, the Tenant
will reimburse the Landlord for all such costs and expenses
incurred by the Landlord in connection with said
renovation and improvements.
EDA BOND: 29TH: The Tenant acknowledges that (i) the Landlord's
permanent financing for the acquisition of the leased premises
has been effected by a bond ("Bond") issued by the New Jersey
Economic Development Authority ("Authority") which Bond has
been purchased by the Bank, (ii) this Lease is subject to the
prior written approval of the Authority and the Bank, and
(iii) no assignment, transfer or subletting of the Tenant's
interest in the Lease shall be attempted or effected by the
Tenant without first obtaining the prior written consent of
the Authority and the Bank. This Lease shall become effective
only upon execution and delivery hereof by the Landlord and
the Tenant, and the receipt of written approval hereof by the
Authority and the Bank.
2
<PAGE> 7
REPORT OF
EMPLOYEES: 30TH: Not later than ten (10) days after the end of
each fiscal year of the Landlord during the term of this
Lease, the Tenant shall submit to the Landlord a written
report, in such detail as may be reasonably required for
purposes of meeting the Landlord's reporting obligation to the
Authority, showing the number and classification of employees
employed by the Tenant at the leased premises during the
preceding calendar year. The Tenant shall use its best
efforts to satisfy all employment projections and other
representations made by it in any Project Occupant Application
or other document furnished by it to the Authority.
PRINCIPAL USER
CERTIFICATE: 31ST: Within 10 days of the Landlord's request, the Tenant
shall prepare, certify and provide to the Landlord any
"principal user certificate" and other documents, information
and materials required by the Landlord, the Authority or the
Bank in connection with the approval of this Lease or in
connection with any financing or refinancing of the
leased premises.
RIGHT TO
INSPECT: 32ND: All rights of inspection of the leased premises granted
to the Landlord under this Lease shall also inure to the
benefit of the Authority, the Bank and their respective agents.
OPERATIONS: 33RD: The Tenant shall operate its business in the leased
premises in accordance with the description of its business as
contained in any Project Occupant Application or other
document furnished by it to the Authority or the Bank.
NOTICE OF
DEFAULT: 34TH: The Tenant agrees to give to the Bank, by registered
or certified mail, return receipt requested, a copy of any
notice of default served by it upon the Landlord, provided
that prior to such notice the Tenant has been notified, in
writing, of the most current address of the Bank. Tenant
further agrees that if the Landlord shall have failed to cure
the default within the time provided for in this Lease, then
the Bank shall have an additional 30 days within which to cure
the default in which event the Lease shall not be terminated
while such remedies are being pursued.
3
<PAGE> 8
CAPITAL
EXPENDITURES: 35TH: With respect to the issue by the Authority of
the Bond in the amount of $1,800,000.00 on behalf of the
Landlord, the Tenant shall file, and cause each of any
"Related Persons" to file, with their income tax returns,
supplemental statements which shall list by date and amount
any subsequent Internal Revenue Code Section 103(b)(6)(D)
"Capital Expenditures" as required by Treasury Regulations
Section 1.103-10(b)(2)(vi)(a), "paid or incurred" by the
Tenant or any "Related Person", as the case may be, with
respect to the leased premises and any other "facilities"
which are wholly or partially located in the Township of
Fairfield, New Jersey, or which are "contiguous or integrated"
with any "facility" so located. The Tenant agrees that for a
period of three years from the date hereof, the Tenant will
not, and the Tenant will not permit any "Related Person" to it
to, "pay or incur" any "capital expenditures" with respect to
the leased premises or with respect to any other "facility"
which is or will be wholly or partially located in the
Township of Fairfield, New Jersey or "contiguous or
integrated" with any "facility" which Tenant, the Landlord or
any other "project occupant" or any "Related Person" to the
Tenant, the Landlord or such other "project occupant" is a
"project occupant", if the total of (i) such "capital
expenditures" plus (ii) the "face amount" of the $1,800,000.00
Bond, plus (iii) all other "issues" or "obligations" and
"capital expenditures" required to be taken into account in
determining the "face amount" of the Bond at the time of its
issue (including relevant items discovered or incurred
subsequent to such time) pursuant to Sections 103(b)(6)(B) and
(D) of the Internal Revenue Code, would exceed $10,000,000.00.
Quoted terms in this paragraph are used as used in Section
103(b) of the Internal Revenue Code of 1954, as amended, and
the regulations promulgated thereunder and in published
rulings and other administrative pronouncements of the
Internal Revenue Service, and private rulings thereof made
public.
4
<PAGE> 9
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, or caused these presents to be signed by their proper corporate officers
and their proper corporate seal to be hereto affixed, the day and year first
above written.
VITAREAL ASSOCIATES, L.P.,
as Landlord
By: /s/ Edward M. Frankel
----------------------------
Edward M. Frankel, as
managing general partner
GARDEN STATE NUTRITIONALS, INC.
as Tenant
By: /s/ Edward M. Frankel
----------------------------
Edward M. Frankel,
Vice President
5
<PAGE> 10
Exhibit "A"
-----------
TRACT I
BEING known and designated as Lots 13 & 14 in Block 20-p on Final Subdivision
Map, Cind Associates, Industrial Park, Section Two, made by George C. Stewart
Assoc., Inc., Engineers and Surveyors, Roseland, N.J., dated July 1, 1969, and
filed in the Essex County Register's Office on April 7, 1970 as Map No. 3123.
TRACT II
BEING known and designated as Lots 19 and 20 in Block 20-P on Final Subdivision
Map, Cind Associates, Industrial Park, Section Three, made by George C. Stewart
Assoc., Inc., Engineers and Surveyors, Roseland, N.J., dated March 23, 1970,
and filed in the Essex County Register's Office on May 26, 1970 as Map No.
3131.
AND BOTH TRACT I AND TRACT II BEING also known as Lots 1, 2 and 3 in Block 0701
on the Tax Map of the Township of Fairfield as follows:
BEGINNING at a point on the northerly side line of Industrial Road distant 25
feet easterly from the prolongation of Lehigh Drive extended southerly;
thence
1. Running along the easterly side line of Lehigh Drive on a curve,
curving to the right having a radius of 25 feet at an arc distance of 39.27
feet; thence
2. Still along same North 39degrees52'35" East 245 feet to a point on the
northerly outside line of aforementioned map; thence
3. Running along the northerly outside line of Section 2 and Section 3 of
aforementioned maps, South 50degrees07'25" East 672.29 feet to the westerly side
line of Dwight Place; thence
4. Running along the westerly side line of Dwight Place, South
53degrees34'55" West 250.42 feet; thence
5. Still along same on a curve, curving to the right, having a radius of
35 feet at an arc distance of 46.61 feet to a point on the northerly side line
of Industrial Road; thence
6. Running along the northerly side line of Industrial Road North
50degrees07'25" West 554.46 feet to the point and place of BEGINNING.
<PAGE> 11
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
THIS SECOND AMENDMENT TO LEASE AGREEMENT, made on this 25th
day of September, 1995, but effective as of the 30th day of June, 1995, by and
between
VITAREAL ASSOCIATES, L.P., a New Jersey limited partnership
located at 100 Lehigh Drive, Fairfield, New Jersey, 07004 (hereinafter referred
to as the "Landlord"),
AND
GARDEN STATE NUTRITIONALS, INC., a New Jersey corporation
located at 100 Lehigh Drive, Fairfield, New Jersey 07004 (hereinafter referred
to as the "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into a certain Lease
Agreement dated as of June 30,1985, pursuant to which Landlord leased to Tenant
approximately 23,832 square feet of a 34,832 square foot office, manufacturing
and warehouse building located at 100 Lehigh Drive, Fairfield, New Jersey,
07004 (hereinafter referred to as the "Lease Agreement"); and
WHEREAS, said Lease Agreement set forth the term, the rent and
the other material terms and conditions governing the Tenant's right to use the
Leased premises; and
WHEREAS, the Landlord and the Tenant now desire to amend the
Agreement for the purposes of providing for (i) a new lease term, and (ii) new
rent payment terms.
<PAGE> 12
NOW, THEREFORE, for and in consideration of these premises and of the
mutual representations, covenants and agreements hereinafter set forth,
Landlord and Tenant do mutually promise, covenant and agree as follows:
1 . Paragraph 27 set forth in Rider #1 to the Lease Agreement is
deleted in its entirety and a new Paragraph 27 is inserted in its place and
shall read as follows:
"BASIC RENTS 27th: Tenant shall pay to Landlord Basic Rent at an annual
rate as set forth in the schedule below, which Basic Rent
shall be due and payable monthly, with a first payment
commencing on July 1,1995, arid all subsequent monthly
payments thereafter on the first day of each month up through
and including June 30, 2001. The Tenant and the Landlord
hereby agree that such Basic Rent is based upon an annual
rental of 34,832 square feet of space in the leased premises
at a per square foot per annum amount as set forth in the
schedule below. Tenant and Landlord hereby covenant and agree
that the Basic Rent for any given year shall be increased for
that year by an amount, on a monthly basis, which is the
product of the following amounts divided by 12: (i) the
increase in percentage points, or fractions thereof, of the
Prime Rate of Chemical Bank (the "Bank") over 10% per annum;
(ii) 0.8, (iii) $1,800,000, and (iv) 0.68. This adjustment
shall be made, on a pro rata basis, during each month of the
term of this Lease, when the Prime Rate of the Bank shall
exceed 10% per annum.
SCHEDULE OF ANNUAL BASIC RENT
-----------------------------
<TABLE>
<CAPTION>
Lease Annual Per Square Annual
Year Foot Rental Amount Basic Rent
----- ------------------ ----------
<S> <C> <C>
1 8.92 $310,788.00
2 8.92 $310,788.00
3 8.92 $310,788.00
4 8.92 $310,785.00
5 8.92 $310,788.00
6 8.92 $310,788.00
</TABLE>
2
<PAGE> 13
Example: If on December 1,1985, the Bank's Prime Rate increases to 11%
and remains at 11% for the entire month, then December's
present Basic Rent of $13,087.74 will be adjusted as follows:
1% x 0.8 x 0.68 x $1,800,000 = $9,520.00 divided by 12 =
$793.33. So the new Basic Rent payment for December would
be $13,881.07."
2. The term of the Lease Agreement as set forth in Rider #1 of the Lease
Agreement is hereby amended to provide for a 6 year term commencing on June
30,1995 and ending on June 30,2001.
3. - RENEWAL TERM In addition, Tenant shall have the option to extend
the term of this lease for two additional five (5) year periods (the "Renewal
Term"), The Renewal Term shall commence on the date immediately succeeding the
Expiration Date of the Second Amendment and end on the fifth (5th) and tenth
(10th) anniversaries of the Expiration Date, provided that (a) this lease shall
not have been previously terminated and that Tenant shall not be in default in
the observance or performance of any of the terms, covenants or conditions of
this lease, beyond any applicable notice and/or cure periods (i) on the date
Tenant gives Landlord written notice of Tenant's election to exercise the
Renewal Option, and (ii) on the Expiration Date. The Tenant must deliver the
Renewal Notice to Landlord at least three (3) months prior to the Expiration
Date.
3.1. The Rent for the Renewal Term shall be as follows:
(i) The annual Fixed Rent for the Renewal Term for the premises
for the Renewal Term shall be an amount equal to the greater of (a) the Fair
Market Rent (hereinafter defined), or (b) the Fixed Rent Expiration Date (the
"Annual Rent"), (the greater of (a) and (b) being hereinafter referred to as
the "Rental Value").
(ii) For purposes of the Renewal Term, the term "Fair Market Rent"
shall mean the fixed annual rent that a willing lessee would pay and a willing
lessor would accept for the Premises during the term of a ten customary
long-term lease for
3
<PAGE> 14
space of a similar size to the Premises, assuming (a) that the Premises were
vacant and in their "as is" condition on the commencement date of the Renewal
Term; (b) that the Premises were being demised upon the same terms and
conditions as are provided for in this lease for the Renewal Term; (c) the
provisions of Section 2.01 of this Article relative to Tenant's right to renew
the term on this lease shall not be applicable during the Renewal Term, and (d)
the Expiration Date shall, for purposes of this lease be defined as the Renewal
Expiration Date.
4. All other terms, conditions, covenants and provisions of the Lease
Agreement shall remain in full force and effect.
5. This First Amendment to Lease Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals, or caused these presents to be signed by their proper corporate
officers and their proper corporate seal to be hereto affixed, all as of the
day and year first above written.
WITNESS: VITAREAL ASSOCIATES, L.P.
/s/ Stephen J. Young /s/ Edward M. Frankel
- ------------------------------- ------------------------------------
Edward M. Frankel
Managing General Partner
(SEAL)
ATTEST: GARDEN STATE NUTRITIONALS, INC.
/s/ Stephen J. Young /s/ Edward M. Frankel
- ------------------------------- ------------------------------------
Edward M. Frankel
President
4
<PAGE> 1
Exhibit 10.10
COMMERCIAL LEASE
This Commercial Lease ("Agreement") is entered into as of November 1,
1995 between Leknarf Associates, L.L.C., a New Jersey Limited Liability
Company, with its principal place of business at 100 Lehigh Drive, Fairfield,
NJ ("Lessor") and Garden State Nutritionals, Inc., a New Jersey Corporation
with its principal place of business at 21 Dwight Place, Fairfield, NJ,
("Lessee").
GENERAL
The Lessor wishes to Lease a portion of the Premises (defined below)
to the Lessee; and the Lessee wishes to lease those Premises from the Lessor.
In consideration for the mutual promises, covenants, and Agreements
made below, the parties, intending to be legally bound, agree as follows:
DEFINITIONS
For purposes of this Agreement, the following terms will have the
indicated definitions:
"AGREEMENT." This Agreement is by and between the Lessor and the
Lessee.
"PREMISES." The warehouse and office space situated in the city of
West Caldwell, NJ described as 8 Henderson Drive and having an area of
approximately 39,900 s.f. of office and 79,500 s.f. of warehouse. See Exhibit A
for a map of the Premises.
AGREEMENT
---------
1. TERM AND RENT. The Lessor demises the above Premises, commencing
December 1, 1995 and terminating on November 30, 2000. Both parties agree that
this is in no way a month to month lease. The Lessee shall pay to the Lessor as
rent for the Premises, without demand, deduction, or rights of off-set, the
following sums: Equal monthly installments of $ 64,750.00 Each installment
payable in advance on the first day of each month for that month's rental,
during the term of this lease. All rental payments should be made out to the
Lessor and sent to the address stated above.
2. RENEWAL TERM.
2.01 Tenant shall have the option (the "Renewal Option") to extend
the term of this lease for two additional five (5) year periods (the "Renewal
Term"), which Renewal Term shall commence on the date immediately succeeding
the Expiration Date, and end on the fifth (5th) and tenth (10th) anniversaries
of the Expiration Date (the "Renewal Expiration Date"). provided that (a) this
lease shall not have been previously terminated and that Tenant shall not be in
default in the observance or performance of any of the terms, covenants or
conditions of this lease, beyond
<PAGE> 2
any applicable notice and/or cure periods (i) on the date Tenant gives Landlord
written notice (the "Renewal Notice") of Tenant's election to exercise the
Renewal Option, and (ii) on the Expiration Date. The Renewal Option shall be
exercised with respect to the portion of the Premises rented to the Tenant and
shall be exercisable by Tenant delivering the Renewal Notice to Landlord at
least three (3) months prior to the Expiration Date. Time is of the essence
with respect to the giving of the Renewal Notice.
2.02. If Tenant exercises the Renewal Option in accordance with the
terms of Section 2.01 of this Article, the Renewal Term shall be upon the same
terms, covenants and conditions as those contained in this lease, except that
(i) the Fixed Rent shall be deemed to mean the Fixed Rent as determined
pursuant to Section 2.03 of this Article; (ii) the provisions of Section 2.01
of this Article relative to Tenant's right to renew the term of this lease
shall not be applicable during the Renewal Term; and (iii) the Expiration Date
shall, for purposes of this lease, be defined as the Renewal Expiration Date.
2.03. The Fixed Rent for the Renewal Term shall be as follows:
(i) The annual Fixed Rent for the Renewal Term for the premises
for the Renewal Term shall be an amount equal to the greater of (a) the Fair
Market Rent (hereinafter defined), or (b) the Fixed Rent Expiration Date (the
"Annual Rent"), (the greater of (a) and (b) being hereinafter referred to as
the "Rental Value").
(ii) For purposes of the Renewal Term, the term "Fair Market Rent"
shall mean the fixed annual rent that a willing lessee would pay and a willing
lessor would accept for the Premises during the term of a ten customary
long-term lease for space of a similar size to the Premises, assuming (a) that
the Premises were vacant and in their "as is" condition on the commencement
date of the Renewal Term; (b) that the Premises were being demised upon the
same terms and conditions as are provided for in this lease for the Renewal
Term; (c) the provisions of Section 2.01 of this Article relative to Tenant's
right to renew the term on this lease shall not be applicable during the
Renewal Term; and (d) the Expiration Date shall, for purposes of this lease be
defined as the Renewal Expiration Date.
2.04. (a) In the event that Tenant shall have exercised the Renewal
Option in accordance with the terms of Section 2.01 of this Article, Landlord
shall give Tenant written notice (the :"Rent Notice") at least ninety (90) days
prior to the Expiration Date setting forth Landlord's determination of the Fair
Market Rent ("Landlord's Determination").
(b) If Landlord's Determination exceeds the Annual Rent, then
Tenant shall give Landlord written notice ("Tenant's Notice"), within twenty
(20) days after Tenant's receipt of the Rent Notice, of whether Tenant accepts
or disputes Landlord's Determination, and if Tenant disputes Landlord's
Determination, Tenant's Notice shall set forth Tenant's Determination of the
Fair Market Rent. If Tenant in Tenant's Notice accepts Landlord's Determination
or if Tenant fails or refuses for any reason to give Tenant's Notice within the
twenty (20) day period set forth above, Tenant shall be deemed to have accepted
Landlord's Determination for the Renewal Term. If Tenant in Tenant's Notice
disputes Landlord's Determination in the manner set forth above, any
2
<PAGE> 3
such dispute, if not resolved between the parties within twenty (20) days
thereafter, shall be settled in accordance with the provisions of Section 2.06
hereof.
2.05. If Landlord's Determination shall exceed the Annual Rent and if
the final determination of the Rental Value shall not be made on or before the
first day of the Renewal Term in accordance with the provisions of this
Article, then, pending such final determination, Tenant shall pay, as the Fixed
Rent for the Renewal Term, an amount equal to Landlord's Determination. If,
based upon the final determination hereunder of the Rental Value, the payments
made by Tenant on account of the Fixed Rent for such portion of the Renewal
Term were (i) less than the Rental Value payable for the Renewal Term, Tenant
shall pay to Landlord the amount of such deficiency within five (5) days after
demand therefor or (ii) greater than the Rental Value payable for the Renewal
Term, Landlord shall credit the amount of such excess against future
installments of Fixed Rent payable by Tenant. Upon the final determination of
any dispute pursuant to Section 2.06, Tenant shall pay, and the Fixed Rent
shall be, the Rental Value during the Renewal Term.
2.06. (a) If Tenant notifies Landlord that Tenant disputes
Landlord's determination of the Fair Market Rent within the twenty (20) day
period set forth in Section 2.04 above and Landlord and Tenant fail to agree as
to the Fair Market Rent within the twenty (20) day period set forth in said
Section 2.04, then the Fair Market Rent shall be determined as follows: Such
dispute shall be resolved by arbitration conducted in accordance with the real
estate valuation arbitration rules of the American Arbitration Association (the
"AAA") in effect on the date hereof, except that the provisions of this Section
2.06 shall apply to the conduct and determination of such arbitration and shall
supersede any conflicting or inconsistent provisions of said real estate
valuation arbitration rules. The party requesting arbitration shall do so by
giving notice to the effect to the other party, specifying in said notice the
nature of the dispute, and that said dispute shall be determined in the State
of New Jersey by a panel of three (3) arbitrators in accordance with this
Section 2.06.
(b) Landlord and Tenant shall each appoint their own arbitrator
within 15 days after the giving of notice by either party, which notice shall
state that such party seeks a determination of the Fair Market Rent pursuant to
this Article 2. If either Landlord or Tenant shall fail to timely appoint an
arbitrator, the appointed arbitrator shall select the second arbitrator, who
shall be impartial, within 15 days after such party's failure to appoint. Such
two arbitrators shall have twenty (20) days to appoint a third arbitrator who
shall be impartial. If such arbitrators fail to do so, then either Landlord or
Tenant may request the AAA to appoint an arbitrator who shall be impartial
within twenty (20) days of such request and both parties shall be bound by any
appointment so made within such 20 day period. If no such third arbitrator
shall have been appointed within such 20 days or within 90 days of the original
request for a determination of the Fair Market Rent, whichever is earlier,
either Landlord or Tenant may apply to any court having jurisdiction to make
such appointment.
(c) The third arbitrator only shall subscribe and swear to an oath
fairly and impartially to determine such dispute. The three arbitrators shall
conduct such hearings as they deem appropriate (or such hearings as either
Landlord or Tenant shall request). Each arbitrator
3
<PAGE> 4
shall determine independently of the other the Fair Market Rent based solely on
the criteria set forth in the applicable Section of this lease providing for
such determination and within fifteen (15) days after the third arbitrator has
been appointed, each arbitrator shall render his determination of the Fair
Market Rent and shall submit same to each of the other arbitrators, making
their determination in writing, and shall give notice to Landlord and Tenant of
their determination as soon as practicable, and if possible, within twenty (20)
days of the designation of the third arbitrator, but in no event later than
thirty (30) days after such designation. If at least two of the three
arbitrators shall concur in their determination of the Fair Market Rent, their
determination shall be final and binding upon the parties. If the arbitrators
fall to concur, then the Fair Market Rent shall be an amount equal to fifty
(50%) percent of the sum of the two determinations by the arbitrators closest
in amount; and such amount shall be final and binding upon the parties.
(d) The fees and expenses of any arbitration of the determination
of the Fair Market Rent for purposes of this Section 7.06 shall be borne by the
parties equally, but each party shall bear the expense of its own arbitrator,
attorneys and experts and the additional expenses of presenting its own proof.
(e) Landlord and Tenant shall each have the right to submit such
data and memoranda to each of the arbitrators in support of their respective
positions as they may deem necessary or appropriate.
(f) Each arbitrator shall be a qualified member of the American
Institute of Real Estate Appraisers (or any successor of such Institute, or if
such organization or successor shall no longer be in existence, a recognized
national association or institute of appraisers) who shall not be a sole
practitioner, and shall have at least ten (10) years' experience in leasing and
valuation of properties which are similar in character to the Building.
(g) It is expressly understood that any determination of the Fair
Market Rent shall be based on the assumption and criteria stated in Section
2.03 (iii) of this Article. The arbitrators shall not have the power to add to
modify or change any of the provisions of this lease, and the jurisdiction of
the arbitrators is limited accordingly.
(h) After a determination has been made of the Fair Market Rent,
the parties shall execute and deliver to each other an instrument setting forth
the Fair Market Rent, as herein above determined. The failure of either or both
parties to execute and deliver such instrument shall not affect said
determination of the Fair Market Rent.
3. LATE CHARGES. The Lessee hereby acknowledges that late payment by the
Lessee to he Lessor of rent or other sums due under this Agreement will cause
the Lessor to incur costs not contemplated by this lease, the exact amount of
which will be extremely difficult to ascertain. Accordingly, if any
installment of rent or of a sum due from the Lessee shall not be received by
the Lessor's designees by 12:00 noon on the fifth (5th) day of each month of
the term, then the Lessee shall pay to the Lessor a late charge equal to 5%
4
<PAGE> 5
percent of such overdue amount. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the cost that the Lessor will incur
by reason of the late payment by the Lessee. Acceptance of such late charges by
the Lessor shall in no event constitute a waiver of the Lessee's default with
respect to such overdue amount, nor prevent the Lessor from exercising any of
the other rights and remedies granted in this Agreement.
4. USE
4.1 USES PERMITTED. The Lessee shall use and occupy the Premises for
the manufacture, packaging and distribution of vitamins and for general and
executive offices. The Premises shall be for no other purpose without the
express written prior consent of the Lessor. The Lessor represents that the
Premises may lawfully be used for such purpose.
4.2 USES PROHIBITED
4.2.1 The Lessee shall not do or permit anything to be done in or
about the Premises nor bring or keep anything that will increase the existing
rate or affect any fire or other insurance upon the building or any of its
contents, or cause a cancellation of any insurance policy covering said
building or any part or any of its contents, nor shall the Lessee sell or
permit to be kept, used or sold in or about said Premises any articles or
substances, inflammable or otherwise, that may be prohibited by a standard form
policy of fire insurance.
4.2.2 The Lessee shall not do or permit anything to be done in or
about the Premises that will in any way obstruct or interfere with the rights
of other Lessees of the building or injure or annoy them or use or allow the
Premises to be used for any unlawful or objectionable purpose.
4.2.3 The Lessee shall not use the Premises or permit anything to be
done in or about the Premises that will in any way conflict with any law now in
force or that may hereafter be enacted. The Lessee shall at its cost promptly
comply with all laws now in force or that may hereafter be in force and with
the requirements of any board of fire underwriters or other similar body
relating to the Lessee's improvements or acts.
4.3 LIENS. The Lessee shall keep the Premises and the property in
which the Premises are situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by the Lessee. The
Lessor may require the Lessee to provide the Lessor, at the Lessee's cost, a
lien and completion bond in an amount equal to one and one-half (1 1/2) times
the estimated cost of any improvements, additions, or alterations by the
Lessee, to insure the Lessor against liability for mechanic's and material
men's liens and to insure completion for the work.
5. REPAIRS AND MAINTENANCE. By taking possession of the Premises, the
Lessee shall be deemed to have accepted the Premises as being in good sanitary
order, condition and repair. The Lessee shall at the Lessee's cost, keep the
Premises and every part of it in good condition and repair except for damages
beyond the control of the Lessee and ordinary wear and tear. The
5
<PAGE> 6
Lessee shall upon the expiration or sooner termination of this lease surrender
the Premises to the Lessor in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of the Lessee excepted. Unless
specifically provided in an addendum to this lease, the Lessor shall have no
obligation to alter, remodel, improve, repair, decorate or paint the Premises
or any part of it and the parties here, affirm that the Lessor has made no
representations to the Lessee respecting the condition of the Premises and the
building except as specifically stated in this Agreement (see Exhibit C).
Despite the above provisions, the Lessor shall repair and maintain or cause to
be repaired and maintained the structural portions of the building, including
the standard plumbing, air conditioning, heating and electrical systems
furnished by the Lessor, unless such maintenance and repairs are caused in part
or in whole by the act, neglect, fault or omission of any duty by the Lessee,
its agents, employees or invitees, in which case the Lessee shall pay to the
Lessor the reasonable cost of such maintenance and repairs. The Lessee shall
give the Lessor written notice of any required repairs or maintenance. The
Lessor shall not be liable for any failure to repair or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice. Any repairs or maintenance to supplemental cooling equipment
required for the Lessee's special needs are the responsibility of the Lessee.
Except as specifically stated in this Agreement, there shall be no abatement of
rent and no liability of the Lessor by reason of any injury to or interference
with the Lessee's business arising from making of any repairs, alterations or
improvements to any portion of the building or the Premises or to fixtures,
appurtenances and equipment. The Lessee waives the right to make repairs at the
Lessor's expense under any law, statute or ordinance now or hereafter in
effect.
6. ALTERATIONS. The Lessee shall not, without first obtaining the written
consent of the Lessor, make any alterations, additions, or improvements, in, to
or about the Premises. Any such alterations, additions or improvements,
including, but not limited to, wall covering, paneling and built-in cabinet
work, but excepting movable furniture and trade fixtures, shall become a part
of the realty, shall belong to the Lessor, and shall be surrendered with the
Premises at expiration or termination of the lease. If the Lessor consents to
any such alterations, additions or improvements by the Lessee, they shall be
made by the Lessee at the Lessee's cost, and any contractor or person selected
by the Lessee to perform the work shall first be approved of, in writing, by
the Lessor. Upon expiration, or sooner termination of the term, the Lessee
shall, upon written demand by the Lessor, promptly remove any alterations,
additions or improvements made by the Lessee and designated by the Lessor to be
removed. Such removal and repair of any damage to the Premises caused by such
removal shall be at the Lessee's cost.
7. ORDINANCES AND STATUTES. The Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities
now in force, or that may hereafter be in force, pertaining to the Premises,
occasioned by or affecting the use by the Lessee
8. ASSIGNMENT AND SUBLETTING. The Lessee shall not assign this lease or
sublet any portion of the Premises without prior written consent of the Lessor.
Any such assignment or subletting without consent shall be void and, at the
option of the Lessor, may terminate this lease. Any change of control of any
shares, partnership interests or interests in a limited liability company is
deemed an assignment.
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9. SERVICE AND UTILITIES. The Lessee shall pay for, prior to delinquency,
all telephone and all other materials and services, not expressly required to
be paid by the Lessor, that may be furnished to or used in, on or about the
Premises during the term of this lease. The Lessee will not, without the prior
written consent of the Lessor and subject to any conditions the Lessor may
impose, use any apparatus or device in the Premises that will in any way
increase the amount of electricity or water usually furnished for use of the
Premises as a general office space. If the Lessee shall require water or
electric current in excess of that usually furnished or supplied for use of the
Premises as general office space, the Lessee shall first procure the consent of
the Lessor. Wherever heat generating machines or equipment are used in the
Premises that affect the temperature otherwise maintained by the air
conditioning system, the Lessor reserves the right to install supplementary air
conditioning units in the Premises and the cost of them, including the cost of
installation, operation and maintenance of them, shall be paid by the Lessee to
the Lessor upon demand by the Lessor. The Lessor shall not be liable for the
Lessor's failure to furnish any of the foregoing when such failure is caused by
any cause beyond the reasonable control of the Lessor. The Lessor shall not be
liable under any circumstances for loss of or injury to property, however
occurring, in connection with failure to furnish any of the foregoing.
10. ENTRY AND INSPECTION. The Lessor reserve the right to enter the
Premises at any time to inspect the Premises, to provide any service for which
the Lessor is obligated under this Agreement, to submit the Premises to
prospective purchasers or the Lessees, to post notices of non-responsibility,
and to alter, improve, maintain or repair the Premises or any portion of the
building that the Premises are a part that the Lessor deems necessary or
desirable, all without abatement of rent. The Lessor may erect scaffolding and
other necessary structures where reasonably required by the character of the
work to be performed, but shall not block entrance to the Premises and not
interfere with the Lessee's business, except as reasonably required for the
particular activity by the Lessor. The Lessor shall not be liable in any manner
for any inconvenience, disturbance, loss of business, nuisance, interference
with quiet enjoyment, or other damage arising out of the Lessor's entry on the
Premises as provided in this section, except damage, if any, resulting from the
negligence or willful misconduct of the Lessor or its authorized
representative. The Lessor shall retain a key with which to unlock all doors
into, within, and about the Premises, excluding the Lessee's vaults, safes and
files. In an emergency, the Lessor shall have the right to use any means that
the Lessor deems reasonably necessary to obtain entry to the Premises, without
liability to the Lessee, except for any failure to exercise due care for the
Lessee's property. Any such entry to the Premises by the Lessor shall not be
construed or deemed to be forcible or unlawful entry into the Premises or an
eviction of the Lessee from the Premises or any portion of it.
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<PAGE> 8
11. INDEMNIFICATION OF LESSOR. The Lessee shall hold the Lessor harmless
from any claims arising from the Lessee's use of the Premises or from any
activity permitted by the Lessee in or about the Premises, and any claims
arising from any breach or default in the Lessee's performance of any
obligation under the terms of this lease. If any action or proceeding is
brought by reason of any such claim in which the Lessor is named as a party,
the Lessee shall defend the Lessor therein at the Lessee's expense by counsel
reasonably satisfactory to the Lessor. The Lessor and its agents shall not be
liable for any damage to property entrusted to the employees of the building,
nor for loss or damage to any property by theft or damage, nor from any injury
to or damage to persons or property resulting from any cause whatsoever, unless
caused by or due to the negligence or willful misconduct of the Lessor, its
agents or employees. The Lessor shall not be liable for any latent defect in
the Premises or in the building of which they are a part. The Lessee shall give
prompt notice to the Lessor in case of fire or accidents on the Premises or in
the building or of alleged defects in the building, fixtures or equipment.
12. INSURANCE
12.1 COVERAGE. The Lessee shall assume the risk of damage
to any fixtures, goods, inventory, merchandise, equipment, furniture and
leasehold improvements, and the Lessor shall not be liable for injury to the
Lessee's business or any loss of income relative to such damage. The Lessee
shall, at all times during the term of this lease, and at its own cost, procure
and continue in force the following insurance coverage:
12.1.1 Comprehensive public liability insurance, insuring
the Lessor and the Lessee against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises and all areas appurtenant.
12.2 INSURANCE POLICIES. The limits of said insurance
policies shall not, however, limit the liability of the Lessee under this
Agreement. The Lessee may carry said insurance under a blanket policy,
providing, however, said insurance by the Lessee shall name the Lessor as an
additional insured. If the Lessee shall fail to procure and maintain said
insurance, the Lessor may, but shall not be required to, procure and maintain
same, but at the expense of the Lessee. Insurance required under this
Agreement shall be in companies that rate B+ or better in "Best's Insurance
Guide." The Lessee shall deliver to the Lessor prior to occupancy of the
Premises copies of policies of insurance required or certificates evidencing
the existence and amounts of such insurance with loss payable clauses,
satisfactory to the Lessor and naming the Lessor as an additional named
insured. No policy shall be cancelable or subject to reduction of coverage
except after thirty (30) days prior written notice to the Lessor. The minimum
acceptable amount of comprehensive liability insurance is $1,000,000 against
claims in any occurrence, and property damage insurance in an amount of not
less than $100,000 per occurrence, or combined single limit of $1,000,000
comprehensive liability and property damage insurance.
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12.3 WAIVER OF SUBROGATION. As long as their respective insurers
so permit, the Lessor and the Lessee each hereby waive any and all rights of
recovery against the other for any loss or damage occasioned to such waiving
party or its property of others under its control to the extent that such loss
or damage is insured against under any fire or extended coverage insurance
policy that either may have in force at the time of such loss or damage. Each
party shall obtain any special endorsement, if required by their insurer, to
evidence compliance with this waiver.
13. EMINENT DOMAIN. If more than twenty-five percent (25%) of the
Premises is taken or appropriated by any public or quasi-public authority under
the powers of eminent domain, either party under this Agreement shall have the
right at its option to terminate this lease. If less than twenty-five percent
(25%) of the Premises is taken (or neither party elects to terminate as above,
provided if more than twenty-five percent (25%) is taken), the lease shall
continue, but the rental thereafter to be paid shall be equitably reduced. If
any part of the building of which the Premises are a part is so taken or
appropriated, whether or not any part of the Premises is involved, the Lessor
shall be entitled to the entire award and compensation for the taking that is
paid or made by the public or quasi-public agency, and the Lessee shall
have no claim against said award.
14. DESTRUCTION OF PREMISES. In the event of a partial destruction of the
Premises during the term of this Agreement, from any cause, the Lessor shall
forthwith repair the same, provided that such repairs can be made within sixty
(60) days under existing governmental rules and regulations, but such partial
destruction shall not terminate this lease, except that the Lessee shall be
entitled to a proportionate reduction of rent while such repairs are being
made, based upon the extent to which the making of such repairs shall interfere
with the business of the Lessee on the Premises. If such repairs cannot be
made within said sixty (60) days, the Lessor, at his option, may make the same
within a reasonable time, this lease continuing in effect with the rent
proportionately abated as aforesaid, and in the event that the Lessor shall not
elect to make such repairs that cannot be made within sixty (60) days, this
lease may be terminated at the option of either party. In the event that the
building in which the demised Premises may be situated is destroyed to an
extent of not less than one-third of the replacement costs, the Lessor may
elect to terminate this lease whether the demised Premises be injured or not.
Lessor's obligation under this paragraph shall be limited to the extent of any
insurance proceeds. A total destruction of the building in which the
Premises may be situated shall terminate this lease.
15. LESSOR'S REMEDIES ON DEFAULT
15.1 If the Lessee defaults in the payment of rent, or any
additional rent, or defaults in the performance of any of the other covenants
or conditions of this Agreement, the Lessor may give the Lessee notice of such
default and if the Lessee does not cure any such default within three (3)
business days, after the giving of such notice (or if such other default is of
such a nature that it cannot be completely cured within such period, if the
Lessee does not commence such curing within such three (3) business days and
thereafter proceed with reasonable diligence and in good faith to cure such
default), then the Lessor may terminate this lease on not less than thirty (30)
calendar days' notice to the Lessee. On the date specified in such notice the
term of this lease shall terminate, and the Lessee shall then quit and
surrender the Premises to the Lessor, but the Lessee shall remain liable as
provided in this Agreement. If this lease shall have been so
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terminated by the Lessor, the Lessor may at any time thereafter resume
possession of the Premises by any lawful means and remove the Lessee or other
occupants and their effects. No failure to enforce any term shall be deemed a
waiver.
15.2 The making by the Lessee of any general assignment or
general arrangement for the benefit of creditors, the filing by or against the
Lessee of a petition to have the Lessee adjudged a bankrupt or of a petition
for reorganization or arrangement under any law relating to bankruptcy (unless,
in the case of a petition tiled against the Lessee, same is dismissed within
sixty (60) days; the appointment of a trustee or receiver to take possession of
substantially all the Lessee's assets located at the Premises or of the
Lessee's interest in this lease, where possession is not restored to the Lessee
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of the Lessees assets located at the Premises or of the
Lessee's interest in this lease, where such seizure is not discharged within
thirty (30) days.
16. TAXES. The Lessee shall pay before delinquency, all taxes levied or
assessed and that become payable during the term of this Agreement upon all the
Lessee's leasehold improvements, equipment, furniture, fixtures and personal
property located in the Premises, except that which has been paid for by the
Lessor and is the standard of that building. Should the laws of the State of
New Jersey any local body be changed in a way that results in a higher or lower
tax on the Premises than the annual increases now a matter of law, any such
increase shall be passed through to the Lessee. The Lessee shall pay to the
Lessor its share of such taxes, if any, within thirty days after delivery to
the Lessee by the Lessor of a statement in writing setting forth the amount of
such taxes. Tenant shall have the right to contest the tax levy and to take
action against any governing body imposing such tax on it.
17. ATTORNEYS' FEES. In case suit should be brought for recovery of the
Premises, or for any sum due under this Agreement, or because of any act that
may arise out of the possession of the Premises, by either party, the
prevailing party shall be entitled to all costs incurred in connection with
such action, including a reasonable attorney's fee.
18. WAIVER. No failure of the Lessor to enforce any term of this Agreement
shall be deemed to be a waiver.
19. NOTICES. Any notice that either party may or is required to give,
shall be given by mailing the same, postage prepaid, to the Lessee at the
Premises, or the Lessor at the address shown above, or at such other places as
may be designated by the parties from time to time.
20. HEIRS, ASSIGNS, SUCCESSORS. This lease is binding upon and inures to
the benefit of the heirs, permitted assigns and successors in interest to the
parties.
21. SUBORDINATION. This lease is and shall be subordinated to all existing
and future liens and encumbrances against the property.
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22. RULES AND REGULATIONS. The Lessee shall faithfully observe and comply
with the rules and regulations attached as Exhibit B to this lease, as well as
such rules and regulations that the Lessor shall from time to time promulgate.
The Lessor reserves the right from time to time to make all reasonable
modifications to those rules that shall be binding to the Lessee upon delivery
of a copy of them to the Lessee. The Lessor shall not be responsible to the
Lessee for the nonperformance of any of said rules by any other Lessee.
23. STATEMENT TO LENDER. Both Lessor and Lessee shall at any time and from
time to time, upon not less than ten (10) days prior written notice from the
other Party, execute, acknowledge, and deliver to the other Party a statement
in writing, (1) certifying that this lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modifications and
certifying that this lease as so modified, is in full force and effect), and
the date that the rental and other charges are paid in advance, if any, and (2)
acknowledging that there are not, to their knowledge, any uncured defaults on
the part of the other Party under this Agreement, or specifying such defaults
if any are claimed. Any such statement may be relied upon by any prospective
purchaser of all or any portion of the real property of which the Premises are
a part.
24. PARKING. The Lessee shall have the right to use, in common with
other tenants or occupants of the building, parking facilities, provided by the
Lessor for tenants of 8 Henderson Drive, West Caldwell, NJ, subject to the
rules and regulations established by the Lessor.
25. CORPORATE AUTHORITY. Each individual executing this lease on behalf of
the Lessee's corporation represents and warrants that he is duly authorized to
execute and deliver this lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this lease is
binding upon said corporation in accordance with its terms.
26. NAME. The Lessee shall not use the name of the development in which the
Premises are situated for any purpose other than as an address of the business
to be conducted by the Lessee in the Premises, unless written authorization is
obtained from the Lessor.
27. SEVERABILITY. If any provision of this Agreement is found invalid or
unenforceable under judicial decree or decision, the remainder shall remain
valid and enforceable according to its terms. Without limiting the previous, it
is expressly understood and agreed that each and every provision of this
Agreement that provides for a limitation of liability, disclaimer of
warranties, or exclusion of damages is intended by the parties to be severable
and independent of any other provision and to be enforced as such. Further, it
is expressly understood and agreed that if any remedy under this Agreement is
determined to have failed of its essential purpose, all other limitations of
liability and exclusion of damages set forth in this section shall remain in
full force and effect.
28. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New Jersey applicable to Agreements made and fully performed in New
Jersey by New Jersey residents.
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29. TOXICS. The Lessor and the Lessee acknowledge that they have been
advised that numerous federal, state, and/or local laws, ordinances and
regulations ("Laws") affect the existence and removal, storage, disposal,
leakage of contamination by materials designated as hazardous or toxic
("Toxics"). Many materials, some utilized in everyday business activities and
property maintenance, are designated as hazardous or toxic. Some of the Laws
require that Toxics be removed or cleaned up without regard to whether the
party required to pay for the "clean up" caused the contamination, owned the
property at the time of the contamination occurred or even knew about the
contamination. Some items, such as asbestos or PCB's, that were legal when
installed, are now classified as Toxics, and are subject to removal
requirements. Civil lawsuits for damages resulting from Toxics may be filed by
third parties in certain circumstances. Tenant agrees to comply with all
Federal, State and Local laws relating to Toxics. In addition, Tenant will
indemnify and hold Landlord harmless as a result of any legal action brought
against Landlord due to any action taken by Tenant.
30. SIGNS. The Lessor at no cost to the Lessee shall design and construct
signs to reflect the multi-tenant nature of the building. The Lessee will be
given a pro rata share of any major exterior sign.
31. ENTIRE AGREEMENT. The parties acknowledge that this Agreement
expresses their entire understanding and Agreement, and that there have been no
warranties, representations, covenants or understandings made by either party
to the other except such as are expressly set forth in this section. The
parties further acknowledge that this Agreement supersedes, terminates and
otherwise renders null and void any and all prior Agreements or contracts,
whether written or oral, entered into between the Lessee and the Lessor with
respect to the matters expressly set forth in this Agreement.
We have carefully reviewed this contract and agree to and accept its
terms and conditions. We are executing this Agreement as of the day and year
first written above.
Lessee Lessor
/s/ Stephen J. Young /s/ Edward M. Frankel
- ------------------------- ---------------------------
By By
Stephen J. Young Edward M. Frankel
- ------------------------- ---------------------------
Name Name
Vice President, Finance Manager
- ------------------------- ---------------------------
Title Title
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Exhibit 10.11
COMMERCIAL LEASE
This Commercial Lease ("Agreement') is entered into as of November 1,
1995 between Leknarf Associates, L.L.C., a New Jersey Limited Liability
Company, with its principal place of business at 100 Lehigh Drive, Fairfield,
NJ ("Lessor") and Windmill Marketing Services, Inc., a New Jersey Corporation
with its principal place of business at 21 Dwight Place, Fairfield, NJ,
("Lessee").
GENERAL
The Lessor wishes to Lease a portion of the Premises (defined below)
to the Lessee, and the Lessee wishes to lease those Premises from the Lessor.
In consideration for the mutual promises, covenants, and Agreements
made below, the parties, intending to be legally bound, agree as follows:
DEFINITIONS
For purposes of this Agreement, the following terms will have the
indicated definitions:
"AGREEMENT." This Agreement is by and between the Lessor and the
Lessee.
"PREMISES." The warehouse and office space situated in the city of
West Caldwell, NJ described as 8 Henderson Drive and having an area of
approximately 7,100 s.f. of office and 13,500 s.f. of warehouse. See Exhibit A
for a map of the Premises.
AGREEMENT
---------
1. TERM AND RENT. The Lessor demises the above Premises, commencing
December 1, 1995 and terminating on November 30; 2000. Both parties agree that
this is in no way a month to month lease. The Lessee shall pay to the Lessor as
rent for the Premises, without demand, deduction, or rights of off-set, the
following sums: Equal monthly installments of $ 9,333.33. Each installment
payable in advance on the first day of each month for that month's rental,
during the term of this lease. All rental payments should be made out to the
Lessor and sent to the address stated above.
2. RENEWAL TERM.
2.01 Tenant shall have the option (the "Renewal Option") to extend
the term of this lease for two additional five (5) year periods (the "Renewal
Term"), which Renewal Term shall commence on the date immediately succeeding
the Expiration Date, and end on the fifth (5th) and tenth (10th) anniversaries
of the Expiration Date (the "Renewal Expiration Date"), provided that (a) this
lease shall not have been previously terminated and that Tenant shall not be in
default in the observance or performance of any of the terms, covenants or
conditions of this lease, beyond
<PAGE> 2
any applicable notice and/or cure periods (i) on the date Tenant gives Landlord
written notice (the "Renewal Notice") of Tenant's election to exercise the
Renewal Option, and (ii) on the Expiration Date. The Renewal Option shall be
exercised with respect to the portion of the Premises rented to the Tenant and
shall be exercisable by Tenant delivering the Renewal Notice to Landlord at
least three (3) months prior to the Expiration Date. Time is of the essence
with respect to the giving of the Renewal Notice.
2.02. If Tenant exercises the Renewal Option in accordance
with the terms of Section 2.01 of this Article, the Renewal Term shall be upon
the same terms, covenants and conditions as those contained in this lease,
except that (i) the Fixed Rent shall be deemed to mean the Fixed Rent as
determined pursuant to Section 2.03 of this Article; (ii) the provisions of
Section 2.01 of this Article relative to Tenant's right to renew the term of
this lease shall not be applicable during the Renewal Term; and (iii) the
Expiration Date shall, for purposes of this lease, be defined as the Renewal
Expiration Date.
2.03. The Fixed Rent for the Renewal Term shall be as
follows:
(i) The annual Fixed Rent for the Renewal Term for the
premises for the Renewal Term shall be an amount equal to the greater of (a)
the Fair Market Rent (hereinafter defined), or (b) the Fixed Rent Expiration
Date (the "Annual Rent"), (the greater of (a) and (b) being hereinafter
referred to as the "Rental Value").
(ii) For purposes of the Renewal Term, the term "Fair
Market Rent" shall mean the fixed annual rent that a willing lessee would pay
and a willing lessor would accept for the Premises during the term of a ten
customary long-term lease for space of a similar size to the Premises, assuming
(a) that the Premises were vacant and in their "as is" condition on the
commencement date of the Renewal Term; (b) that the Premises were being demised
upon the same terms and conditions as are provided for in this lease for the
Renewal Term; (c) the provisions of Section 2.01 of this Article relative to
Tenant's right to renew the term on this lease shall not be applicable during
the Renewal Term; and (d) the Expiration Date shall, for purposes of this lease
be defined as the Renewal Expiration Date.
2.04. (a) In the event that Tenant shall have exercised
the Renewal Option in accordance with the terms of Section 2.01 of this
Article, Landlord shall give Tenant written notice (the "Rent Notice") at
least ninety (90) days prior to the Expiration Date setting forth Landlord's
determination of the Fair Market Rent ("Landlord's Determination").
(b) If Landlord's Determination exceeds the Annual Rent,
then Tenant shall give Landlord written notice ("Tenant's Notice"), within
twenty (20) days after Tenant's receipt of the Rent Notice, of whether Tenant
accepts or disputes Landlord's Determination, and if Tenant disputes Landlord's
Determination, Tenant's Notice shall set forth Tenant's Determination of the
Fair Market Rent. If Tenant in Tenant's Notice accepts Landlord's Determination
or if Tenant fails or refuses for any reason to give Tenant's Notice within the
twenty (20) day period set forth above, Tenant shall be deemed to have accepted
Landlord's Determination for the Renewal Term. If Tenant in Tenant's Notice
disputes Landlord's Determination in the manner set forth above, any
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such dispute, if not resolved between the parties within twenty (20) days
thereafter, shall be settled in accordance with the provisions of Section 2.06
hereof
2.05. If Landlord's Determination shall exceed the Annual Rent and if
the final determination of the Rental Value shall not be made on or before the
first day of the Renewal Term in accordance with the provisions of this
Article, then, pending such final determination, Tenant shall pay, as the Fixed
Rent for the Renewal Term, an amount equal to Landlord's Determination. If,
based upon the final determination hereunder of the Rental Value, the payments
made by Tenant on account of the Fixed Rent for such portion of the Renewal
Term were (i) less than the Rental Value payable for the Renewal Term, Tenant
shall pay to Landlord the amount of such deficiency within five (5) days after
demand therefor or (ii) greater than the Rental Value payable for the Renewal
Term, Landlord shall credit the amount of such excess against future
installments of Fixed Rent payable by Tenant. Upon the final determination of
any dispute pursuant to Section 2.06, Tenant shall pay, and the Fixed Rent
shall be, the Rental Value during the Renewal Term.
2.06. (a) If Tenant notifies Landlord that Tenant disputes
Landlord's determination of the Fair Market Rent within the twenty (20) day
period set forth in Section 2.04 above and Landlord and Tenant fail to agree as
to the Fair Market Rent within the twenty (20) day period set forth in said
Section 2.04, then the Fair Market Rent shall be determined as follows: Such
dispute shall be resolved by arbitration conducted in accordance with the real
estate valuation arbitration rules of the American Arbitration Association (the
"AAA") in effect on the date hereof, except that the provisions of this Section
2.06 shall apply to the conduct and determination of such arbitration and shall
supersede any conflicting or inconsistent provisions of said real estate
valuation arbitration rules. The party requesting arbitration shall do so by
giving notice to the effect to the other party, specifying in said notice the
nature of the dispute, and that said dispute shall be determined in the State
of New Jersey by a panel of three (3) arbitrators in accordance with this
Section 2.06.
(b) Landlord and Tenant shall each appoint their own arbitrator
within 15 days after the giving of notice by either party, which notice shall
state that such party seeks a determination of the Fair Market Rent pursuant to
this Article 2. If either Landlord or Tenant shall fail to timely appoint an
arbitrator, the appointed arbitrator shall select the second arbitrator, who
shall be impartial, within 15 days after such party's failure to appoint. Such
two arbitrators shall have twenty (20) days to appoint a third arbitrator who
shall be impartial. If such arbitrators fail to do so, then either Landlord or
Tenant may request the AAA to appoint an arbitrator who shall be impartial
within twenty (20) days of such request and both parties shall be bound by any
appointment so made within such 20 day period. If no such third arbitrator
shall have been appointed within such 20 days or within 90 days of the original
request for a determination of the Fair Market Rent, whichever is earlier,
either Landlord or Tenant may apply to any court having jurisdiction to make
such appointment.
(c) The third arbitrator only shall subscribe and swear to an
oath fairly and impartially to determine such dispute. The three arbitrators
shall conduct such hearings as they deem appropriate (or such hearings as either
Landlord or Tenant shall request). Each arbitrator
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shall determine independently of the other the Fair Market Rent based solely on
the criteria set forth in the applicable Section of this lease providing for
such determination and within fifteen (15) days after the third arbitrator has
been appointed, each arbitrator shall render his determination of the Fair
Market Rent and shall submit same to each of the other arbitrators, making
their determination in writing, and shall give notice to Landlord and Tenant of
their determination as soon as practicable, and if possible, within twenty (20)
days of the designation of the third arbitrator, but in no event later than
thirty (30) days after such designation. If at least two of the three
arbitrators shall concur in their determination of the Fair Market Rent, their
determination shall be final and binding upon the parties. If the arbitrators
fail to concur, then the Fair Market Rent shall be an amount equal to fifty
(50%) percent of the sum of the two determinations by the arbitrators closest
in amount, and such amount shall be final and binding upon the parties.
(d) The fees and expenses of any arbitration of the
determination of the Fair Market Rent for purposes of this Section 7.06 shall
be borne by the parties equally, but each party shall bear the expense of its
own arbitrator, attorneys and experts and the additional expenses of presenting
its own proof.
(e) Landlord and Tenant shall each have the right to
submit such data and memoranda to each of the arbitrators in support of their
respective positions as they may deem necessary or appropriate.
(f) Each arbitrator shall be a qualified member of the
American Institute of Real Estate Appraisers (or any successor of such
Institute, or if such organization or successor shall no longer be in
existence, a recognized national association or institute of appraisers) who
shall not be a sole practitioner, and shall have at least ten (10) years'
experience in leasing and valuation of properties which are similar in
character to the Building.
(g) It is expressly understood that any determination of
the Fair Market Rent shall be based on the assumption and criteria stated in
Section 2.03 (iii) of this Article. The arbitrators shall not have the power to
add to modify or change any of the provisions of this lease, and the
jurisdiction of the arbitrators is limited accordingly.
(h) After a determination has been made of the Fair
Market Rent, the parties shall execute and deliver to each other an instrument
setting forth the Fair Market Rent, as herein above determined. The failure of
either or both parties to execute and deliver such instrument shall not affect
said determination of the Fair Market Rent.
3. LATE CHARGES. The Lessee hereby acknowledges that late payment by the
Lessee to he Lessor of rent or other sums due under this Agreement will cause
the Lessor to incur costs not contemplated by this lease, the exact amount of
which will be extremely difficult to ascertain. Accordingly, if any
installment of rent or of a sum due from the Lessee shall not be received by
the Lessor's designees by 12:00 noon on the fifth (5th) day of each month of
the term, then the Lessee shall pay to the Lessor a late charge equal to 5%
4
<PAGE> 5
percent of such overdue amount. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the cost that the Lessor will incur
by reason of the late payment by the Lessee. Acceptance of such late charges by
the Lessor shall in no event constitute a waiver of the Lessee's default with
respect to such overdue amount, nor prevent the Lessor from exercising any of
the other rights and remedies granted in this Agreement.
4. USE
4.1 USES PERMITTED. The Lessee shall use and occupy the
Premises for the manufacture, packaging and distribution of vitamins and for
general and executive offices. The Premises shall be for no other purpose
without the express written prior consent of the Lessor. The Lessor represents
that the Premises may lawfully be used for such purpose.
4.2 USES PROHIBITED
4.2.1 The Lessee shall not do or permit anything to be done
in or about the Premises nor bring or keep anything that will increase the
existing rate or affect any fire or other insurance upon the building or any of
its contents, or cause a cancellation of any insurance policy covering said
building or any part or any of its contents, nor shall the Lessee sell or
permit to be kept, used or sold in or about said Premises any articles or
substances, inflammable or otherwise, that may be prohibited by a standard form
policy of fire insurance.
4.2.2 The Lessee shall not do or permit anything to be done
in or about the Premises that will in any way obstruct or interfere with the
rights of other Lessees of the building or injure or annoy them or use or allow
the Premises to be used for any unlawful or objectionable purpose.
4.2.3 The Lessee shall not use the Premises or permit anything to
be done in or about the Premises that will in any way conflict with any law
now in force or that may hereafter be enacted. The Lessee shall at its
cost promptly comply with all laws now in force or that may hereafter be in
force and with the requirements of any board of fire underwriters or other
similar body relating to the Lessee's improvements or acts.
4.3 LIENS. The Lessee shall keep the Premises and the property
in which the Premises are situated free from any liens arising out of
any work performed, materials furnished or obligations incurred by the Lessee.
The Lessor may require the Lessee to provide the Lessor, at the Lessee's cost,
a lien and completion bond in an amount equal to one and one-half (1 1/2) times
the estimated cost of any improvements, additions, or alterations by the
Lessee, to insure the Lessor against liability for mechanic's and material
men's liens and to insure completion for the work.
5. REPAIRS AND MAINTENANCE. By taking possession of the Premises, the
Lessee shall be deemed to have accepted the Premises as being in good sanitary
order, condition and repair. The Lessee shall at the Lessee's cost, keep the
Premises and every part of it in good condition and repair except for damages
beyond the control of the Lessee and ordinary wear and tear. The
5
<PAGE> 6
Lessee shall upon the expiration or sooner termination of this lease surrender
the Premises to the Lessor in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of the Lessee excepted. Unless
specifically provided in an addendum to this lease, the Lessor shall have no
obligation to alter, remodel, improve, repair, decorate or paint the Premises
or any part of it and the parties here, affirm that the Lessor has made no
representations to the Lessee respecting the condition of the Premises and the
building except as specifically stated in this Agreement (see Exhibit C).
Despite the above provisions, the Lessor shall repair and maintain or cause to
be repaired and maintained the structural portions of the building, including
the standard plumbing, air conditioning, heating and electrical systems
furnished by the Lessor, unless such maintenance and repairs are caused in part
or in whole by the act, neglect, fault or omission of any duty by the Lessee,
its agents, employees or invitees, in which case the Lessee shall pay to the
Lessor the reasonable cost of such maintenance and repairs. The Lessee shall
give the Lessor written notice of any required repairs or maintenance. The
Lessor shall not be liable for any failure to repair or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice. Any repairs or maintenance to supplemental cooling equipment
required for the Lessee's special needs are the responsibility of the Lessee.
Except as specifically stated in this Agreement, there shall be no abatement of
rent and no liability of the Lessor by reason of any injury to or interference
with the Lessee's business arising from making of any repairs, alterations or
improvements to any portion of the building or the Premises or to fixtures,
appurtenances and equipment. The Lessee waives the right to make repairs at the
Lessor's expense under any law, statute or ordinance now or hereafter in
effect.
6. ALTERATIONS. The Lessee shall not, without first obtaining the
written consent of the Lessor, make any alterations, additions, or
improvements, in, to or about the Premises. Any such alterations, additions
or improvements, including, but not limited to, wall covering, paneling and
built-in cabinet work, but excepting movable furniture and trade fixtures,
shall become a part of the realty, shall belong to the Lessor, and shall be
surrendered with the Premises at expiration or termination of the lease. If the
Lessor consents to any such alterations, additions or improvements by the
Lessee, they shall be made by the Lessee at the Lessee's cost, and any
contractor or person selected by the Lessee to perform the work shall first be
approved of, in writing, by the Lessor. Upon expiration, or sooner termination
of the term, the Lessee shall, upon written demand by the Lessor, promptly
remove any alterations, additions or improvements made by the Lessee and
designated by the Lessor to be removed. Such removal and repair of any damage
to the Premises caused by such removal shall be at the Lessee's cost.
7. ORDINANCES AND STATUTES. The Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or that may hereafter be in force, pertaining to the Premises,
occasioned by or affecting the use by the Lessee
8. ASSIGNMENT AND SUBLETTING. The Lessee shall not assign this lease or
sublet any portion of the Premises without prior written consent of the Lessor.
Any such assignment or subletting without consent shall be void and, at the
option of the Lessor, may terminate this lease. Any change of control of any
shares, partnership interests or interests in a limited liability company is
deemed an assignment.
6
<PAGE> 7
9. SERVICE AND UTILITIES. The Lessee shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
paid by the Lessor, that may be furnished to or used in, on or about the
Premises during the term of this lease. The Lessee will not, without the prior
written consent of the Lessor and subject to any conditions the Lessor may
impose, use any apparatus or device in the Premises that will in any way
increase the amount of electricity or water usually furnished for use of the
Premises as a general office space. If the Lessee shall require water or
electric current in excess of that usually furnished or supplied for use of the
Premises as general office space, the Lessee shall first procure the consent of
the Lessor. Wherever heat generating machines or equipment are used in the
Premises that affect the temperature otherwise maintained by the air
conditioning system, the Lessor reserves the right to install supplementary air
conditioning units in the Premises and the cost of them, including the cost of
installation, operation and maintenance of them, shall be paid by the Lessee to
the Lessor upon demand by the Lessor. The Lessor shall not be liable for the
Lessor's failure to furnish any of the foregoing when such failure is caused by
any cause beyond the reasonable control of the Lessor. The Lessor shall not be
liable under any circumstances for loss of or injury to property, however
occurring, in connection with failure to furnish any of the foregoing.
10. ENTRY AND INSPECTION. The Lessor reserve the right to enter the
Premises at any time to inspect the Premises, to provide any service for which
the Lessor is obligated under this Agreement, to submit the Premises to
prospective purchasers or the Lessees, to post notices of non-responsibility,
and to alter, improve, maintain or repair the Premises or any portion of the
building that the Premises are a part that the Lessor deems necessary or
desirable, all without abatement of rent. The Lessor may erect scaffolding and
other necessary structures where reasonably required by the character of the
work to be performed, but shall not block entrance to the Premises and not
interfere with the Lessee's business, except as reasonably required for the
particular activity by the Lessor. The Lessor shall not be liable in any manner
for any inconvenience, disturbance, loss of business, nuisance, interference
with quiet enjoyment, or other damage arising out of the Lessor's entry on the
Premises as provided in this section, except damage, if any, resulting from the
negligence or willful misconduct of the Lessor or its authorized
representative. The Lessor shall retain a key with which to unlock all doors
into, within, and about the Premises, excluding the Lessee's vaults, safes and
files. In an emergency, the Lessor shall have the right to use any means that
the Lessor deems reasonably necessary to obtain entry to the Premises, without
liability to the Lessee, except for any failure to exercise due care for the
Lessee's property. Any such entry to the Premises by the Lessor shall not be
construed or deemed to be forcible or unlawful entry into the Premises or an
eviction of the Lessee from the Premises or any portion of it.
7
<PAGE> 8
11. INDEMNIFICATION OF LESSOR. The Lessee shall hold the Lessor harmless
from any claims arising from the Lessee's use of the Premises or from any
activity permitted by the Lessee in or about the Premises, and any claims
arising from any breach or default in the Lessee's performance of any
obligation under the terms of this lease. If any action or proceeding is
brought by reason of any such claim in which the Lessor is named as a party,
the Lessee shall defend the Lessor therein at the Lessee's expense by counsel
reasonably satisfactory to the Lessor. The Lessor and its agents shall not be
liable for any damage to property entrusted to the employees of the building,
nor for loss or damage to any property by theft or damage, nor from any injury
to or damage to persons or property resulting from any cause whatsoever, unless
caused by or due to the negligence or willful misconduct of the Lessor, its
agents or employees. The Lessor shall not be liable for any latent defect in
the Premises or in the building of which they are a part. The Lessee shall give
prompt notice to the Lessor in case of fire or accidents on the Premises or in
the building or of alleged defects in the building, fixtures or equipment.
12. INSURANCE
12.1 COVERAGE. The Lessee shall assume the risk of damage to any
fixtures, goods, inventory, merchandise, equipment, furniture and leasehold
improvements, and the Lessor shall not be liable for injury to the Lessee's
business or any loss of income relative to such damage. The Lessee shall, at
all times during the term of this lease, and at its own cost, procure and
continue in force the following insurance coverage:
12.1.1 Comprehensive public liability insurance, insuring
the Lessor and the Lessee against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises and all areas appurtenant.
12.2 INSURANCE POLICIES. The limits of said insurance
policies shall not, however, limit the liability of the Lessee under this
Agreement. The Lessee may carry said insurance under a blanket policy,
providing, however, said insurance by the Lessee shall name the Lessor as an
additional insured. If the Lessee shall fail to procure and maintain said
insurance, the Lessor may, but shall not be required to, procure and maintain
same, but at the expense of the Lessee. Insurance required under this
Agreement shall be in companies that rate B+ or better in "Best's Insurance
Guide." The Lessee shall deliver to the Lessor prior to occupancy of the
Premises copies of policies of insurance required or certificates evidencing
the existence and amounts of such insurance with loss payable clauses,
satisfactory to the Lessor and naming the Lessor as an additional named
insured. No policy shall be cancelable or subject to reduction of coverage
except after thirty (30) days prior written notice to the Lessor. The minimum
acceptable amount of comprehensive liability insurance is $1,000,000 against
claims in any occurrence, and property damage insurance in an amount of not
less than $100,000 per occurrence, or combined single limit of $1,000,000
comprehensive liability and property damage insurance.
8
<PAGE> 9
12.3 WAIVER OF SUBROGATION. As long as their respective insurers so
permit, the Lessor and the Lessee each hereby waive any and all rights of
recovery against the other for any loss or damage occasioned to such waiving
party or its property of others under its control to the extent that such loss
or damage is insured against under any fire or extended coverage insurance
policy that either may have in force at the time of such loss or damage. Each
party shall obtain any special endorsement, if required by their insurer, to
evidence compliance with this waiver.
13. EMINENT DOMAIN. If more than twenty-five percent (25%) of the Premises
is taken or appropriated by any public or quasi-public authority under the
powers of eminent domain, either party under this Agreement shall have the
right at its option to terminate this lease. If less than twenty-five percent
(25%) of the Premises is taken (or neither party elects to terminate as above,
provided if more than twenty-five percent (25%) is taken), the lease shall
continue, but the rental thereafter to be paid shall be equitably reduced. If
any part of the building of which the Premises are a part is so taken or
appropriated, whether or not any part of the Premises is involved, the Lessor
shall be entitled to the entire award and compensation for the taking that is
paid or made by the public or quasi-public agency, and the Lessee shall have no
claim against said award.
14. DESTRUCTION OF PREMISES. In the event of a partial destruction of the
Premises during the term of this Agreement, from any cause, the Lessor shall
forthwith repair the same, provided that such repairs can be made within sixty
(60) days under existing governmental rules and regulations, but such partial
destruction shall not terminate this lease, except that the Lessee shall be
entitled to a proportionate reduction of rent while such repairs are being
made, based upon the extent to which the making of such repairs shall interfere
with the business of the Lessee on the Premises. If such repairs cannot be
made within said sixty (60) days, the Lessor, at his option, may make the same
within a reasonable time, this lease continuing in effect with the rent
proportionately abated as aforesaid, and in the event that the Lessor shall not
elect to make such repairs that cannot be made within sixty (60) days, this
lease may be terminated at the option of either party. In the event that the
building in which the demised Premises may be situated is destroyed to an
extent of not less than one-third of the replacement costs, the Lessor may
elect to terminate this lease whether the demised Premises be injured or not.
Lessor's obligation under this paragraph shall be limited to the extent of any
insurance proceeds. A total destruction of the building in which the Premises
may be situated shall terminate this lease.
15. LESSOR'S REMEDIES ON DEFAULT
15.1 If the Lessee defaults in the payment of rent, or any additional rent,
or defaults in the performance of any of the other covenants or conditions of
this Agreement; the Lessor may give the Lessee notice of such default and if
the Lessee does not cure any such default within three (3) business days, after
the giving of such notice (or if such other default is of such a nature that it
cannot be completely cured within such period, if the Lessee does not commence
such curing within such three (3) business days and thereafter proceed with
reasonable diligence and in good faith to cure such default), then the Lessor
may terminate this lease on not less than thirty (30) calendar days' notice to
the Lessee. On the date specified in such notice the term of this lease shall
terminate, and the Lessee shall then quit and surrender the Premises to the
Lessor, but the Lessee shall remain liable as provided in this Agreement. If
this lease shall have been so
9
<PAGE> 10
terminated by the Lessor, the Lessor may at any time thereafter resume
possession of the Premises by any lawful means and remove the Lessee or other
occupants and their effects. No failure to enforce any term shall be deemed a
waiver.
15.2 The making by the Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or against the Lessee
of a petition to have the Lessee adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against the Lessee, same is dismissed within sixty
(60) days; the appointment of a trustee or receiver to take possession of
substantially all the Lessee's assets located at the Premises or of the
Lessee's interest in this lease, where possession is not restored to the Lessee
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of the Lessees assets located at the Premises or of the
Lessee's interest in this lease, where such seizure is not discharged within
thirty (30) days.
16. TAXES. The Lessee shall pay before delinquency, all taxes levied or
assessed and that become payable during the term of this Agreement upon all the
Lessee's leasehold improvements, equipment, furniture, fixtures and personal
property located in the Premises, except that which has been paid for by the
Lessor and is the standard of that building. Should the laws of the State of
New Jersey any local body be changed in a way that results in a higher or lower
tax on the Premises than the annual increases now a matter of law, any such
increase shall be passed through to the Lessee. The Lessee shall pay to the
Lessor its share of such taxes, if any, within thirty days after delivery to
the Lessee by the Lessor of a statement in writing setting forth the amount of
such taxes. Tenant shall have the right to contest the tax levy and to take
action against any governing body imposing such tax on it.
17. ATTORNEYS' FEES. In case suit should be brought for recovery of the
Premises, or for any sum due under this Agreement, or because of any act that
may arise out of the possession of the Premises, by either party, the
prevailing party shall be entitled to all costs incurred in connection with
such action, including a reasonable attorney's fee.
18. WAIVER. No failure of the Lessor to enforce any term of this Agreement
shall be deemed to be a waiver.
19. NOTICES. Any notice that either party may or is required to give,
shall be given by mailing the same, postage prepaid, to the Lessee at the
Premises, or the Lessor at the address shown above, or at such other places as
may be designated by the parties from time to time.
20. HEIRS, ASSIGNS, SUCCESSORS. This lease is binding upon and inures to
the benefit of the heirs, permitted assigns and successors in interest to the
parties.
21. SUBORDINATION. This lease is and shall be subordinated to all existing
and future liens and encumbrances against the property.
10
<PAGE> 11
22. RULES AND REGULATIONS. The Lessee shall faithfully observe and comply
with the rules and regulations attached as Exhibit B to this lease, as well as
such rules and regulations that the Lessor shall from time to time promulgate.
The Lessor reserves the right from time to time to make all reasonable
modifications to those rules that shall be binding to the Lessee upon delivery
of a copy of them to the Lessee. The Lessor shall not be responsible to the
Lessee for the nonperformance of any of said rules by any other Lessee.
23. STATEMENT TO LENDER. Both Lessor and Lessee shall at any time and from
time to time, upon not less than ten (10) days prior written notice from the
other Party, execute, acknowledge, and deliver to the other Party a statement
in writing, (1) certifying that this lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modifications and
certifying that this lease as so modified, is in full force and effect), and
the date that the rental and other charges are paid in advance, if any, and (2)
acknowledging that there are not, to their knowledge, any uncured defaults on
the part of the other Party under this Agreement, or specifying such defaults
if any are claimed. Any such statement may be relied upon by any prospective
purchaser of all or any portion of the real property of which the Premises are
a part.
24. PARKING. The Lessee shall have the right to use, in common with other
tenants or occupants of the building, parking facilities, provided by the
Lessor for tenants of 8 Henderson Drive, West Caldwell, NJ, subject to the
rules and regulations established by the Lessor.
25. CORPORATE AUTHORITY. Each individual executing this lease on behalf of
the Lessee's corporation represents and warrants that he is duly authorized to
execute and deliver this lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the by-laws of said corporation, and that this lease is
binding upon said corporation in accordance with its terms.
26. NAME. The Lessee shall not use the name of the development in which
the Premises are situated for any purpose other than as an address of the
business to be conducted by the Lessee in the Premises, unless written
authorization is obtained from the Lessor.
27. SEVERABILITY. If any provision of this Agreement is found invalid or
unenforceable under judicial decree or decision, the remainder shall remain
valid and enforceable according to its terms. Without limiting the previous, it
is expressly understood and agreed that each and every provision of this
Agreement that provides for a limitation of liability, disclaimer of
warranties, or exclusion of damages is intended by the parties to be severable
and independent of any other provision and to be enforced as such. Further, it
is expressly understood and agreed that if any remedy under this Agreement is
determined to have failed of its essential purpose, all other limitations of
liability and exclusion of damages set forth in this section shall remain in
full force and effect.
28. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New Jersey applicable to Agreements made and fully performed in New
Jersey by New Jersey residents.
11
<PAGE> 12
29. TOXICS. The Lessor and the Lessee acknowledge that they have been
advised that numerous federal, state, and/or local laws, ordinances and
regulations ("Laws") affect the existence and removal, storage, disposal,
leakage of contamination by materials designated as hazardous or toxic
("Toxics"). Many materials, some utilized in everyday business activities and
property maintenance, are designated as hazardous or toxic. Some of the Laws
require that Toxics be removed or cleaned up without regard to whether the
party required to pay for the "clean up" caused the contamination, owned the
property at the time of the contamination occurred or even knew about the
contamination. Some items, such as asbestos or PCB's, that were legal when
installed, are now classified as Toxics, and are subject to removal
requirements. Civil lawsuits for damages resulting from Toxics may be filed by
third parties in certain circumstances. Tenant agrees to comply with all
Federal, State and Local laws relating to Toxics. In addition, Tenant will
indemnify and hold Landlord harmless as a result of any legal action brought
against Landlord due to any action taken by Tenant.
30. SIGNS. The Lessor at no cost to the Lessee shall design and construct
signs to reflect the multi-tenant nature of the building. The Lessee will be
given a pro rata share of any major exterior sign.
31. ENTIRE AGREEMENT. The parties acknowledge that this Agreement
expresses their entire understanding and Agreement, and that there have been no
warranties, representations, covenants or understandings made by either party
to the other except such as are expressly set forth in this section. The
parties further acknowledge that this Agreement supersedes, terminates and
otherwise renders null and void any and all prior Agreements or contracts,
whether written or oral, entered into between the Lessee and the Lessor with
respect to the matters expressly set forth in this Agreement.
We have carefully reviewed this contract and agree to and accept its
terms and conditions. We are executing this Agreement as of the day and year
first written above.
Lessee Lessor
/s/ Stephen J. Young /s/ Edward M. Frankel
- --------------------------- -----------------------------
By By
Stephen J. Young Edward M. Frankel
- --------------------------- -----------------------------
Name Name
Vice President, Finance Manager
- --------------------------- -----------------------------
Title Title
12
<PAGE> 1
Exhibit 10.12
RENT REBATE AGREEMENT
This Rent Rebate Agreement (the "Agreement") is entered into as of
November 1,1995, between LEKNARF ASSOCIATES, L.L.C., a New Jersey Limited
Liability Company, with its principal place of business at 100 Lehigh Drive,
Fairfield, New Jersey ("Lessor") and GARDEN STATE NUTRITIONALS, INC., a New
Jersey corporation, with its principal place of business at 100 Lehigh Drive,
Fairfield, New Jersey ("Lessee").
Whereas, Lessor and Lessee are parties to that certain commercial lease
(the "Lease") dated as of November 1,1995, for premises known as B Henderson
Drive, West Caldwell, New Jersey (the "Leased Premises");
Whereas, Lessee desires to make substantial capital improvements to the
Leased Premises;
Whereas, Lessor desires that Lessee makes such capital improvements
which will add value to the Leased Premises and has agreed to rebate a portion
of the rent to be paid under the Lease in consideration of Lessee's making such
improvements.
NOW THEREFORE, the parties agree as follows:
1. Lessee shall cause substantial improvements to be made at the
Leased Premises, including but not limited to renovations to the warehouse and
build-out of corporate offices.
2. Lessee shall make all improvements in compliance with all
laws, rules, regulations and ordinances of any applicable municipal, state and
federal agency having jurisdiction and in accordance with the terms and
provisions of the Lease.
3. All improvements shall become a part of the Leased Premises, and
shall (unless otherwise required by Lessor by written notice delivered within
30 days of the expiration or earlier termination of the Lease) be surrendered
to Lessor with the Leased Premises at the expiration or earlier termination of
the Lease. Lessee shall maintain all improvements in good condition and repair.
4. In consideration of the foregoing, Lessor shall grant Lessee a
rent rebate in the amount of $169,000 per annum for each year of the initial
five (5) year term. The rebate shall be paid to Lessee in equal monthly
installments upon evidence reasonably acceptable to Lessor is making the
aforementioned capital improvements.
<PAGE> 2
5. Except as expressly provided herein, the Lease and all of the
terms, covenants and conditions thereof remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Rent Rebate
Agreement to be executed the day and year first above written.
LEKNARF ASSOCIATES L.L.C.
By: /s/ Edward M. Frankel
-----------------------------
Edward M. Frankel
Title:
GARDEN STATE NUTRITIONALS, INC.
By: /s/ Stephen J. Young
-----------------------------
Stephen J. Young
Vice President, Finance
<PAGE> 1
Exhibit 16
HOROWITZ, WALDMAN, BERRETTA & MALDOW, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
May 8, 1996
Mr. Edward Frankel, Chairman of the Board
Vitaquest International, Inc.
100 Lehigh Drive
Fairfield, NJ 07004
Dear Ed:
This is a letter to concur with the section in the Registration Statement as to
the change in Auditors. Prior reports rendered by us did not contain any
adverse opinion or disclaimer, nor were they modified or qualified as to
uncertain audit scope or accounting principles, nor were there any
disagreements between our firm and the Company.
Very truly yours,
HOROWITZ, WALDMAN, BERRETTA & MALDOW, L.L.P.
/s/ Julius M. Horowitz
- ----------------------------
Julius M. Horowitz, C.P.A.
JMH/cc
cc: Stephen Budow
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 12, 1996 accompanying the financial
statements and schedule of Vitaquest International Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts" and "Selected
Consolidated Financial Data."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Parsippany, New Jersey
May 13, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,838
<SECURITIES> 1,776
<RECEIVABLES> 9,783
<ALLOWANCES> 381
<INVENTORY> 6,948
<CURRENT-ASSETS> 23,062
<PP&E> 5,881
<DEPRECIATION> 2,417
<TOTAL-ASSETS> 28,454
<CURRENT-LIABILITIES> 10,321
<BONDS> 7,722
0
0
<COMMON> 141
<OTHER-SE> 10,270
<TOTAL-LIABILITY-AND-EQUITY> 28,454
<SALES> 60,633
<TOTAL-REVENUES> 60,633
<CGS> 31,729
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336,040
<INCOME-PRETAX> 12,645
<INCOME-TAX> 224
<INCOME-CONTINUING> 0
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