<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
REGISTRATION NO. 333-3605
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VITAQUEST INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2096 22-3437624
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
</TABLE>
------------------------
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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<S> <C>
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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<S> <C> <C> <C> <C>
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PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT OFFERING PRICE(2) FEE(3)
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Common Stock, $.01 par value..... 8,280,000 shares $17.00 $140,760,000 $48,537.93
</TABLE>
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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.
(3) Previously paid.
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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<PAGE> 2
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
<TABLE>
<CAPTION>
ITEM NO. LOCATION IN PROSPECTUS
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<C> <S> <C>
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
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION, DATED JUNE 18, 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
$15.00 and $17.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price. The Company's Common Stock
has been approved for quotation and trading on the Nasdaq National Market under
the Symbol VITQ, subject to notice of issuance.
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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<CAPTION>
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UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS SELLING
TO PUBLIC COMMISSIONS(1) TO COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
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Per Share................... $ $ $ $
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Total(3).................... $ $ $ $
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</TABLE>
(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 $840,000.
(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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<S> <C>
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
<PAGE> 5
PROSPECTUS SUMMARY
Vitaquest International Inc. (the "Company" or "Vitaquest") was
incorporated on April 16, 1996 and is 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 95.67808219-for-1 stock dividend 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 three month periods ended March 31, 1996 and 1995, 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. Specialty
nutritional systems include weight loss and sports nutrition kits containing
groups of vitamins and nutritional supplements with instructions for use. The
Company focuses on adding value for its customers through innovative product
development and brand creation. In the first quarter of 1996, the Company
manufactured in excess of 1,500 products and marketed in excess of 2,500
products (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 and in the first quarter of 1996, more than 50% of the Company's net
sales resulted from products which were custom developed by the Company. As a
custom developer, the Company formulates and manufactures products designed to
meet the needs of individual customers. In addition, the Company assists a
significant number of these customers with value added services, such as product
development, brand creation, package design and marketing support services. The
Company believes that these services add value for its customers by assisting
customers in developing product lines for their marketing concepts and by making
available to such customers the Company's technical and marketing experience and
knowledge. These 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 and in the first quarter of 1996.
The Company operates its business in three divisions: the Garden State
Nutritionals division, the Celebrity Marketing division and the Windmill
Marketing division.
THE GARDEN STATE NUTRITIONALS DIVISION
The Garden State Nutritionals division ("Garden State Nutritionals")
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 Nutritionals
differentiates itself from many of its competitors by providing value added
services to its customers. In addition to product development, brand creation,
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 Nutritionals also provides various consulting services
such as assistance in product
3
<PAGE> 6
presentations by Garden State Nutritionals sales and marketing executives to the
selling representatives of these companies.
In Fiscal 1995, Garden State Nutritionals produced several thousand custom
formulations of vitamins and nutritional supplements for over 100 companies in
more than 25 countries. Garden State Nutritionals' 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 Nutritionals' customers are primarily branded
vitamin companies (such as GT Merchandising & Licensing Corp., a marketer of
Richard Simmons 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 and in the first
quarter of 1996, 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 $10.3 million in the first quarter of 1996, representing 65.4%
and 57.0% of the Company's aggregate net sales, respectively.
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, brand creation, 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 and in the first quarter of 1996, most of
this division's products were manufactured by Garden State Nutritionals. 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 $4.1 million in the first
quarter of 1996, representing 15.8% and 23.1% of the Company's aggregate net
sales, respectively.
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 and supermarket 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 $3.6 million in the
first quarter of 1996, representing 18.8% and 19.9% of the Company's aggregate
net sales, respectively.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. According to a 1994 survey conducted by
Packaged Facts, an independent consumer market research firm (the "Packaged
Facts Survey"), estimated retail sales of vitamins, minerals and other
nutritional supplements has grown at a compounded annual rate of greater than
12% from $3.3 billion in 1991 to
4
<PAGE> 7
$4.6 billion in 1994. 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. 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.
Immediately prior to the merger, the Predecessor Companies were under the common
control of the Selling Stockholders. 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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<S> <C>
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 substantial 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".
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 615,000 shares are subject to
options issued as of 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 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, the four month period ended December 31, 1993, Fiscal
1994, Fiscal 1995 and the three month periods ended March 31, 1995 and 1996 and
at December 31, 1995 and March 31, 1996. 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.
Results for the three months ended March 31, 1996 are not necessarily indicative
of the results to be expected for the related full fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR FOUR MONTHS FISCAL YEAR ENDED THREE MONTHS ENDED
ENDED ENDED DECEMBER 31, MARCH 31,
AUGUST 31, DECEMBER 31, ------------------- ---------------------
1993 1993 1994 1995 1995 1996
----------- ------------ ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA
Net sales..................... $35,584 $13,617 $50,192 $60,633 $14,365 $18,028
Costs of goods sold........... 20,525 7,675 27,392 31,728 7,759 8,973
------- ------- ------- -------
Gross profit................ 15,059 5,942 22,800 28,905 6,606 9,055
Selling, general and
administrative expenses..... 11,465 4,070 13,992 16,343 3,712 4,160
------- ------- ------- -------
Operating earnings.......... 3,594 1,872 8,808 12,562 2,894 4,895
Other income (expense)........ 64 (62) 134 83 6 (40)
------- ------- ------- -------
Earnings before income
taxes.................... 3,658 1,810 8,942 12,645 2,900 4,855
Income taxes.................. 1,575 180 268 224 82 123
------- ------- ------- -------
Net earnings................ $ 2,083 $ 1,630 $ 8,674 $12,421 $ 2,818 $ 4,732
======= ======= ======= =======
PRO FORMA DATA
Historical earnings before
income taxes............. $12,645 $ 2,900 $ 4,855
Compensation
differential(1).......... 1,791 308 --
Income taxes(2)............. (5,926) (1,317) (1,996)
-------
Net earnings........ $ 8,510 $ 1,891 $ 2,859
======= ======= =======
Net earnings per share(3)... $ .58 $ .13 $ .20
======= ======= =======
Weighted averaged number of
common shares
outstanding.............. 14,618,209 14,618,209 14,618,209
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ---------------------------------------
ACTUAL ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital........................... $12,740 $13,395 $ 9,762 $ 44,862
Total assets.............................. 28,454 28,928 25,328 60,428
Long-term debt............................ 8,960 8,667 8,667 8,667
Stockholders' equity...................... 10,411 12,138 8,505 43,605
</TABLE>
- ---------------
(1) The Company has entered into employment agreements with Messrs. Edward and
Keith Frankel which provide that their salaries will be $500,000 each in
1996. Had those agreements been in place in Fiscal 1995, the Company would
have paid $1.8 million less in compensation in Fiscal 1995 and $308,000 less
in compensation in the three months ended March 31, 1995. Aggregate
compensation to Messrs. Edward and Keith Frankel in Fiscal 1993 and 1994 was
$2.5 million and $2.8 million greater than the aggregate salary payable to
these executives pursuant to such agreements in 1996. Such agreements
provide that beginning in 1997 the base salary is subject to annual
increases of the greater of 5% or the percentage increase in the Consumer
Price Index and that the Compensation Committee may determine to award
6
<PAGE> 9
bonuses to such executives on the basis of operating results. See
"Management -- Employment Agreements".
(2) For the four month period ended December 31, 1993, Fiscal 1994 and 1995 and
the three month periods ended March 31, 1995 and 1996, 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, Fiscal 1994 and
1995 and the three month periods ended March 31, 1995 and 1996, Garden State
Nutritionals, Inc. and Windmill Marketing Services, Inc., and for Fiscal
1995 and the three month periods ended March 31, 1995 and 1996, 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 Fiscal 1995 and the three month periods ended
March 31, 1995 and 1996, 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, as well as 452,209 shares
deemed to be outstanding. Shares deemed outstanding represent the
approximate number of shares deemed to be sold by the Company (at an assumed
initial public offering price of $16.00 per share) to fund the estimated
distributions to stockholders in excess of net earnings during the twelve
month period ending June 30, 1996. See "S Corporation Distributions" and
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
(4) The Company's presentation of unaudited pro forma balance sheet data at
March 31, 1996 reflects the effect of a $3.7 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 March 31, 1996 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 April 1, 1996 to a date prior
to the date of this Offering, up to $5.0 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".
7
<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 GOVERNMENT ACTION AND ADVERSE PUBLICITY REGARDING CERTAIN PRODUCTS
CONTAINING EPHEDRINE
The Company manufactures for certain of its contract manufacturing
customers products containing a Chinese herb known as "ma huang," a natural
source of ephedrine, a stimulant. Such products accounted for 10.2% of the
Company's net sales in Fiscal 1995 and 7.6% of the Company's net sales in the
first quarter of 1996, including one product which accounted for 6.2% and 3.2%
of the Company's net sales in such periods, respectively. Ephedrine and ma huang
have been the subject of recent adverse publicity in the United States. The
death of a Long Island college student on March 6, 1996, reportedly from
over-ingestion of an ephedrine-containing dietary supplement received
significant press coverage. On April 10, 1996, the Food and Drug Administration
("FDA") issued a statement warning consumers not to purchase or ingest dietary
supplements containing natural sources of ephedrine that are claimed to produce
such effects as euphoria, heightened awareness, increased sexual sensations or
increased energy, because these products pose significant adverse health
risks -- dizziness, headache, gastrointestinal distress, irregular heartbeat,
heart palpitations, heart attack, strokes, seizures, psychosis and death. Some
products manufactured by the Company are marketed by its customers to increase
energy and therefore are the subject of the FDA warning. The sale of one of the
products manufactured by the Company containing ma huang and marketed by one of
its customers as a product to increase energy has been banned in the State of
Florida. Sales of such products have also been prohibited in Nassau County, New
York. In addition, some states have regulated or are considering regulating
ephedrine-containing products as controlled substances or prohibiting the sale
of such products by persons other than licensed pharmacists.
There can be no assurance that products manufactured by the Company
containing ma huang will not be banned in other jurisdictions or that ma huang
will not become subject to further regulation, which could require the
reformulation of the Company's ma huang-containing products and 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".
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 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 and could result in acceleration of
certain borrowings of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Management".
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 and the Company is, therefore,
subject to economic fluctuations within such industry. The Company's products
are subject to fluctuating demand for different vitamins, nutritional
supplements and
8
<PAGE> 11
specialty nutritional systems, which may vary significantly from time to time,
in particular as a result of changing consumer tastes and positive or negative
publicity about products.
Demand from the Company's customers who resell its products, such as
independent pharmacies, is also subject to fluctuations from time to time. In
addition, 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 and failure of the Company to do so could
have a material adverse effect on the Company. See "Business -- Customers".
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").
Application of these laws and regulations may result in certain of the
Company's products being regulated as food additives and subject to FDA approval
prior to marketing. In addition, statements of nutritional support by the
Company that are determined by the FDA to constitute drug claims could require
costly and time consuming clinical studies. Presently proposed FDA labeling
regulations and good manufacturing practices regulations to be promulgated by
the FDA will require expenditures of an undetermined amount in order to comply.
The Garden State Nutritionals 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 Nutritionals 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.
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
9
<PAGE> 12
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 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".
POTENTIAL EFFECT OF NEGATIVE 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
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.
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".
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 it believes are 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. The
Company generally does not obtain contractual indemnification from parties
supplying raw materials or marketing its products and, in any event, any such
indemnification is limited by its terms and, as a practical matter, the
creditworthiness of the indemnifying party. In the event that the Company does
not have adequate insurance or contractual indemnification,
10
<PAGE> 13
product liabilities relating to defective products could have a material adverse
effect on the Company. See "Business -- Legal Proceedings" and "-- Product
Liability Insurance".
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 substantial 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".
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 55.9% of the outstanding Common Stock (50.5% if the
Underwriters' over-allotment option is exercised in full). 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 LONG TERM CONTRACTS FOR SUPPLY OF 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.
11
<PAGE> 14
DEPENDENCE ON THIRD PARTIES FOR DISTRIBUTION AND DELIVERY OF PRODUCTS
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".
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW 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".
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".
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
12
<PAGE> 15
Stock outstanding. The 7,200,000 shares of Common Stock sold in the 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 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 of
$13.41 from the assumed initial public offering price of $16.00 per share for
the Common Stock purchased in this Offering. See "Dilution".
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). The Company has no current specific plan for a
significant portion of such net proceeds. However, as a result of the Offering,
the Company, which is part of a currently fragmented industry, expects to have
certain funds available for potential acquisitions and to be afforded access to
previously unavailable capital markets in connection with future acquisitions.
In addition, as a public company, the Company will be able to provide its
employees who receive incentive stock options for shares of Common Stock
pursuant to its 1996 Stock Option Plan the opportunity to sell such shares in
the public market subject to the filing and effectiveness of an appropriate
registration statement. See "Management-1996 Stock Option Plan", "Business --
Competition" and "Shares Eligible For Future Sale".
Approximately $3.0 million of the estimated net proceeds 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 intends to expand the dosage
forms in which it manufactures products to include forms such as effervescent
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".
The Company anticipates that up to approximately $25 million 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 and to deposit the balance in an account of a wholly-owned
subsidiary to be formed after the Company's S corporation status terminates.
Pending such uses, the net proceeds will be invested in short-term,
investment-grade, interest-bearing securities.
The Company will not receive any of the proceeds from the sale by the
Selling Stockholders of 4,800,000 shares of Common Stock in this Offering, or
the additional shares of Common Stock to be sold by the Selling
13
<PAGE> 16
Stockholders, up to an additional 720,000 shares of Common Stock, if the
Underwriters' over-allotment option is exercised.
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. At December 31,
1995, a distribution of $1.3 million of Fiscal 1995 earnings had been declared
but not distributed and was recorded as a current liability on the balance sheet
of the Company. A portion of such Fiscal 1995 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 March 31, 1996 the Predecessor Companies had undistributed S
corporation earnings of $7.9 million, all of which has since been distributed to
those persons who were stockholders of the Predecessor Companies as of such
date. Included in this distribution were marketable securities, valued at market
value at the date of distribution, transferred to such stockholders in
satisfaction of $1.3 million of undistributed S corporation earnings. At March
31, 1996, a distribution of $994,000 of such earnings had been declared but not
yet distributed and was recorded as a current liability on the balance sheet of
the Company. All earnings of the Company and the Predecessor Companies from
April 1, 1996 to a date prior to the date of this Offering, up to $5 million,
will be distributed in cash and pursuant to the Company's promissory notes to
those persons who were stockholders of the Company and the Predecessor Companies
at such date. 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 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> 17
DILUTION
At March 31, 1996, the Company had a net tangible book value of $11.5
million (or $0.81 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 March 31, 1996).
The pro forma net tangible book value of the Company at March 31, 1996, was
approximately $7.8 million, or $0.55 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 March 31, 1996, (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 March 31, 1996 would have been $42.9 million, or
$2.59 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 $13.41 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......... $0.55
Increase attributable to new investors......................... 2.04
-----
Pro forma net tangible book value after this Offering............... 2.59
------
Dilution to new investors........................................... $13.41
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
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
615,000 shares of Common Stock are subject to options issued as of the date
hereof, exercisable at the initial public offering price per share. See
"Management -- 1996 Stock Option Plan".
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<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996, (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 March 31, 1996 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>
MARCH 31, 1996
-----------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 4,565 $ 964 $36,064
======= ======= =======
Total long-term debt(2)................................. $ 8,667 $ 8,667 $ 8,667
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............................ -- 815 35,891
Retained earnings..................................... 11,997 8,313 8,313
Unrealized gain on marketable securities.............. -- -- --
Unearned compensation................................. -- (765) (765)
------- ------- -------
Total stockholders' equity......................... 12,138 8,505 43,605
------- ------- -------
Total capitalization.......................... $20,805 $17,172 $52,272
======= ======= =======
</TABLE>
- ---------------
(1) Does not reflect distributions of earnings of the Company and the
Predecessor Companies from April 1, 1996 to a date prior to the date of this
Offering, up to $5.0 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 615,000 shares of Common Stock
are subject to options issued as of the date hereof, exercisable at the
initial public offering price per share. See "Management -- 1996 Stock
Option Plan".
16
<PAGE> 19
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. The consolidated financial data at the end
of and for the three month periods ended March 31, 1995 and 1996 have been
derived from unaudited consolidated financial statements of the Company. In the
opinion of the Company, its unaudited consolidated financial statements have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operation for such periods. Results for the three months ended March 31, 1996
are not necessarily indicative of results to be expected for the related full
fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOUR MONTHS FISCAL YEAR ENDED THREE MONTHS ENDED
AUGUST 31, ENDED DECEMBER 31, MARCH 31,
--------------------------- DECEMBER 31, -------------------- ------------------------
1991 1992 1993 1993 1994 1995 1995 1996
------- ------- ------- ------------ ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA
Net sales....................... $26,938 $28,835 $35,584 $13,617 $50,192 $60,633 $14,365 $18,028
Cost of goods sold.............. 15,008 16,972 20,525 7,675 27,392 31,728 7,759 8,973
------- ------- ------- ------- ------- -------
Gross profit.................. 11,930 11,863 15,059 5,942 22,800 28,905 6,606 9,055
Selling, general and
administrative expenses....... 9,040 10,014 11,465 4,070 13,992 16,343 3,712 4,160
------- ------- ------- ------- ------- -------
Operating earnings............ 2,890 1,849 3,594 1,872 8,808 12,562 2,894 4,895
Other income (expense).......... 196 384 64 (62) 134 83 6 (40)
------- ------- ------- ------- ------- -------
Earnings before income
taxes....................... 3,086 2,233 3,658 1,810 8,942 12,645 2,900 4,855
Income taxes.................... 1,246 968 1,575 180 268 224 82 123
------- ------- ------- ------- ------- -------
Net earnings.................. $ 1,840 $ 1,265 $ 2,083 $ 1,630 $ 8,674 $12,421 $ 2,818 $ 4,732
======= ======= ======= ======= ======= =======
PRO FORMA DATA
Historical earnings before
income taxes................ $12,645 $ 2,900 $ 4,855
Compensation
differential(1)............. 1,791 308 --
Income taxes(2)............... (5,926) (1,317) (1,996)
------- ------- -------
Net earnings................ $ 8,510 $ 1,891 $ 2,859
======= ======= =======
Net earnings per share(3)..... $ .58 $ .13 $ .20
======= ======= =======
Weighted average number of
common shares outstanding... 14,618,209 14,618,209 14,618,209
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
AUGUST 31, DECEMBER 31, ----------------------------------
--------------------------- --------------------------- PRO AS
1991 1992 1993 1993 1994 1995 ACTUAL FORMA(4) ADJUSTED(5)
------- ------- ------- ------- ------- ------- ------- ------------ -----------
<S> <C> <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 $13,395 $ 9,762 $44,862
Total assets.................... 11,786 14,282 17,685 18,254 23,005 28,454 28,928 25,328 60,428
Long-term debt.................. 296 1,851 2,793 2,620 2,321 8,960 8,667 8,667 8,667
Stockholders' equity............ 6,812 7,210 8,891 9,860 13,052 10,411 12,138 8,505 43,605
</TABLE>
- ---------------
(1) The Company has entered into employment agreements with Messrs. Edward and
Keith Frankel which provide that their salaries will be $500,000 each in
1996. Had those agreements been in place in Fiscal 1995, the Company would
have paid $1.8 million less in compensation in Fiscal 1995 and $308,000 less
in
17
<PAGE> 20
compensation in the three months ended March 31, 1995. Aggregate
compensation to Messrs. Edward and Keith Frankel in Fiscal 1993 and 1994 was
$2.5 million and $2.8 million greater than the aggregate salary payable to
these executives pursuant to such agreements in 1996. Such agreements
provide that beginning in 1997 the base salary is subject to annual
increases of the greater of 5% or the percentage increase in the Consumer
Price Index and that the Compensation Committee may determine to award
bonuses to such executives on the basis of operating results. See
"Management -- Employment Agreements".
(2) For the four month period ended December 31, 1993, Fiscal 1994 and 1995 and
the three month periods ended March 31, 1995 and 1996, 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, Fiscal 1994 and
1995 and the three month periods ended March 31, 1995 and 1996, Garden State
Nutritionals, Inc. and Windmill Marketing Services, Inc., and for Fiscal
1995 and the three month periods ended March 31, 1995 and 1996, 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 Fiscal 1995 and the three month periods ended
March 31, 1995 and 1996, 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, as well as 452,209 shares
deemed to be outstanding. Shares deemed outstanding represent the
approximate number of shares deemed to be sold by the Company (at an assumed
initial public offering price of $16.00 per share) to fund the estimated
distributions to stockholders in excess of net earnings during the twelve
month period ending June 30, 1996. See "S Corporation Distributions" and
"Management -- Non-Competition, Confidentiality and Other Employee
Arrangements".
(4) The Company's presentation of unaudited pro forma balance sheet data at
March 31, 1996 reflects the effect of a $3.7 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 March 31, 1996 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 April 1, 1996 to a date prior
to the date of this Offering, up to $5.0 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".
18
<PAGE> 21
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 three months ended March
31, 1996 and 1995, 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 ("1993 Fiscal
Period").
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 is 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>
THREE
MONTHS
ENDED
FISCAL FOUR FISCAL FISCAL MARCH
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED 31,
AUGUST 31, 1993 DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 1995
-------------------- -------------------- -------------------- -------------------- -------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE ACTUAL
------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Garden State Nutritionals... $25,399 71.4% $8,732 64.1% $33,988 67.7% $39,625 65.3% $ 9,475
Windmill Marketing.......... 7,396 20.8 2,935 21.6 8,426 16.8 11,439 18.9 2,936
Celebrity Marketing......... 2,789 7.8 1,950 14.3 7,778 15.5 9,569 15.8 1,954
------- ------- ------- ------- ------- ------- ------- ------- -------
Net sales(1)................ $35,584 100.0% $13,617 100.0% $50,192 100.0% $60,633 100.0% $14,365
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------------
PERCENTAGE ACTUAL PERCENTAGE
---------- ------- ----------
<S> <C> <C> <C>
Garden State Nutritionals... 66.0% $10,282 57.0%
Windmill Marketing.......... 20.4 3,593 19.9
Celebrity Marketing......... 13.6 4,153 23.1
------- ------- -------
Net sales(1)................ 100.0% $18,028 100.0%
======= ======= =======
</TABLE>
- ---------------
(1) Sales shown above are net of inter-company transactions. Sales of products
manufactured by Garden State Nutritionals 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%. The Company does not believe that price changes had
a material impact on the results of operations for the periods discussed.
19
<PAGE> 22
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 THREE MONTHS
FISCAL YEAR FOUR MONTHS ENDED ENDED
ENDED ENDED DECEMBER 31, MARCH 31,
AUGUST 31, DECEMBER 31, --------------- ---------------
1993 1993 1994 1995 1995 1996
----------- ------------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................... 57.7 56.4 54.6 52.3 54.0 49.8
------ ------ ------ ------ ------ ------
Gross profit......................... 42.3 43.6 45.4 47.7 46.0 50.2
Selling, general and administrative
expenses........................... 32.2 29.9 27.9 27.0 25.8 23.1
------ ------ ------ ------ ------ ------
Earnings from operations............. 10.1 13.7 17.5 20.7 20.2 27.1
Other income (expense)............... 0.2 (0.4) 0.3 0.2 -- (0.2)
------ ------ ------ ------ ------ ------
Earnings before income taxes......... 10.3 13.3 17.8 20.9 20.2 26.9
Income taxes......................... 4.4 1.3 0.5 0.4 0.6 0.7
------ ------ ------ ------ ------ ------
Net earnings......................... 5.9% 12.0% 17.3% 20.5% 19.6% 26.2%
====== ====== ====== ====== ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net Sales. Net sales increased $3.7 million, or 25.5%, from $14.4 million
in the three months ended March 31, 1995 to $18.0 million in the three months
ended March 31, 1996. Net sales of the Garden State Nutritionals division
increased $807,000, or 8.5%, from $9.5 million in the three months ended March
31, 1995 to $10.3 million in the three months ended March 31, 1996. This
increase was attributable to sales to seven new customers in the 1996 period
(including three direct selling companies and two electronic media customers)
and increased sales to existing customers which more than offset a significant
decline in sales to two major customers (including a direct selling company
customer) that had accounted for $3.7 million in net sales in the 1995 period.
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 $657,000, or 22.4%, from $2.9 million in
the three months ended March 31, 1995 to $3.6 million in the three months ended
March 31, 1996. This increase was primarily attributable to increased sales of
the Company's branded specialty nutritional supplements to drug stores,
supermarkets and discount department store chains as well as increased 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 more than doubled, increasing $2.2
million from $2.0 million in the three months ended March 31, 1995 to $4.2
million in the three months ended March 31, 1996. This increase represented
increased sales to Home Shopping Network, which accounted for 21.6% of the
Company's net sales in the three months ended March 31, 1996. The Company does
not expect that such increased level of sales to Home Shopping Network will be
maintained throughout 1996.
Cost of Goods Sold. Cost of goods sold increased $1.2 million or 15.6%,
from $7.8 million in the three months ended March 31, 1995 to $9.0 million in
the three months ended March 31, 1996. As a percentage of sales, cost of goods
declined from 54.0% in the 1995 period to 49.8% in the 1996 period as a result
of increased sales of higher margin products, especially sales to customers
selling through electronic media channels of distribution.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased $448,000, or 12.1%, from $3.7 million
in the three months ended March 31, 1995 to $4.2 million in the three months
ended March 31, 1996. Advertising and promotion expenses increased $244,000,
primarily to
20
<PAGE> 23
support the Company's branded specialty nutritional supplements. In addition,
$279,000 of increased rent and other expenses related to the Company's new
facility are included in the three months ended March 31, 1996. These increases,
as well as increased expenses associated with increased volume, more than offset
a $308,000 reduction in compensation to Messrs. Edward & Keith Frankel in the
1996 period. Pursuant to employment agreements effective as of January 1, 1996,
the salaries to be paid to Messrs. Edward and Keith Frankel are limited in 1996
to $500,000 each. The results for the three months ended March 31, 1996 reflect
the implementation of these agreements. See "Management-Employment Agreements".
As a percentage of net sales, SG&A decreased from 25.8% to 23.1% for the three
months ended March 31, 1995 and 1996, respectively.
Other Income. Other income (expenses) decreased $47,000 from $6,000 of
income in the three months ended March 31, 1995 to $41,000 of expense in the
three months ended March 31, 1996, primarily as a result of increased interest
expense on borrowings, including borrowings under the Company's term loan
facility which was not in effect during the three months ended March 31, 1995.
This increased interest expense was partially offset by increased investment
income.
Income taxes. Income taxes increased $41,000 from $82,000 in the three
months ended March 31, 1995 to $123,000 in the three months ended March 31,
1996. 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 $2.0 million and $1.3 million for the three months ended March 31, 1996
and 1995, respectively.
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
Nutritionals 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 a significant decline in sales to two major
customers that had accounted for $4.0 million in net sales in Fiscal 1994. 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 $115,000 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. 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
1996, Mr. Keith Frankel was compensated primarily on a commission basis.
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
21
<PAGE> 24
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 sold 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 the $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. Had the Company been a C corporation in these periods,
income taxes would have been $5.9 million and $3.6 million in Fiscal 1995 and
Fiscal 1994, respectively. See "S Corporation Distributions".
Fiscal 1994 Compared to Fiscal 1993
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 Company has not included the percentage changes from Fiscal
1993 to Fiscal 1994 in its discussion of results of operations for these periods
due to the intervening four month period ended December 31, 1993.
Net Sales. 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.
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.
22
<PAGE> 25
1993 Fiscal Period
In the 1993 Fiscal Period, the Company had net sales of $13.6 million
compared with net sales of $15.4 million in the corresponding period in Fiscal
1994. In the 1993 Fiscal Period, cost of goods sold was $7.7 million,
representing 56.4% of net sales, and SG&A was $4.1 million, representing 29.9%
of net sales. Other expense was $61,000, representing 0.5% of net sales, and
income taxes amounted to $180,000, representing 1.3% of net sales. The Company
does not believe that there were any unusual transactions, charges or credits in
the 1993 Fiscal Period that would have materially effected the results of
operations for the 1993 Fiscal Period as compared to the corresponding period in
Fiscal 1994.
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 the three months ended March 31, 1996 increased $3.3 million to $3.3 million
from $52,000 in the three months ended March 31, 1995, primarily as a result of
the $1.9 million increase in net earnings. Supplementing the increase in net
earnings was an increase in cash of $1.3 million resulting from changes in
operating assets and liabilities. 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 a decrease in cash of $2.0
million resulting primarily from changes in operating assets and liabilities in
Fiscal 1995. The Company funded $1,000,000 of capital expenditures in the three
months ended March 31, 1996, primarily for additional packaging equipment and
the build-out of its new facility. 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".
The Company had inventory of $5.0 million, $6.9 million and $6.3 million at
December 31, 1994 and 1995 and at March 31, 1996, respectively. The increase in
inventories from year-end 1994 to year-end 1995 primarily reflects a $1.1
million increase in raw materials to support the Company's higher level of sales
and will benefit future operating periods.
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 March 31, 1996, the Predecessor Companies had undistributed S
corporation earnings of $7.9 million, all of which has since been distributed to
those persons who were stockholders of the Predecessor Companies as of such
date. Included in this distribution were marketable securities, valued at market
value at the date of distribution, transferred to such stockholders in
satisfaction of $1.3 million of undistributed S corporation earnings. At March
31, 1996, a distribution of $994,000 of such earnings had been declared but not
yet distributed and was recorded as a current liability on the balance sheet of
the Company. All earnings of the Company and the Predecessor Companies from
April 1, 1996 to a date prior to the date of this Offering, up to $5 million,
will be distributed in cash and pursuant to the Company's promissory notes to
those persons who were stockholders of the Company and the Predecessor Companies
at such date. 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 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
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agreement call for 59 monthly principal installments of $9,600 each and a final
installment of $585,000 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.
If Messrs. Edward, Keith and Frank Frankel (and any trusts established for the
benefit of any of them) cease to own, in the aggregate, at least 25% of the
Common Stock of the Company, the bank may accelerate the loan. 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 thereby putting the Company in compliance with the
covenant. The bank may accelerate the loan if Messrs. Edward, Keith and Frank
Frankel and any trusts established for the benefit of any of them cease to own,
in the aggregate, at least 25% of the Common Stock of the Company, or if Messrs.
Edward and Keith Frankel are not members of the Board of Directors of the
Company, or if Mr. Edward Frankel is not involved in the day-to-day management
of the Company's business.
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.
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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. The
Company has adopted these statements as of January 1, 1996.
The Company has determined 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.
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BUSINESS
GENERAL
The Company is a custom developer, manufacturer and marketer of vitamins
and nutritional supplements, as well as specialty nutritional systems. Specialty
nutritional systems include weight loss and sports nutrition kits containing
groups of vitamins and nutritional supplements with instructions for use. The
Company focuses on adding value for its customers through innovative product
development and brand creation. In the first quarter of 1996, the Company
manufactured in excess of 1,500 products and marketed in excess of 2,500
products (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 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 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 and
in the first quarter of 1996, more than 50% of the Company's net sales resulted
from products which were custom developed by the Company. As a custom developer,
the Company formulates and manufactures products designed to meet the needs of
individual customers. In addition, the Company assists a significant number of
these customers with value added services, such as product development, brand
creation, package design and marketing support services. The Company believes
these services add value for its customers by assisting customers in developing
product lines for their marketing concepts and by making available to such
customers the Company's technical and marketing experience and knowledge. These
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 and in the first quarter of 1996.
The Company operates its business in three divisions: the Garden State
Nutritionals division, the Celebrity Marketing division and the Windmill
Marketing division. Garden State Nutritionals 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 Nutritionals 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 and product lines for customers' marketing concepts and by making
available to such customers the Company's technical and marketing experience and
knowledge. 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, brand creation, 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 drug store and supermarket 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. Immediately prior to such merger, the Predecessor Companies were
under the common control of the Selling Stockholders. During such five year
period, the Company acquired the
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assets of a vitamin and nutritional supplement distributor located in the
Midwest, and the rights to the Foods Plus(R) trademark. See "Certain
Relationships and Related Transactions". 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.
INDUSTRY
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. According to the Packaged Facts Survey,
estimated retail sales of vitamins, minerals and other nutritional supplements
has grown at a compounded annual rate of greater than 12% from $3.3 billion in
1991 to $4.6 billion in 1994. 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,
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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 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 and governmental action affecting
the sale of ephedrine 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 and $569,000 in the first quarter of 1996, or less than 4% of
total sales in each period.
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
intends to expand 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
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in different channels. Moreover, the Company benefits from having a diverse
base of sales from over 2,500 products sold in these distribution channels.
No single product accounted for more than 5% of net sales in Fiscal 1995 or
the first quarter of 1996 except for one product which accounted for 6.2%
of net sales in Fiscal 1995.
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 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 the first quarter of 1996, the Company manufactured more than 1,500
products consisting of vitamins, nutritional supplements, herbal products and
function specific 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 Nutritionals 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 intends to expand the dosage forms in which it
manufactures products to include forms such as effervescent and powdered vitamin
and nutritional 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 and
supermarket 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.
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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 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, brand
creation, 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 Nutritionals. The Company's value added services are key
components of Garden State Nutritionals' marketing strategy. The Company seeks
new business by, among other things, helping customers with product development,
brand creation, 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 Nutritionals 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 December 31,
1995 had been primarily commission based. As in the Garden State Nutritionals
division, customers are assisted with product development, brand creation,
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,
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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.
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 store and supermarket chains, 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 and
the first quarter of 1996, sales to the Company's ten largest domestic customers
accounted for approximately 54.6% and 52.8% of its total net sales,
respectively, with one customer, the Home Shopping Network, accounting for
approximately 11.9% and 21.6% of net sales for the respective periods. In Fiscal
1995, Garden State Nutritionals had approximately 400 customers, Celebrity
Marketing had approximately 20 customers, and Windmill had over 3,000 customers.
Export sales accounted for 3.5% and 3.2% of total net sales, respectively,
during Fiscal 1995 and the first quarter of 1996. 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 and the first quarter of 1996.
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 intends to purchase equipment to expand the dosage
forms in which it manufactures products to include forms such as effervescent
and powdered vitamins and nutritional supplements. See "Use of Proceeds".
The Company emphasizes quality control. The number of quality control
personnel has increased from six at December 31, 1993 to 15 at May 31, 1996. 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
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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 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 May 31, 1996, order backlog amounted to $6.2 million, compared with $6.6
million at April 18, 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.
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<PAGE> 35
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 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.
For certain of its contract manufacturing customers, the Company
manufactures products containing a Chinese herb known as "ma huang," a natural
source of ephedrine, a stimulant. Such products accounted for 10.2% of the
Company's net sales in Fiscal 1995 and 7.6% of the Company's net sales in the
first quarter of 1996, including one product which accounted for 6.2% and 3.2%
of the Company's net sales in such periods, respectively. Ephedrine and ma huang
have been the subject of recent adverse publicity in the United States. The
death of a Long Island college student on March 6, 1996, reportedly from
over-ingestion of an ephedrine-containing dietary supplement received
significant press coverage. On April 10, 1996, the FDA issued a statement
warning consumers not to purchase or ingest dietary supplements containing
natural sources of ephedrine that are claimed to produce such effects as
euphoria, heightened awareness, increased sexual sensations or increased energy
because these products pose significant adverse health risks -- dizziness,
headache, gastrointestinal distress, irregular heartbeat, heart palpitations,
heart attack, strokes, seizures, psychosis and death. Some products manufactured
by the Company are marketed by its customers as a source of increased energy and
therefore are the subject of such FDA warning. The FDA statement did not warn
consumers against purchasing or consuming ephedrine-containing dietary
supplements that are labeled for other uses.
In addition, some states have regulated or are considering regulating
ephedrine-containing products as controlled substances or prohibiting the sale
of such products by persons other than licensed pharmacists. The Florida
Department of Agriculture and the New York State Department of Health have
banned the sale of certain specific ephedrine-containing products labeled as
producing euphoric and related effects. Recently, the legislature of Nassau
County, New York enacted a local law prohibiting the sale of all
ephedrine-containing
33
<PAGE> 36
products to persons under 18 years of age, and prohibiting the sale or
distribution of all ephedrine-containing products claiming to produce such
effects as euphoria, increased sexual sensations, heightened awareness,
increased energy and legal "highs" (although the law allows the sale of
ephedrine products if labeled as weight loss aids or sports nutrition products
for use by those 18 or older). Further, a pending New York State bill would
regulate any ephedrine-containing product, including ma huang, as a controlled
substance to be dispensed only by prescription, no matter what labeling claims
are made.
To the Company's knowledge, sales by the Company's customers of products
manufactured by the Company which contain ma huang which are labeled for weight
loss or sports nutrition have not been proscribed by governmental authorities,
as distinguished from sales of such products which are labeled for increased
energy. To the Company's knowledge, none of the ma huang products it
manufactures are labeled for any purpose included in the FDA statement, other
than increased energy. Those products which are marketed to increase energy have
been prohibited in Nassau County, New York and the sale of one of such products
has been prohibited in Florida. The Company does not believe that the prohibited
sale of such products in Nassau County, New York or of one of such products in
Florida will have a material adverse effect on the Company or its results of
operations. There can be no assurance that products manufactured by the Company
containing ma huang will not be banned in other jurisdictions or that ma huang
will not become subject to further regulation, which could require the
reformulation of the Company's ma huang-containing products and 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 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.
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
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<PAGE> 37
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 a new drug application, which would entail costly and time-consuming
clinical studies. 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 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 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.
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.
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The Garden State Nutritionals 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 Nutritionals 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.
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. Although the
Predecessor Companies manufactured products containing manufactured L-Tryptophan
prior to such recall and were named in many of such actions, neither the
Predecessor Companies nor the Company are now parties to any such actions.
Nonetheless, the possibility of future actions related to such products cannot
be excluded since the applicable statute of limitations may not have run in all
jurisdictions in which such products were sold. 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
hereafter brought 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.
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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 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
As of May 31, 1996, the Company employed 272 individuals, with 178 employed
in manufacturing and production, 29 employed in sales and marketing, 15 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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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers as of May 31, 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.
The Board of Directors intends to appoint an additional independent director
following the consummation of this Offering. 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". The Company has
entered into agreements with each of its directors and executive officers that
provide for the indemnification of and the advancement of expenses to such
persons to the maximum extent permitted by Delaware law.
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
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<PAGE> 41
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.
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 Nutritionals
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> 42
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(2) $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(3).... 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 --
Nutritionals Division(4)................... 1993 -- -- --
1995 100,554 35,000 28,609
Stephen J. Young; 1994 94,177 26,000 14,027
Secretary and Chief Financial Officer(4)... 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(5)...................... 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,
Mr. 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, Mr.
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) The bonus to Mr. Edward Frankel in Fiscal 1993 was determined and approved
by the Garden State Nutritionals, Inc. Board of Directors based upon the
substantial improvement in the Company's sales and operating earnings over
the prior year.
(3) 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".
(4) Does not include the value of 8,000 shares of Common Stock issued to each of
Messrs. Jacobowitz and Young shortly prior to this Offering at a purchase
price of $1.00 per share or the value of options to purchase 45,000 shares
granted to each of Messrs. Jacobowitz and Young which are not currently
40
<PAGE> 43
exercisable. See "Management -- Non-Competition, Confidentiality and Other
Employee Arrangements and -- 1996 Stock Option Plan".
(5) Does not include the value of 25,000 shares of Common Stock issued shortly
prior to this Offering at a purchase price of $1.00 per share or the value
of options to purchase 45,000 shares, which are not currently exercisable.
See "Management -- Non-Competition, Confidentiality and Other Employee
Arrangements and -- 1996 Stock Option Plan".
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 $500,000 annual base salary. Such agreements
further provide that beginning in 1997 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 Compensation Committee may determine to award bonuses to such executives on
the basis of operating results. Such employment agreements further prohibit the
employee from engaging in certain activities in competition with the Company,
soliciting any customers or certain potential 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) or termination by the
Company in any way that is a breach of the employment agreement. The employee
must also hold all confidential information of the Company in trust and
confidence and not disclose any such information to anyone outside the Company.
Such employment agreements further provide that (i) in the event of
disability, the employee's compensation will be continued for nine months and
his salary will be continued for the balance of the term and that during such
balance of the term and for one year thereafter the employee will receive
certain health and welfare benefits such as medical, dental, disability,
dependent care and life insurance coverage as well as use of a Company
automobile and an office and secretarial services (the "Post-Termination
Benefits"), (ii) in the event of termination of the employee with good reason or
by the Company without cause, (x) the employee will receive his salary and bonus
(which shall be not less than the highest bonus paid prior to such termination)
for the balance of the term, (y) during such balance of the term and for one
year thereafter the employee will receive the Post-Termination Benefits and (z)
the employee shall be entitled to receive all benefits under all employee
benefit plans, a pro-rated amount of salary in respect of unpaid vacation and
sick leave and payment of all legal fees and expenses incurred by the employee
in connection with such termination or the enforcement of any rights or benefits
under the employment agreement, and (iii) in the event of death, there will be
paid to the Employee's estate, as a death benefit, compensation for a 12 month
period equal to the base compensation applicable at the time of death.
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 or certain potential 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
41
<PAGE> 44
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".
Pursuant to a Restricted Stock Plan and Stock Purchase Agreements
thereunder, the Company has 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. Under the terms of such Stock Purchase Agreements, the shares so
purchased are subject to repurchase by the Company, at the same price, if the
individual engages in certain activities in competition with the Company or
ceases to be employed by the Company prior to the fifth anniversary of the date
of purchase, unless such termination is not a discharge for cause, as defined in
the Stock Purchase Agreements. Such repurchase right lapses over a five year
period at the rate of 20% of the purchased shares, per year, subject to earlier
lapse in full upon a Change in Control or the individual's death, retirement or
permanent and total disability. A "Change in Control" for this purpose shall be
deemed to have occurred if and when Messrs. Edward and Keith Frankel cease to
beneficially own an aggregate of 25% of the combined voting power of the
Company's then outstanding securities or upon a change in the composition of the
Board such that a majority of the members of the Board immediately prior to such
change are no longer members of the Board, which, in the sole discretion of the
Board immediately prior to such change, is determined to be a change hostile to,
and not in the best interests of, the stockholders of Company.
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 615,000 shares at the
initial public offering price per share. Such options are exercisable for eight
years from the date of grant and vest in five equal installments on the first
five anniversaries of the date of grant. Options to purchase 45,000 shares were
granted to each of Messrs. Young, Jacobowitz and Munk.
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 May 30,
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.
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 or any
combination thereof. 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, any options that the
optionee holds terminate immediately. If an optionee's employment terminates for
any reason other than misconduct, the option
42
<PAGE> 45
remains exercisable for a fixed period of three months (twelve months or such
other period as the Board may fix 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.
If a participant's employment is terminated for any reason other than for
cause (or, with respect to certain participants who are executive officers of
the Corporation as defined in the 1996 Stock Option Plan, there is a
constructive termination of their employment) within one year after a Change of
Control, all options held by such a participant become fully vested. A
constructive termination occurs if the participant resigns because of a
diminution or adverse change in his or her conditions of employment. For this
purpose, a "Change of Control" will generally be deemed to have occurred upon
the acquisition by any person of more than 20% of either the then outstanding
shares of the Company's Common Stock or the combined voting power of the
Company's then outstanding securities (not including in the securities
beneficially owned by such person any securities acquired directly from the
Company or any of its affiliates), a change in membership of the Board of
Directors such that Directors in office at the beginning of any two-year period
or approved by two-thirds of the Directors then still in office cease to
constitute a majority of the Board, certain mergers or corporate transactions in
which the Company is not the surviving entity, or a liquidation of the Company
or a sale of substantially all of the Company's assets.
Each current non-employee Director has been granted an initial option for
10,000 shares as of the date of this Offering and future elected non-employee
Directors will be granted an initial option for 10,000 shares when first
elected. For so long as a non-employee Director continues to serve on the Board,
on the first business day coincident with or following each annual meeting of
the Corporation's stockholders at which directors are elected, he or she will
automatically receive an additional option for 2,000 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 sale 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.
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
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<PAGE> 46
"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,
subject to certain exceptions applicable to companies whose stock has not
previously been publicly traded, such as the Company, 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 350,000 shares.
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<PAGE> 47
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 included in operating expenses amounts billed by Horowitz,
Waldman, Berretta & Maldow, CPA, LLP, an accounting firm which includes Mr.
Julius M. Horowitz, a Director of the Company, $46,000 in the first quarter of
1996, $299,000 in Fiscal 1995, $183,000 in Fiscal 1994, $277,000 in Fiscal 1993
and $49,000 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 1994, Garden State Nutritionals, Inc. redeemed from a former
stockholder approximately 12% of its outstanding shares of capital stock for
$400,000. Concurrently with the closing of such stock redemption, the Company
entered into an employment, non-competition and confidentiality agreement with
such former stockholder which remains in effect through August 31, 1999,
pursuant to which the Company (i) made certain lump sum bonus and non-compete
payments aggregating $375,000, and (ii) is required to pay $200,000 per year
throughout the remainder of the term thereof. During Fiscal 1995, Mr. Keith
Frankel purchased from a former stockholder of Windmill Marketing Services, Inc.
approximately 5% of its outstanding shares of capital stock for $75,000. At the
time of the closing of such stock purchase, the Company entered into a
consulting, non-competition and confidentiality agreement with such former
stockholder which remains in effect through December 31, 2004, pursuant to which
the Company is required to pay $50,000 per year. In 1992, each of Garden State
Nutritionals, Inc. and Windmill Marketing Services, Inc. redeemed a minority
interest from a former stockholder of such companies, and Windmill Marketing
Services, Inc. purchased the assets of a vitamin and nutritional supplement
distribution company controlled by such former stockholder for $442,000 and the
assumption of $426,000 of liabilities. Concurrently with such stock redemption
and purchase, such former stockholder and the company which he had controlled
entered into eight-year consulting and non-competition agreements with such
companies, pursuant to which the Company is currently required to pay $250,000
per year through 2000. 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 6% 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
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<PAGE> 48
Partnership, which is scheduled to be paid during 1996. During the first quarter
of 1996 the Company repaid a non-interest bearing loan in the amount of $78,000
made by Mr. Edward Frankel in Fiscal 1994.
The Board of Directors of the Company has not adopted a specific policy for
considering future transactions with management and their affiliates. However,
the Company is subject to Section 144 of the Delaware General Corporation Law,
which provides that transactions between the Company and its directors or
officers or entities in which they have a financial interest are not void or
voidable solely due to the conflict of interest, the fact that such directors or
officers are present at the meeting authorizing the transaction or the fact that
their votes are counted for authorization if one of the following conditions is
met: (i) the material facts have been disclosed to the board and a majority of
disinterested directors authorize the transaction, (ii) the material facts are
disclosed to the stockholders and the contract is approved in good faith by a
vote of the stockholders, or (iii) the transaction is fair as to the Company as
of the time it is approved by the directors, a committee, or the stockholders.
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<PAGE> 49
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Common Stock as of June 17, 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................. 5,756,696 40.6% 2,400,000 3,356,696 20.3%
Keith I. Frankel(3)............... 8,303,004 58.6% 2,400,000 5,903,004 35.6%
Joel H. Girsky(4)................. 10,000 * -- 10,000 *
Julius M. Horowitz(4)............. 10,000 * -- 10,000 *
Stephen J. Young(5)............... 8,000 * -- 8,000 *
Myron Jacobowitz(5)............... 8,000 * -- 8,000 *
Howard L. Munk(5)................. 25,000 * -- 25,000 *
All directors and executive
officers as a group (7
persons)........................ 14,120,700(2) 99.5% 4,800,000 9,320,700(2) 56.2%
</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 2,996,696 shares and Mr. Keith Frankel will
beneficially own 5,543,004 shares, representing an aggregate of 50.4% of the
outstanding shares of Common Stock.
(2) Includes 51,000 shares of Common Stock 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 2,546,308 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 which may be purchased upon exercise of
options. See "Management -- 1996 Stock Option Plan".
(5) Represents shares of Common Stock purchased prior to this Offering described
in footnote 2 above. Excludes 45,000 shares as to each of Messrs. Young,
Jacobowitz and Munk which may be purchased upon exercise of options which
are not currently exercisable. See "Management -- 1996 Stock Option Plan".
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<PAGE> 50
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 June 17, 1996, there were 14,166,000 shares of Common Stock
outstanding, all of which were held by ten 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 otherwise attempting to
gain control of the Company and may have the effect of maintaining the
incumbency of the Board of Directors. See "Management".
48
<PAGE> 51
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 American
Stock Transfer & Trust Company.
49
<PAGE> 52
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.
50
<PAGE> 53
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
51
<PAGE> 54
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. The Commission also maintains
a site on the World Wide Web, the address of which is http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
52
<PAGE> 55
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 and March 31, 1996....... F-3
Consolidated Statements of Earnings for the year ended August 31, 1993, the four
months ended December 31, 1993, the years ended December 31, 1994 and 1995 and March
31, 1996............................................................................ F-4
Consolidated Statement of Stockholders' Equity for the year ended August 31, 1993, the
four months ended December 31, 1993, the years ended December 31, 1994 and 1995 and
the three months ended March 31, 1996............................................... F-5
Consolidated Statements of Cash Flows for the year ended August 31, 1993, the four
months ended December 31, 1993, the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1996................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 56
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.
GRANT THORNTON LLP
Parsippany, New Jersey
April 12, 1996
F-2
<PAGE> 57
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
DECEMBER 31, DECEMBER 31, 1996 1996
1994 1995 ------------ ------------
------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,470,874 $ 3,838,005 $ 4,565,252 $ 964,429
Marketable securities.............................. 1,611,376 1,776,429 -- --
Accounts receivable, net of allowance for doubtful
accounts of $200,000 in 1994, $381,000 in 1995
and
$403,000 in 1996................................ 7,939,384 9,401,509 10,938,236 10,938,236
Inventories........................................ 4,964,000 6,948,132 6,281,804 6,281,804
Prepaid expenses and other......................... 567,889 719,927 847,463 847,463
Due from stockholders.............................. -- 377,684 122,983 122,983
----------- ----------- ----------- -----------
Total current assets....................... 17,553,523 23,061,686 22,755,738 19,154,915
Property and equipment -- at cost, net............... 3,558,259 3,464,332 4,272,788 4,272,788
Intangible assets (less accumulated amortization of
$389,970 in 1994, $482,492 in 1995 and $518,122 in
1996).............................................. 849,764 707,242 671,612 671,612
Other assets......................................... 1,043,317 1,221,003 1,228,251 1,228,251
----------- ----------- ----------- -----------
$ 23,004,863 $ 28,454,263 $ 28,928,389 $ 25,327,566
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 362,499 $ 1,237,683 $ 1,237,040 $ 1,237,040
Due to stockholders................................ 815,260 1,331,747 994,131 994,131
Accounts payable................................... 4,276,074 4,839,730 4,296,770 4,296,770
Customer deposits.................................. 916,754 667,373 327,535 327,535
Accrued expenses................................... 1,623,969 2,244,964 2,504,955 2,504,955
Deferred income taxes.............................. -- -- -- 32,000
----------- ----------- ----------- -----------
Total current liabilities.................. 7,994,556 10,321,497 9,360,431 9,392,431
Long-term debt, less current maturities.............. 1,958,755 7,721,916 7,430,220 7,430,220
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........................................... 141,150 141,150 141,150 141,660
Additional paid-in capital......................... -- -- -- 815,490
Retained earnings.................................. 13,010,248 10,253,256 11,996,588 8,312,765
Unrealized gain (loss) on marketable securities.... (99,846) 16,444 -- --
Unearned compensation.............................. -- -- -- (765,000)
----------- ----------- ----------- -----------
Total stockholders equity.................. 13,051,552 10,410,850 12,137,738 8,504,915
----------- ----------- ----------- -----------
$ 23,004,863 $ 28,454,263 $ 28,928,389 $ 25,327,566
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 58
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
T HREE MONTHS ENDED MARCH
FOUR MONTHS 31,
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, -------------------------
AUGUST 31, DECEMBER 31, ------------------------- 1995 1996
1993 1993 1994 1995 ----------- -----------
----------- ------------ ----------- ----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $35,584,190 $ 13,616,852 $50,191,851 $60,633,243 $14,365,304 $18,027,967
Cost of goods sold................ 20,525,472 7,675,025 27,391,998 31,728,577 7,759,664 8,972,544
----------- ----------- ----------- -----------
Gross profit................. 15,058,718 5,941,827 22,799,853 28,904,666 6,605,640 9,055,423
Operating expenses
Selling, general and
administrative............... 11,465,498 4,070,262 13,991,948 16,343,133 3,711,735 4,160,021
----------- ----------- ----------- -----------
Operating earnings........... 3,593,220 1,871,565 8,807,905 12,561,533 2,893,905 4,895,402
Other income (expense)
Investment income............... 142,179 24,300 93,321 199,079 42,805 74,414
Interest expense................ (205,833) (72,189) (213,532) (336,040) (48,931) (176,007)
Miscellaneous income............ 127,901 (13,600) 254,611 219,968 12,191 60,922
----------- ----------- ----------- ----------- ----------- -----------
Earnings before income
taxes...................... 3,657,467 1,810,076 8,942,305 12,644,540 2,899,970 4,854,731
Income taxes...................... 1,574,841 180,223 268,187 224,000 82,000 123,000
----------- ----------- ----------- ----------- ----------- -----------
Net earnings............ $ 2,082,626 $ 1,629,853 $ 8,674,118 $12,420,540 $ 2,817,970 $ 4,731,731
=========== ============ =========== =========== =========== ===========
Pro forma data
Historical earnings before
income taxes................. $12,644,540 $ 2,899,970 $ 4,854,731
Compensation differential....... 1,791,135 308,193 --
Income taxes.................... (5,926,000) (1,317,000) (1,996,000)
----------- ----------- -----------
Net earnings............ $ 8,509,675 $ 1,891,163 $ 2,858,731
=========== =========== ===========
Net earnings per share.......... $ .58 $ .13 $ .20
=========== =========== ===========
Weighted average number of
common shares outstanding.... 14,618,209 14,618,209 14,618,209
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 59
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
---------- -------- ----------- -------- -----------
Net earnings (unaudited)............. -- -- 4,731,731 -- 4,731,731
Distributions to stockholders
(unaudited)........................ -- -- (2,988,399) -- (2,988,399)
Sale of marketable securities
(unaudited)........................ -- -- -- (16,444) (16,444)
---------- -------- ----------- -------- -----------
BALANCE AT MARCH 31, 1996
(UNAUDITED)........................ 14,115,000 $141,150 $ 11,996,588 $ -- $ 12,137,738
========== ======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 60
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31,
AUGUST 31, DECEMBER 31, --------------------------- --------------------------
1993 1993 1994 1995 1995 1996
----------- ------------ ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.......................... $ 2,082,626 $1,629,853 $ 8,674,118 $ 12,420,540 $ 2,817,970 $ 4,731,731
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization....... 460,654 159,116 621,208 824,240 171,953 227,672
Provision for losses on accounts
receivable....................... 101,537 -- 256,179 181,200 16,214 21,800
Loss (gain) on sale of marketable
securities....................... (16,098) 25,575 43,679 32,741 -- (15,162)
(Earnings) loss from joint
venture.......................... (26,984) 22,611 (18,124) (30,331) -- (4,500)
Increase (decrease) in cash flows
from changes in operating assets
and liabilities:
Accounts receivable.............. (717,666) (356,626) (1,658,343) (1,643,325) (2,310,581) (1,558,527)
Inventories...................... (1,569,788) 217,000 (1,063,000) (1,984,132) (1,471,002) 666,328
Prepaid expenses and other....... 321,188 62,739 125,608 (152,038) (258,315) (122,804)
Other assets..................... (27,748) 3,104 (93,185) (147,355) (18,733) (3,026)
Accounts payable and accrued
expenses....................... 128,510 (668,280) 1,358,112 1,184,651 1,990,824 (282,249)
Customer deposits................ 421,784 (8,046) 386,231 (249,381) (885,863) (339,838)
----------- ---------- ----------- ---------- --------- ---------
Net cash provided by operating
activities................... 1,158,015 1,087,046 8,632,483 10,436,810 52,467 3,321,425
----------- ---------- ----------- ---------- --------- ---------
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 1,082 495,242
Purchases of marketable securities.... (1,174,752) (585,627) (2,467,606) (1,413,595) (5,334) (10,488)
Acquisition of property and
equipment........................... (1,085,581) (40,120) (1,549,334) (587,791) (295,199) (1,000,498)
Acquisition of intangible assets...... -- -- (125,000) -- -- --
----------- ---------- ----------- ---------- --------- ---------
Net cash used in investing
activities................... (924,558) (272,934) (2,545,659) (669,295) (299,451) (515,744)
----------- ---------- ----------- ---------- --------- ---------
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) (45,128) (292,339)
Advances to stockholders.............. -- -- -- (377,684)
Distributions to stockholders......... (200,000) (200,000) (4,907,301) (14,661,045) (884,319) (1,786,095)
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) (929,447) (2,078,434)
----------- ---------- ----------- ---------- --------- ---------
Increase (decrease) in cash and cash
equivalents...................... (161,026) 429,702 452,887 1,367,131 (1,176,431) 727,247
Cash and cash equivalents at beginning
of period............................. 1,749,311 1,588,285 2,017,987 2,470,874 2,470,874 3,838,005
----------- ---------- ----------- ---------- --------- ---------
Cash and cash equivalents at end
of period............................. $ 1,588,285 $2,017,987 $ 2,470,874 $ 3,838,005 $ 1,294,443 $ 4,565,252
=========== ========== =========== ========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest......................... $ 180,000 $ 66,000 $ 211,000 $ 161,000 $ 28,000 $ 160,000
Income taxes..................... 1,444,000 16,000 190,000 295,000 -- 150,000
</TABLE>
F-6
<PAGE> 61
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
is the successor by merger to Garden State Nutritionals, Inc., Windmill
Marketing Services, Inc. and Cel-Mark International, Inc. (the "Predecessor
Companies"). Immediately prior to the merger the Predecessor Companies were
under the common control of the principal stockholders. As a result of the
merger, each of the Predecessor Companies became 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. Subsequent to the merger, the
Company declared 95.67808219 for 1 stock dividend.
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. For the three months ended March 31, 1995 and
1996 the Company used the estimated gross profit method to determine inventory
values.
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.
F-7
<PAGE> 62
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
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.
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 and at March 31, 1996, the investment in the joint
venture, which is included in other assets, amounted to approximately $458,000,
$489,000 and $493,000, 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, $30,331 for the years ended August 31, 1994 and 1995, $0
and $4,500 for the three months ended March 31, 1995 and 1996, 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 its 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, repurchase
agreements 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.
F-8
<PAGE> 63
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
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.
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.
During the three months ended March 31, 1996, marketable securities
totalling $1,289,920 (valued at market value at the date of distribution) were
distributed to satisfy amounts due to stockholders of $1,254,058 at December 31,
1995 and a portion of the amount due at March 31, 1996 equal to $35,862.
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. Impact of Recently Issued Financial Accounting Standards
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.
The Company has adopted these statements as of January 1, 1996. The Company has
determined 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.
F-9
<PAGE> 64
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. Interim Financial Statements
The consolidated financial statements at March 31, 1996 and for the three
months ended March 31, 1995 and 1996 are unaudited. In the opinion of the
Company, the unaudited consolidated financial statements at March 31, 1996 and
for the three months ended March 31, 1995 and 1996, include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations for such
periods. Results of operations for the three months ended March 31, 1996 are not
necessarily indicative of results to be expected for the full year.
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.
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>
During the years ended December 31, 1994 and 1995, and three months ended
March 31, 1996 transactions from the sale of available-for-sale securities are
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Gross proceeds from sales....................... $1,417,817 $1,323,825 $1,783,629
Historical cost................................. 1,461,496 1,356,566 1,768,467
---------- ---------- ----------
Net gain (loss) from sales...................... $ (43,679) $ (32,741) $ 15,162
========== ========== ==========
</TABLE>
F-10
<PAGE> 65
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996
1994 1995 ----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $1,419,000 $2,480,729 $2,480,930
Work in process................................ 1,202,000 1,735,499 1,561,677
Finished product............................... 2,343,000 2,731,904 2,239,197
---------- ---------- ----------
$4,964,000 $6,948,132 $6,281,804
========== ========== ==========
</TABLE>
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996
1994 1995 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Land........................................... $ 277,200 $ 277,200 $ 277,200
Building and improvements...................... 1,414,758 1,419,848 2,136,747
Machinery and equipment........................ 2,273,151 2,654,622 2,930,345
Furniture, fixtures and office equipment....... 657,822 739,720 725,089
Leasehold improvements......................... 756,867 790,130 790,130
---------- ---------- ----------
5,379,798 5,881,520 6,859,511
Less accumulated depreciation and
amortization................................. 1,821,539 2,417,188 2,586,723
---------- ---------- ----------
$3,558,259 $3,464,332 $ 4,272,788
========== ========== ==========
</TABLE>
Depreciation and amortization expense of property and equipment totalled
approximately $302,000, $106,000, $450,000, $682,000, $172,000 and $228,000 for
the year ended August 31, 1993, the four months ended December 31, 1993, the
years ended December 31, 1994 and 1995 and the three months ended March 31, 1995
and 1996, respectively.
NOTE E -- ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996
1994 1995 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Salaries, commissions and payroll taxes........ $ 801,040 $ 848,159 $ 990,348
Profit sharing contribution.................... 157,833 217,782 90,093
Professional fees.............................. 224,672 363,982 399,212
Interest....................................... 51,876 226,955 226,857
Health and welfare............................. 26,776 138,402 62,204
Insurance...................................... -- -- 156,044
Other.......................................... 361,772 449,684 580,197
---------- ---------- ----------
$1,623,969 $2,244,964 $ 2,504,955
========== ========== ==========
</TABLE>
F-11
<PAGE> 66
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996
1994 1995 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Term loan payable to bank...................... $ -- $7,000,000 $ 6,750,000
Mortgage payable............................... 911,406 796,281 767,500
Notes payable -- former stockholders........... 1,333,000 1,109,000 1,109,000
Other.......................................... 76,848 54,318 40,760
---------- ---------- ----------
2,321,254 8,959,599 8,667,260
Less current maturities........................ 362,499 1,237,683 1,237,040
---------- ---------- ----------
$1,958,755 $7,721,916 $ 7,430,220
========== ========== ==========
</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 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 had 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 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.
F-12
<PAGE> 67
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LONG-TERM DEBT -- (CONTINUED)
The following is a summary of the annual maturities of long-term debt:
<TABLE>
<S> <C>
Year ending March 31,
1997........................................................... $1,237,040
1998........................................................... 1,915,950
1999........................................................... 1,264,270
2000........................................................... 1,250,000
2001........................................................... 1,250,000
Thereafter..................................................... 1,750,000
----------
$8,667,260
==========
</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.
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, the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 and 1996, was approximately $338,000, $104,000,
$311,000 and $438,000, $78,000 and $258,000, 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.
F-13
<PAGE> 68
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- PROFIT-SHARING PLAN
The Company has a profit-sharing plan for all of its employees meeting
certain minimum eligibility requirements. Contributions are at the discretion of
the Board of Directors. For the year ended August 31, 1993, the four months
ended December 31, 1993, the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995 and 1996, contributions to the plan charged to
operations were $439,000, $120,000, $505,000, $620,000, $126,000 and $106,000,
respectively.
NOTE I -- INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FOUR MONTHS YEAR ENDED MARCH 31,
YEAR ENDED ENDED DECEMBER 31, -------------------------
AUGUST 31, DECEMBER 31, ------------------- 1995 1996
1993 1993 1994 1995 ----------- -----------
---------- ------------ -------- -------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal....................... $1,206,763 -- -- -- $ -- $ --
State......................... 368,078 $180,223 $283,327 $256,000 90,000 130,000
Investment tax credits........ -- -- (15,140) (32,000) (8,000) (7,000)
---------- -------- -------- -------- -------- --------
$1,574,841 $180,223 $268,187 $224,000 $82,000 $ 123,000
========== ======== ======== ======== ======== ========
</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.
For the three months ended March 31, 1995 one customer accounted for
approximately 15% of sales.
For the three months ended March 31, 1996 one customer accounted for
approximately 21% of sales.
NOTE K -- TRANSACTIONS WITH STOCKHOLDERS
At December 31, 1995 and March 31, 1996, the Company had advances to a
stockholder of approximately $254,000 and $0, respectively 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 at December 31, 1994 and 1995 and March 31, 1996 totalling
approximately $738,000, $1,254,000 and $994,000, respectively, and a loan
payable to stockholders totalling approximately $78,000 at December 31, 1994 and
1995.
In March 1996, the advance to the 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 the related entities were
repaid by April 12, 1996. The dividend distributions payable at December 31,
1994 were paid in 1995.
F-14
<PAGE> 69
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 stockholders 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>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1995 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Federal....................................... $4,647,000 $1,033,000 $1,563,000
State......................................... 1,279,000 284,000 433,000
---------- -------- ----------
$5,926,000 $1,317,000 $1,996,000
========== ======== ==========
</TABLE>
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>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1995 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Computed income taxes based on Federal
statutory corporate rate of 34%............. $4,909,000 $1,092,000 $1,651,000
State income taxes, net of Federal benefit.... 844,000 187,000 286,000
Other......................................... 173,000 38,000 59,000
---------- -------- ----------
$5,926,000 $1,317,000 $1,996,000
========== ======== ==========
</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, as well
as 452,209 shares deemed to be outstanding. Shares deemed outstanding represent
the approximate number of shares deemed to be sold by the Company (at an assumed
initial public offering price
F-15
<PAGE> 70
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- PRO FORMA INFORMATION -- (CONTINUED)
of $16.00 per share) to fund the estimated distributions to stockholders in
excess of net earnings during the twelve month period ending June 30, 1996.
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 $5 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 March 31, 1996 has been
adjusted for the pro forma effects of: (1) the distributions to the principal
stockholders of approximately $3,652,000 representing all previously
undistributed and undeclared S corporation earnings (this amount, which relates
to Fiscal 1995 and the first quarter of 1996 earnings, is recorded as a
reduction to cash in the pro forma balance sheet at March 31, 1996); (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.
The following table illustrates the pro forma balance sheet adjustments
described above as of March 31, 1996:
<TABLE>
<S> <C>
Historical stockholders' equity......................................... $12,137,738
Pro forma adjustments:
(1) Dividend of undistributed S corporation earnings.................. (3,651,823)
(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........................ (32,000)
(3) Net effect of issuance of 51,000 shares of common stock to certain
employees......................................................... 51,000
-----------
Pro forma stockholders' equity.......................................... $ 8,504,915
===========
</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 corporate purposes. A portion of the net proceeds
may be used by the Company for strategic acquisitions.
F-16
<PAGE> 71
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- SUBSEQUENT EVENTS -- (CONTINUED)
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 for a $500,000 base annual salary each in 1996. Such
agreements further provide that beginning in 1997 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 Compensation Committee may determine to award bonuses to such
executives, on the basis of operating results.
F-17
<PAGE> 72
======================================================
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...................... 13
Dividend Policy...................... 14
S Corporation Distributions.......... 14
Dilution............................. 15
Capitalization....................... 16
Selected Consolidated Financial Data. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 26
Management........................... 38
Certain Relationships and Related
Transactions....................... 45
Principal and Selling Stockholders... 47
Description of Capital Stock......... 48
Shares Eligible for Future Sale...... 50
Underwriting......................... 51
Legal Matters........................ 52
Experts.............................. 52
Additional Information............... 52
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> 73
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 and executive officers that provide for
the indemnification of and the advancement of expenses to such persons to the
maximum 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 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
have represented 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> 74
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ------------------------------------------------------------------------------------
<C> <S>
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.
3.4.1 Amended and Restated 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. Dan Garcia,
Myron Jacobowitz, Howard L. Munk, Allen Pagliuco and Stephen J. Young.
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.
10.8.1 Amendment and Waiver, dated as of April 23, 1996, to Term Loan Agreement dated
September 28, 1995 between Garden State Nutritionals, Inc. and Chemical Bank.
10.8.2 Amendment and Waiver, dated as of April 23, 1996, to Term Loan Agreement dated
December 1, 1995 by and among Leknarf Associates, Garden State Nutritionals, Inc.
and Chemical Bank.
10.8.3 Amendment and Waiver, dated June 10, 1996, to Loan Agreements dated September 28,
1995 and November 12, 1992 by and among Garden State Nutritionals, Inc., Windmill
Marketing Services, 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 Promissory Notes issued by the Registrant to Messrs. Edward, Keith and Frank Frankel
and to the Edward M. Frankel GRAT U/A dated May 10, 1996 and the Leah Frankel GRAT
U/A dated May 10, 1996, each dated June 14, 1996, aggregating up to $5,000,000.
10.14 Employment Agreement, dated as of January 1, 1996, between the Registrant and Edward
M. Frankel.
10.15 Employment Agreement, dated as of January 1, 1996, between the Registrant and Keith
I. Frankel.
10.16 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Edward M.
Frankel.
10.17 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Keith I.
Frankel.
10.18 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Stephen
J. Young.
10.19 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Myron
Jacobowitz.
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.20 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Howard L.
Munk.
10.21 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Julius M.
Horowitz.
10.22 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and Joel H.
Girsky.
10.23 Stock Redemption Agreement, dated May 28, 1992, by and among Garden State
Nutritionals, Inc., Earl Weisman and Morrison Cohen Singer & Weinstein, as escrow
agent thereunder.
10.24 Subordinated Promissory Note, dated May 28, 1992, in the principal amount of
$199,000, with Garden State Nutritionals, Inc. as the obligor thereunder, and Earl
Weisman as the payee thereunder.
10.25 Consulting and Non-Competition Agreement, dated as of May 28, 1992, between Garden
State Nutritionals, Inc. and Earl Weisman.
10.26 Stock Redemption Agreement, dated May 28, 1992, by and among Windmill Marketing
Services, Inc., Earl Weisman, and Morrison Cohen Singer & Weinstein, LLP, as escrow
agent thereunder.
10.27 Subordinated Promissory Note, dated May 28, 1992, in the principal amount of
$140,000, with Windmill Marketing Services, Inc. as the obligor thereunder, and Earl
Weisman as the payee thereunder.
10.28 Consulting and Non-Competition Agreement, dated as of May 28, 1992, between Windmill
Marketing Services, Inc. and Earl Weisman.
10.29 Asset Purchase Agreement, dated as of May 28, 1992, by and among Windmill Marketing
Services, Inc., Windmill Natural Vitamin Company, Inc. and Earl Weisman.
10.30 Guarantee Agreement, dated May 10, 1996, by Edward M. Frankel in favor of Earl
Weisman.
10.31 Non-Competition Agreement, dated as of May 28, 1992, between Windmill Marketing
Services, Inc. and Windmill Natural Vitamin Company, Inc.
10.32 Amended and Restated Standard Indemnity Agreement, dated November 11, 1992, between
Garden State Nutritionals, Inc. and Showa Denko America, Inc.
10.33 Guaranty Agreement, dated as of November 11, 1992, between Garden State
Nutritionals, Inc. and Showa Denko K.K.
10.34 Partnership Agreement, dated October 20, 1989, between Garden State Nutritionals,
Inc. and Pharmachem Laboratories, Inc.
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.
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2 Consent of Morrison Cohen Singer & Weinstein, LLP (included in the Opinion of
Morrison Cohen Singer & Weinstein, LLP filed as Exhibit 5.1).
24* Power of Attorney (included on the signature page).
27.1* Financial Data Schedule -- December 31, 1995.
27.2 Financial Data Schedule -- March 31, 1996.
</TABLE>
- ---------------
* Previously filed.
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts............................. S-1
-----
</TABLE>
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
II-3
<PAGE> 76
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-4
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to 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 June 18, 1996.
VITAQUEST INTERNATIONAL INC.
By /s/ Edward M. Frankel
--------------------------------------
Edward M. Frankel,
President and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to 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 June 18, 1996
- ------------------------------------------ Officer) and Chairman of the Board
Edward M. Frankel of Directors
/s/ Keith I. Frankel Chief Executive Officer and June 18, 1996
- ------------------------------------------ Director
Keith I. Frankel
/s/ Stephen J. Young Chief Financial Officer, Treasurer June 18, 1996
- ------------------------------------------ and Secretary (Principal Financial
Stephen J. Young and Accounting Officer)
/s/ Julius M. Horowitz* Director June 18, 1996
- ------------------------------------------
Julius M. Horowitz
/s/ Joel H. Girsky* Director June 18, 1996
- ------------------------------------------
Joel H. Girsky
*By /s/ Edward M. Frankel
- ------------------------------------------
(EDWARD M. FRANKEL,
AS ATTORNEY-IN-FACT)
</TABLE>
II-5
<PAGE> 78
VITAQUEST INTERNATIONAL INC.
AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE MONTHS ENDED MARCH 31, 1996
YEARS ENDED DECEMBER 31, 1995 AND 1994,
THE FOUR MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ---------- ----------------------- ---------- ----------
ADDITIONS
-----------------------
(1) (2)
CHARGED TO
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>
Three months ended March 31, 1996
Allowance for doubtful accounts
(unaudited)............................ $ 381,000 $ 22,000 $ -- $ -- $ 403,000
======== ======== ======== ======== ========
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> 79
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.
3.4.1 Amended and Restated 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. Dan
Garcia, Myron Jacobowitz, Howard L. Munk, Allen Pagliuco and Stephen J.
Young.
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.
10.8.1 Amendment and Waiver, dated as of April 23, 1996, to Term Loan Agreement,
dated September 28, 1995 between Garden State Nutritionals, Inc. and Chemical
Bank.
10.8.2 Amendment and Waiver, dated as of April 23, 1996, to Term Loan Agreement
dated December 1, 1995 by and among Leknarf Associates, Garden State
Nutritionals, Inc. and Chemical Bank.
10.8.3 Amendment and Waiver, dated June 10, 1996, to Loan Agreements dated September
28, 1995 and November 12, 1992 by and among Garden State Nutritionals, Inc.,
Windmill Marketing Services, 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 Promissory Notes issued by the Registrant to Messrs. Edward, Keith and Frank
Frankel and to the Edward M. Frankel GRAT U/A dated May 10, 1996 and the Leah
Frankel GRAT U/A dated May 10, 1996, each dated June 14, 1996, aggregating up
to $5,000,000.
10.14 Employment Agreement, dated as of January 1, 1996, between the Registrant and
Edward M. Frankel.
10.15 Employment Agreement, dated as of January 1, 1996, between the Registrant and
Keith I. Frankel.
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <S> <C>
10.16 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Edward M. Frankel.
10.17 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Keith I. Frankel.
10.18 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Stephen J. Young.
10.19 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Myron Jacobowitz.
10.20 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Howard L. Munk.
10.21 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Julius M. Horowitz.
10.22 Indemnity Agreement, dated as of June 14, 1996, between the Registrant and
Joel H. Girsky.
10.23 Stock Redemption Agreement, dated May 28, 1992, by and among Garden State
Nutritionals, Inc., Earl Weisman, and Morrison Cohen Singer & Weinstein, as
escrow agent thereunder.
10.24 Subordinated Promissory Note, dated May 28, 1992, in the principal amount of
$199,000, with Garden State Nutritionals, Inc. as the obligor thereunder, and
Earl Weisman as the payee thereunder.
10.25 Consulting and Non-Competition Agreement, dated as of May 28, 1992, between
Garden State Nutritionals, Inc. and Earl Weisman.
10.26 Stock Redemption Agreement, dated May 28, 1992, by and among Windmill
Marketing Services, Inc., Earl Weisman, and Morrison Cohen Singer &
Weinstein, LLP, as escrow agent thereunder.
10.27 Subordinated Promissory Note, dated May 28, 1992, in the principal amount of
$140,000, with Windmill Marketing Services, Inc. as the obligor thereunder,
and Earl Weisman as the payee thereunder.
10.28 Consulting and Non-Competition Agreement, dated as of May 28, 1992, between
Windmill Marketing Services, Inc. and Earl Weisman.
10.29 Asset Purchase Agreement, dated as of May 28, 1992, by and among Windmill
Marketing Services, Inc., Windmill Natural Vitamin Company, Inc. and Earl
Weisman.
10.30 Guarantee Agreement, dated May 10, 1996, by Edward M. Frankel in favor of
Earl Weisman.
10.31 Non-Competition Agreement, dated as of May 28, 1992, between Windmill
Marketing Services, Inc. and Windmill Natural Vitamin Company, Inc.
10.32 Amended and Restated Standard Indemnity Agreement, dated November 11, 1992,
between Garden State Nutritionals, Inc. and Showa Denko America, Inc.
10.33 Guaranty Agreement, dated as of November 11, 1992, between Garden State
Nutritionals, Inc. and Showa Denko K.K.
10.34 Partnership Agreement, dated October 20, 1989, between Garden State
Nutritionals, Inc. and Pharmachem Laboratories, Inc.
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.
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2 Consent of Morrison Cohen Singer & Weinstein, LLP. (included in the Opinion
of Morrison Cohen Singer & Weinstein, LLP filed as Exhibit 5.1).
24* Power of Attorney (included on the signature page).
27.1* Financial Data Schedule -- December 31, 1995.
27.2 Financial Data Schedule -- March 31, 1996.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 1.1
7,200,000 Shares of Common Stock
VITAQUEST INTERNATIONAL INC.
UNDERWRITING AGREEMENT
[Date]
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Ladies and Gentlemen:
Vitaquest International Inc., a Delaware corporation ("Vitaquest"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the several underwriters named in Schedule I hereto (the "Underwriters")
2,400,000 shares of common stock, par value $0.01 per share, of Vitaquest (the
"Common Stock"), and the selling stockholders of the Company named in Schedule
II hereto (the "Selling Stockholders") propose to sell to the Underwriters an
additional 4,800,000 shares of Common Stock, which aggregate of 7,200,00 shares
of Common Stock is referred to herein as the "Firm Shares." In addition, for
the sole purpose of covering over-allotments in connection with the sale of the
Firm Shares, Vitaquest proposes to sell to the Underwriters, at the option of
the Underwriters, an additional 360,000 shares of Common Stock and the Selling
Stockholders propose to sell to the Underwriters, at the option of the
Underwriters, up to an additional 720,000 shares of Common Stock which
aggregate of 1,080,000 shares is referred to herein as the "Additional Shares."
The Firm Shares and any Additional Shares purchased by the Underwriters are
referred to herein as the "Shares". The Shares are more fully described in the
Registration Statement referred to below. Except where the context requires
otherwise, the term "Company" means (i) Garden State Nutritionals, Inc.,
Windmill Marketing, Inc. and Cel-Mark International, Inc. (the "Predecessor
Companies"), each individually and collectively, with respect to all matters
<PAGE> 2
occurring in or relating to the period prior to the formation of Vitaquest,
(ii) Vitaquest, its subsidiary and the Predecessor Companies, each
individually and collectively, with respect to all matters occurring in or
relating to the period from the date of formation of Vitaquest until the merger
of the Predecessor Companies with and into Vitaquest and (iii) Vitaquest as the
successor by merger to the Predecessor Companies and Vitaquest's subsidiary,
each individually and collectively, with respect to all matters occurring in or
relating to the period from and after the merger of the Predecessor Companies
with and into Vitaquest.
1. Representations and Warranties of Vitaquest and the Selling
Stockholders. Vitaquest and each of the Selling Stockholders, jointly and
severally, represent and warrant to, as of the date hereof, the Closing Date
and the Additional Closing Date, and agree with, the Underwriters that:
(a) Vitaquest has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed one
or more amendments thereto, on Form S-1 (No. 333-3605), for the registration of
the Shares under the Securities Act of 1933, as amended (the "Act"). Such
registration statement, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as a part thereof, as amended
at the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A or pursuant to Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or filed as part
of the Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus." The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement
and the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant to
Rule 424(b) or Rule 434 of the Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), each of
the Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied and will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not and will not
contain an untrue statement of a material fact and does not and will not omit
to state any material fact required to be stated or necessary in order to make
the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the
circumstances
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under which they were made, not misleading. No order preventing or suspending
the use of any preliminary prospectus has been issued by the Commission. When
any related preliminary prospectus was first filed with the Commission (whether
filed as part of the registration statement for the registration of the Shares
or any amendment thereto or pursuant to Rule 424(a) of the Regulations), and
when any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus and any amendments thereof and
supplements thereto when filed with the Commission complied in all material
respects with the applicable provisions of the Act and the Regulations and did
not contain an untrue statement of a material fact and did not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein in light of the circumstances under which they were made
not misleading. No representation and warranty is made in this subsection (b),
however, with respect to any information contained in or omitted from the
Registration Statement or the Prospectus or any related preliminary prospectus
or any amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to Vitaquest by or on behalf
of any Underwriter through the Representatives expressly for use therein. If
Rule 434 of the Regulations is used, Vitaquest will comply with the
requirements of Rule 434.
(c) Each contract, agreement, instrument, lease, license or other
item required to be described in the Registration Statement or the Prospectus
or filed as an exhibit to the Registration Statement has been so described or
filed, as the case may be and each such description is complete and accurate in
all material respects.
(d) Grant Thornton, LLP, who have certified the financial
statements and supporting schedules included in the Registration Statement, are
independent public accountants as required by the Act and the Regulations.
(e) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company as of the
dates indicated and the results of operations for the periods specified.
Except as otherwise stated in the Registration Statement, such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The supporting schedules included in
the Registration Statement present fairly the information required to be stated
therein. The "pro forma" and "pro forma as adjusted" financial information
included in the Prospectus, fairly present the information purported to be
shown therein at the dates thereof and for the respective periods covered
thereby and all adjustments have been properly applied. No other financial
statements are required by Form S-1, or otherwise, to be included in the
Registration Statement or the Prospectus other than those included therein.
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<PAGE> 4
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and since the date of the
latest balance sheet presented in the Registration Statement and the
Prospectus, and except as described in the Registration Statement and the
Prospectus, (i) the Company has not (A) incurred or undertaken any liabilities
or obligations, direct or contingent, which are material to the Company and its
subsidiary taken as a whole or (B) entered into any transaction not in the
ordinary course of business that is material to the Company; (ii) the Company
has not declared or paid any dividend on or made any distribution of or with
respect to any shares of capital stock or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or otherwise acquire any shares of
capital stock.
(g) Vitaquest has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to issue,
sell and deliver the Shares in accordance with the terms and conditions hereof.
This Agreement and the transactions contemplated herein have been duly and
validly authorized, and this Agreement has been duly and validly executed and
delivered by Vitaquest and is a legal and binding obligation of Vitaquest,
enforceable against Vitaquest in accordance with its terms, subject to
applicable bankruptcy, insolvency, and other laws affecting the enforceability
of creditors' rights generally and subject to general principles of equity.
(h) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to, any agreement, instrument, franchise, license or
permit to which the Company is a party, or which has been assumed by the
Company or by which its properties or assets may be bound or (ii) violate or
conflict with any provision of the certificate of incorporation or by-laws of
Vitaquest or its subsidiary or any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its properties or assets.
(i) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any public,
governmental or regulatory agency or
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<PAGE> 5
body having jurisdiction over the Company or its properties or assets is
required for Vitaquest's execution or delivery of, or its performance of its
obligations under, this Agreement, or the consummation of the transactions
contemplated hereby, except for the registration of the Shares under the Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
authorization of the Shares for quotation in the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ-NMS")
and such filings and registrations as may be required under state securities or
"Blue Sky" laws in connection with the purchase and distribution of the Shares
by the Underwriters, all of which will be completed or obtained prior to the
Closing.
(j) All of the outstanding shares of Common Stock of Vitaquest and
all other outstanding shares of the Company have been duly and validly
authorized and issued, and are fully paid and nonassessable and were not issued
and are not now in violation of or subject to any preemptive rights. The
Shares, when issued, delivered and sold in accordance with this Agreement, will
be duly and validly issued and outstanding, fully paid and nonassessable, and
will not have been issued in violation of or be subject to any preemptive
rights. The Company has, at the date hereof, an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
The Common Stock, the Firm Shares and the Additional Shares conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(k) There is no commitment, plan or arrangement to issue, and no
outstanding option, warrant or other right calling for the issuance of, any
shares of capital stock (or similar interests) of the Company or any security
or other instrument that by its terms is convertible into, exchangeable for or
evidencing the right to purchase capital stock (or similar interests) of the
Company, except as described in the Registration Statement and the Prospectus.
(l) Vitaquest has no subsidiaries, as defined in Rule 1-02(x) of
Regulation S-X promulgated under the Act, other than ___________. All of the
capital stock of such subsidiary is owned by Vitaquest free and clear of all
liens, security interests, pledges, charges and encumbrances. Each of
Vitaquest and its subsidiary has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation. Each of Vitaquest and its subsidiary is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which would not,
individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, operations, condition (financial or other) or,
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<PAGE> 6
results of operations of the Company taken as a whole (a "Material Adverse
Effect"). The Company has all requisite power and authority, and all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration Statement
and the Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and the
Prospectus. The Company has not received any notice of proceedings relating to
revocation or modification of any such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses or permits.
(m) Vitaquest is the surviving corporation resulting from the
merger of the Predecessor Companies with and into Vitaquest (the "Merger"),
pursuant to an Agreement and Plan of Merger dated May __, 199_, (the "Merger
Agreement"). The Merger is effective and has been consummated in accordance
with the provisions of the Merger Agreement and as a result of the Merger,
Vitaquest is the successor to the business and assets of the Predecessor
Companies. The Merger Agreement has been duly authorized by Vitaquest and each
of the Predecessor Companies, and complies in all respects with the Delaware
General Corporation Law and the corporation laws of the jurisdiction of
incorporation of each of the Predecessor Companies.
(n) Neither the Company nor to the best knowledge of the Company,
any other party, is, in violation or breach of, or in default under (nor has an
event occurred that with notice, lapse of time or both, would constitute a
default under), any contract which is material to the business of the Company
(a "Material Contract"). Each Material Contract is in full force and effect
and is the legal, valid, and binding obligation of the Company and is
enforceable as to the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency and other laws affecting the enforceability
of creditors' rights generally and subject to general principles of equity.
(o) Except as described in the Registration Statement and the
Prospectus, there is no litigation or governmental proceeding to which the
Company is a party or to which any property of the Company is subject or which
is pending or, to the knowledge of the Company, is contemplated against the
Company which might result in a Materially Adverse Effect or which is required
to be disclosed in the Registration Statement or the Prospectus.
(p) Except for such violations or failures of compliance that
individually or in the aggregate would not have a Material Adverse Effect, the
Company is not, nor, to the best knowledge of the Company, with the giving of
notice or lapse of time or both will it be, in violation of or non-compliance
with the
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requirements of any permit material to the operation of the Company's business
or the provisions of any law, rule, regulation, order, judgment or decree,
including, but not limited to, all applicable federal, state and local laws and
regulations relating to (i) zoning, land use, protection of the environment,
human health and safety or the use, disposal or release of hazardous or toxic
substances, wastes, pollutants or contaminants or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "Environmental Laws"); (ii) employee or occupational
safety, discrimination in hiring, promotion or pay of employees, employee hours
and wages or employee benefits; and (iii) the manufacture, packaging and
marketing of foods and drugs including the Federal Food, Drug and Cosmetic Act,
the Nutrition Labeling and Education Act of 1990 and the Dietary Supplement
Health and Education Act of 1994.
(q) There is no pending or, to the best knowledge of the Company,
threatened, civil or criminal litigation, notice of violation, or
administrative proceeding relating in any way to the Environmental Laws
(including notices, demand letters, or claims under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and
similar foreign, state, or local laws) involving the Company. There have not
been and there are not any past, present, or foreseeable future events,
conditions, circumstances, activities, practices, incidents, actions, or plans
which may interfere with or prevent continued compliance, or which may give
rise to any common law or legal liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study, or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release, or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, hazardous, or toxic material
or waste, including, without limitation, any liability arising, or any claim,
action, demand, suit, proceeding, hearing, study, or investigation which may be
brought, under RCRA, CERCLA, or similar foreign, state or local laws, which
individually or in the aggregate would have a Material Adverse Effect.
(r) Except as described in the Registration Statement and the
Prospectus, the Company does not own or operate any real property contaminated
with any substance that is subject to any Environmental Laws, is not liable for
any off-site disposal or contamination pursuant to any Environmental Laws or is
subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim would individually, or in the aggregate
result in a Material Adverse Effect and the Company is not aware of any pending
investigation which might lead to such a claim.
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(s) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it. The Company has not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit.
(t) Except as described in the Registration Statement and the
Prospectus, the Company has, (i) good and marketable title to all real and
personal properties owned by it, free and clear of all liens, security
interests, pledges, charges, encumbrances, and mortgages, and (ii) valid,
subsisting and enforceable leases for all real and personal properties leased
by it, in each case, subject to such exceptions as, individually or in the
aggregate, would not have a Material Adverse Effect. No real property owned,
leased, licensed or used by the Company is located in an area that is, or to
the best knowledge of the Company will be, subject to zoning, use, or building
code restrictions that would prohibit, and no state of facts relating to the
actions or inaction of another person or entity or his, her or its ownership,
leasing, licensing, or use of any real or personal property exists that would
prevent, the continued effective ownership, leasing, licensing, or use of such
real property in the business of the Company as presently conducted or as the
Prospectus indicates is contemplated to be conducted, subject to such
exceptions as, individually or in the aggregate, would not have a Material
Adverse Effect.
(u) The Company owns or possesses, all patents, patent rights,
licenses, inventions, copyrights, trademarks, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), service marks and trade names
(collectively, "Intellectual Property") necessary to conduct its business as
now conducted and proposed to be conducted as disclosed in the Registration
Statement and as shall be disclosed in the Prospectus, except where the failure
to own or possess such Intellectual Property, individually or in the aggregate,
would not have a Material Adverse Effect. The Company is not aware of any
infringement of, or conflict with, the asserted rights of others with respect
to any Intellectual Property. To the best knowledge of the Company, there is
no infringement by others of any Intellectual Property of the Company that
would have a Material Adverse Effect on the Company and its subsidiary taken as
a whole. Except as described in the Registration Statement and the Prospectus,
the Company has registered the rights to each trademark, tradename and related
logo disclosed in the Registration Statement and the Prospectus, in all
jurisdictions in which such trademarks and logos are currently being or are
contemplated to be used and in which such registration is currently permitted.
(v) Except as described in the Prospectus, no holder of securities
of the Company has any rights to require the registration of securities of the
Company because of the filing of the
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<PAGE> 9
Registration Statement or otherwise in connection with the sale of the Shares
contemplated hereby, except for such rights as have been legally and
effectively waived.
(w) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" as defined pursuant to the Investment Company Act of 1940.
(x) Except as may be set forth in the Prospectus, the Company has
not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles ("GAAP")
and to maintain accountability for assets; (iii) the access to the assets of
the Company is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(z) The Company has filed all necessary Federal, state and foreign
income and franchise tax returns and have paid all taxes shown as due thereon.
The Company has no knowledge of any tax deficiency which has been asserted
against it which would have a Material Adverse Effect.
(aa) Other than as disclosed in the Registration Statement and the
Prospectus, no labor dispute with the employees of the Company exists or, to
the best knowledge of the Company, is imminent that, individually or in the
aggregate, would have a Material Adverse Effect and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers or contractors that would have a Material Adverse Effect.
(ab) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the business in which the Company is engaged. The Company has
no reason to believe that it will not be able to renew existing insurance
coverage from similar insurers as may be necessary to continue its business,
except as are disclosed in the Registration Statement and the Prospectus.
(ac) Except as disclosed in the Registration Statement and in the
Prospectus, there are no business relationships or related
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<PAGE> 10
party transactions of the nature described in Item 404 of Regulation S-K of the
Commission involving the Company or any other persons referred to in such Item
404, except for such transactions that would be considered immaterial under
such Item 404.
(ad) The Shares have been duly authorized for quotation on the
NASDAQ-NMS, subject to notice of issuance.
(ae) The Company has not, nor, to the best knowledge of the
Company, has any director, officer or employee of the Company, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment.
(af) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares.
(ag) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075 Florida Statutes and Vitaquest agrees to
comply, and shall cause its subsidiary to comply, with such Section if prior to
the completion of the distribution of the Shares the Company commences doing
such business.
2. Representations and Warranties of the Selling Stockholders. Each of
the Selling Stockholders, with respect to himself and severally and not
jointly, represents and warrants to, the Underwriters that:
(a) Each Selling Stockholder is the sole owner of the Shares to be
sold by him hereunder, and, upon delivery of and payment for the Shares to be
sold by each Selling Stockholder to each Underwriter in accordance with this
Agreement, each Underwriter will receive valid title to such Shares, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts.
(b) There is no commitment, plan or arrangement to transfer, and
no outstanding option, warrant or other right calling for the transfer of, any
of the Shares to be sold by such Selling Stockholder to the Underwriters
pursuant to this Agreement.
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(c) This Agreement has been duly and validly executed and
delivered such Selling Stockholder and is a legal and binding obligation of
such Selling Stockholder, enforceable against such Selling Stockholder in
accordance with its terms, subject to applicable bankruptcy, insolvency, and
other laws affecting the enforceability of creditors' rights generally and
subject to general principles of equity.
(d) The execution, delivery and performance by such Selling
Stockholder of this Agreement, and the consummation of the transactions
contemplated hereby, will not (i) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default under (or an event that
with notice or lapse of time, or both, would constitute a default under) or
require approval or consent under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of such Selling
Stockholder pursuant to the terms of any agreement, contract, indenture,
mortgage, lease, license, arrangement or understanding to which such Selling
Stockholder is a party, or to which any of his properties is subject or (ii)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over such Selling Stockholder or any of his properties
or assets.
(e) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over such Selling
Stockholder or any of his properties or assets is required for such Selling
Stockholder's execution and delivery of, and performance of his obligations
under, this Agreement, and the consummation of the transactions contemplated
hereby.
(f) The sale by such Selling Stockholder of Shares pursuant to
this Agreement is not prompted by any adverse information concerning the
Company known to such Selling Stockholder that is not set forth in the
Registration Statement or the Prospectus.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, prior to the termination of the offering of the Shares
contemplated by this Agreement, any action designed cause or result in, or
which constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, Vitaquest agrees to issue and sell to each of the Underwriters an
aggregate of 2,400,000
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shares of Common Stock and the Selling Stockholders, severally and not jointly,
agree to sell to the Underwriters an aggregate of 4,800,000 shares of Common
Stock (each such Selling Stockholder to sell the number of Shares set forth
opposite its name in Schedule II hereto under the caption "Number of Firm
Shares to be Sold"), and each Underwriter agrees, severally and not jointly, to
purchase from Vitaquest and the Selling Stockholders, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto, all at a
purchase price per share of $_________ (the "Purchase Price"). The number of
Firm Shares to be purchased from Vitaquest and the Selling Stockholders by each
Underwriter (as adjusted by the Representatives to eliminate fractions) shall
be determined by multiplying the aggregate number of Firm Shares to be sold by
Vitaquest or the Selling Stockholders, as the case may be, as set forth above
by a fraction (A) the numerator of which is the total number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (B) the
denominator of which is the total number of Firm Shares.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of [Kramer, Levin,
Naftalis & Frankel, 919 Third Avenue, New York, New York], or at such other
place as shall be agreed upon by the Representatives, Vitaquest and the Selling
Stockholders, at 10:00 A.M. on the third or fourth business day (as permitted
under Rule 15c6-1 under the Exchange Act) (unless postponed in accordance with
the provisions of Section 11 hereof) following the date of the effectiveness of
the Registration Statement (or, if the Company has elected to rely upon Rule
430A of the Regulations, the third or fourth business day (as permitted under
Rule 15c6-1 under the Exchange Act) after the determination of the initial
public offering price of the Shares), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives
and Vitaquest (such time and date of payment and delivery being herein called
the "Closing Date"). Payment shall be made to Vitaquest by certified or
official bank check or checks drawn in New York Clearing House funds or similar
next day funds payable to the order of Vitaquest or the Selling Stockholders,
as the case may be, against delivery to the Representatives for the respective
accounts of the Underwriters of certificates for the Shares to be purchased by
them. Certificates for the Shares shall be registered in such name or names
and in such authorized denominations as the Representatives may request in
writing at least two full business days prior to the Closing Date. Vitaquest
will permit the Representatives to examine and package such certificates for
delivery at least one full business day prior to the Closing Date.
(c) In addition, Vitaquest and the Selling Stockholders hereby
grant to the Underwriters the option to purchase up to 360,000 and 720,000
(360,000 Shares from each of the Selling Stockholders) Additional Shares,
respectively, at the same purchase price per share to be paid by the
Underwriters to
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<PAGE> 13
Vitaquest for the Firm Shares as set forth in this Section 3, for the sole
purpose of covering over-allotments in the sale of Firm Shares by the
Underwriters. This option may be exercised at any time, in whole or in part,
on or before the thirtieth day following the date of the Prospectus, by written
notice by the Representatives to Vitaquest and the Selling Stockholders. Such
notice shall set forth the aggregate number of Additional Shares as to which
the option is being exercised and the date and time, as reasonably determined
by the Representatives, when the Additional Shares are to be delivered (such
date and time being herein sometimes referred to as the "Additional Closing
Date"); provided, however, that the Additional Closing Date shall not be
earlier than the Closing Date or earlier than the second full business day
after the date on which the option shall have been exercised nor later than the
eighth full business day after the date on which the option shall have been
exercised (unless such time and date are postponed in accordance with the
provisions of Section 11 hereof). Certificates for the Additional Shares shall
be registered in such name or names and in such authorized denominations as the
Representatives may request in writing at least two full business days prior to
the Additional Closing Date. Vitaquest will permit the Representatives to
examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date.
(d) The number of Additional Shares to be purchased by each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number increased as set forth in Section 11 hereof) bears to the total number
of Firm Shares, subject, however, to such adjustments to eliminate any
fractional shares as the Representatives in their sole discretion shall make.
(e) Payment of the purchase price for, and delivery of
certificates for the Additional Shares shall be made at the location for the
Closing specified above or at such other location as may be agreed upon by the
Representative, Vitaquest and the Selling Stockholders. Payment shall be made
to the Company by certified or official bank check or checks, in New York
Clearing House or similar next day funds, payable to the order of Vitaquest and
the Selling Stockholders, as the case may be, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Additional Shares to be purchased by them. Certificates for the
Additional Shares shall be registered in such name or names and in such
authorized denominations as the Representatives may request in writing at least
two full business days prior to the Additional Closing Date.
4. Offering. It is understood by the parties hereto that after the
Registration Statement becomes effective, the Underwriters
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propose to offer the Shares for sale to the public as set forth in the
Prospectus.
5. Covenants of Vitaquest. Vitaquest covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared
effective Vitaquest will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible and to maintain its effectiveness. If Rule 430A is used or the filing
of the Prospectus is otherwise required under Rule 424(b) or Rule 434,
Vitaquest will file the Prospectus (properly completed if Rule 430A has been
used) pursuant to Rule 424(b) or Rule 434 within the prescribed time period and
will provide evidence satisfactory to the Representatives of such timely
filing. If Vitaquest elects to rely on Rule 434, it will prepare and file a
term sheet that complies with the requirements of Rule 434.
Vitaquest will promptly notify the Representatives of any proposal to
amend or supplement the registration statement as filed or the related
prospectus or the Registration Statement or the Prospectus and will not effect
such amendment or supplementation without the Representatives' consent.
Vitaquest will promptly notify the Representatives (and, if requested
by the Representatives, will confirm such notice in writing) (i) when the
Registration Statement and any amendments thereto become effective, (ii) of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for any additional information,
(iii) of the mailing or the delivery to the Commission for filing of any
amendment of or supplement to the Registration Statement or the Prospectus,
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of the initiation, or the threatening, of any proceedings therefor,
(v) of the receipt of any comments from the Commission, and (vi) of the receipt
by Vitaquest of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for that purpose. If the Commission shall propose
or enter a stop order at any time, Vitaquest will make every reasonable effort
to prevent the issuance of any such stop order and, if issued, to obtain the
lifting of such order as soon as possible.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would, in the
judgment of the Underwriters, Vitaquest or the Selling Stockholders include an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not
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misleading, or if it shall be necessary at any time to amend or supplement the
Prospectus or Registration Statement to comply with the Act or the Regulations,
Vitaquest will promptly notify the Representatives and prepare and file with
the Commission an appropriate amendment or supplement (in form and substance
satisfactory to the Representatives) which will correct such statement or
omission and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(c) Vitaquest will promptly deliver to the Representatives three
signed copies of the Registration Statement, including exhibits and all
amendments thereto, and Vitaquest will promptly deliver to each of the
Underwriters such number of copies of any preliminary prospectus, the
Prospectus, the Registration Statement, and all amendments of and supplements
to such documents, if any, as the Representatives may reasonably request.
(d) Vitaquest will endeavor in good faith, in cooperation with the
Underwriters and Underwriters' Counsel (as defined in Section 8), at or prior
to the time of effectiveness of the Registration Statement, to qualify the
Shares for offering and sale under the securities laws relating to the offering
or sale of the Shares in such jurisdictions as the Representatives may
designate and to maintain such qualification in effect for so long as required
for the distribution thereof; except that in no event shall Vitaquest be
obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process.
(e) Vitaquest will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to the Underwriters as
soon as practicable, but not later than 45 days after the end of its fiscal
quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement (in form complying with
the provisions of Rule 158 of the Regulations) covering a period of at least
twelve consecutive months beginning after the effective date of the
Registration Statement.
(f) For a period of 360 days after the date of the Prospectus,
without the prior written consent of the [Representatives], the Company shall
not, directly or indirectly, issue, offer or agree to sell, sell or otherwise
dispose of any shares of Common Stock (or any securities convertible into,
exchangeable for or evidencing the right to purchase shares of Common Stock)
other than (A) Vitaquest's issuance and sale of Shares in accordance with this
Agreement, or (B) the issuance of Common Stock upon the exercise of stock
options or pursuant to restricted stock awards granted, or the grant of stock
options or restricted stock awards, under employee benefit plans as described
in the Registration Statement and the Prospectus. Vitaquest has obtained and
delivered to the Representatives a written undertaking from each of its
directors, executive
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<PAGE> 16
officers and principal stockholders [other than the Selling Stockholders] prior
to the date of the offering contemplated hereby that, for a period of 360 days
after the date of this Agreement, without the prior written consent of the
Representatives, such person will not, directly or indirectly, offer or agree
to sell or otherwise dispose of any shares of Common Stock (or any securities
convertible into, exchangeable for or evidencing the right to purchase shares
of Common Stock).
(g) During a period of three years from the effective date of the
Registration Statement, Vitaquest will furnish to the Representatives copies of
(i) all reports to its stockholders; (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange; and (iii) such other information concerning the
Company and its affairs as the Representatives may reasonably request from time
to time.
(h) Vitaquest will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
(i) Vitaquest will use its best efforts to cause the Shares to be
included for quotation on the NASDAQ-NMS.
(j) Vitaquest shall comply with all registration, filing and
reporting requirements of the Exchange Act and the rules and regulations
thereunder, which may from time to time be applicable to Vitaquest. Vitaquest
will file with the Commission such reports on Form SR as may be required
pursuant to Rule 463 of the Regulations.
(k) Vitaquest shall comply with all provisions of all undertakings
contained in the Registration Statement.
(l) Vitaquest will not take, and will not allow its subsidiary to
take, directly or indirectly, prior to the termination of the offering of the
Shares contemplated by this Agreement, any action designed to stabilize or
manipulate the price of the Common Stock, or that might reasonably be expected
to cause or result in stabilization or manipulation of the price of the Common
Stock.
6. Covenants of the Selling Stockholders. Each Selling Stockholder,
severally and not jointly, covenants and agrees with the Underwriters that:
(a) For a period of 360 days after the date of the Prospectus,
without the prior written consent of the Representatives, such Selling
Stockholder shall not, directly or indirectly, offer or agree to sell, sell or
otherwise dispose of any shares of Common Stock (or any securities convertible
into,
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<PAGE> 17
exchangeable for or evidencing the right to purchase shares of Common Stock).
(b) If, within the time during which the Prospectus is required to
be delivered under the Act, such Selling Stockholder shall believe or have any
reasonable grounds to believe that the Prospectus as then amended or
supplemented includes any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading, or that any of the representations of such Selling
Stockholder contained in this Agreement are untrue, such Selling Stockholder
shall notify the Representatives and Vitaquest promptly to such effect.
(c) Such Selling Stockholder will not take, directly or
indirectly, prior to the termination of the offering of the Shares contemplated
by this Agreement, any action designed to stabilize or manipulate the price of
the Common Stock, or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock.
(d) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, such Selling Stockholder shall deliver to the Representatives on or
prior to the Closing Date, a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department Regulations in lieu thereof).
7. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, Vitaquest
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Vitaquest hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any
amendments or supplements thereto (including, without limitation, fees and
expenses of the Company's accountants and counsel), the underwriting documents
(including this Agreement) and all other documents related to the public
offering of the Shares (including those supplied to the Underwriters in
quantities as hereinabove stated), (ii) the issuance, transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the registration and qualification of the Shares under state or
foreign securities or Blue Sky laws, including the costs of printing and
mailing a preliminary and final "Blue Sky
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<PAGE> 18
Survey" and the fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (iv) quotation of the Shares on the
NASDAQ-NMS, (v) filing fees of the Commission and the National Association of
Securities Dealers, Inc.; (vi) the cost of printing certificates representing
the Shares and (vii) the cost and charges of any transfer agent or registrar.
8. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of Vitaquest and the Selling Stockholders herein contained, as of
the date hereof and as of the Closing Date (for purposes of this Section 8
"Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters
furnished to the Representatives or to Kramer, Levin, Naftalis & Frankel
("Underwriters' Counsel") pursuant to this Section 8 of any misstatement or
omission, to the performance by Vitaquest and the Selling Stockholders of their
respective obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York City time, on the date of this Agreement or at
such later time and date as shall have been consented to in writing by the
Representatives. All post-effective amendments to the Registration Statement
shall have become effective. If Vitaquest shall have relied upon Rule 430A of
the Regulations, the Prospectus shall have been filed with the Commission in a
timely fashion in accordance with Section 7(a) hereof. All filings required by
Rule 424 of the Regulations shall have been made. No stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued by the Commission or any state securities
commission and no proceedings therefor shall have been initiated or threatened
by the Commission or any state securities commission.
(b) At the Closing Date, the Representatives shall have received
the opinion of Morrison, Cohen, Singer & Weinstein, LLP counsel for the Company
and the Selling Stockholders, dated the Closing Date addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel,
to the effect that:
(i) Each of Vitaquest and its subsidiary has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of
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incorporation. Each of Vitaquest and its subsidiary is duly qualified
and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or
licensed) or the nature or conduct of its business makes such
qualification necessary, except where the failure to be so qualified
or in good standing will not in the aggregate have a Material Adverse
Effect. Each of Vitaquest and its subsidiary has all requisite
corporate power and authority to own, lease and license its properties
and conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus.
(ii) Vitaquest is the surviving corporation resulting from
the merger of the Predecessor Companies with and into Vitaquest,
pursuant to the Merger Agreement. The Merger is effective and has
been consummated in accordance with the provisions of the Merger
Agreement and as a result of the Merger, Vitaquest is the successor to
the business and assets of the Predecessor Companies. The Merger
Agreement has been duly authorized by Vitaquest, and each of the
Predecessor Companies, and complies in all respects with the Delaware
General Corporation Law and the corporation laws of the jurisdiction
of incorporation of each of the Predecessor Companies.
(iii) Vitaquest and its subsidiary have all requisite power
and authority, and all necessary consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and
from all public regulatory or governmental agencies and bodies, to
own, lease and operate their properties and conduct their business as
now being conducted and as described in the Registration Statement and
the Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. To the best knowledge of such counsel,
neither Vitaquest nor its subsidiary has received any notice of
proceedings relating to revocation or modification of any such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses or permits.
(iv) Vitaquest has an authorized capital stock as set forth
in the Registration Statement and the Prospectus. All of the
outstanding shares of capital stock of Vitaquest, and all outstanding
capital stock its subsidiary, are duly and validly authorized and
issued, are fully paid and nonassessable and were not issued in
violation of or subject to
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<PAGE> 20
any preemptive rights. The Shares to be delivered on the Closing Date
have been duly and validly authorized and, when delivered by the
Company in accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights. The Common Stock,
the Firm Shares and the Additional Shares conform to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(v) The form of certificates for the Shares conforms to the
requirements of the applicable laws of the State of Delaware.
(vi) To such counsel's knowledge, there is no outstanding
option, warrant or other right calling for the issuance of any share
of capital stock (or similar interests) of Vitaquest or its
subsidiary, except as described in the Registration Statement and the
Prospectus. Upon delivery of and payment for the Shares to be sold by
Vitaquest to the Underwriters in accordance with this Agreement, each
Underwriter will acquire valid title to the Shares so sold and
delivered to it, free and clear of all liens, pledges, charges,
claims, security interests, restrictions on transfer, agreements or
other defects of title whatsoever (other than those resulting from any
action taken by such Underwriter).
(vii) The Shares are duly authorized for quotation on the
NASDAQ-NMS, subject to notice of issuance.
(viii) This Agreement and the transactions contemplated
herein have been duly and validly authorized, executed and delivered
by Vitaquest and is a legal and binding obligation of Vitaquest,
enforceable against Vitaquest in accordance with its terms, subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally and subject to general
principles of equity.
(ix) Vitaquest has all requisite corporate right, power and
authority to execute, deliver and perform its obligations under this
Agreement and to issue, sell and deliver the Shares in accordance with
the terms and conditions hereof.
(x) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby
by Vitaquest do not and will not (A)
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conflict with or result in a breach of any of the terms and provisions
of, or constitute a default (or an event which with notice or lapse of
time, or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of Vitaquest or its subsidiary pursuant to, any
agreement, instrument, franchise, license or permit known to such
counsel to which Vitaquest or its subsidiary is a party or by which
their respective properties or assets may be bound or (B) violate or
conflict with any provision of the certificate of incorporation or
by-laws of Vitaquest or its subsidiary, or, to the best knowledge of
such counsel, any judgment, decree, order, statute, rule or regulation
of any court or any public, governmental or regulatory agency or body
having jurisdiction over Vitaquest or its subsidiary or any of their
respective properties or assets.
(xi) No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
court or any public, governmental, or regulatory agency or body having
jurisdiction over Vitaquest or its subsidiary or their respective
properties or assets is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, except for (1) such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters (as to which such
counsel need express no opinion) and (2) such as have been made or
obtained under the Act.
(xii) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(xiii) Neither Vitaquest nor its subsidiary is, and upon the
consummation of the transactions contemplated by this Agreement
neither of them will be, an "investment company" as defined pursuant
to the Investment Company Act of 1940.
(xiv) The Registration Statement is effective under the Act,
and, to the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement or any post-effective
amendment thereof has been
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issued and no proceedings therefor have been initiated or threatened
by the Commission and all filings required by Rule 424(b) of the
Regulations have been made.
(xv) Other than statements summarizing the provisions of
federal, state and local laws, rules, regulations which are the
subject of the opinion of __________ described in Section 8(c) below,
insofar as statements in the Prospectus purport to summarize the
nature and status of litigation or the provisions of laws, rules,
regulations, orders, judgments or decrees or the terms of any
contracts or permits, or other legal matters such statements are
correct in all material respects and are fair summaries of the matters
referred to therein.
(xvi) There is no litigation or governmental or other action,
suit, proceeding or investigation before any court or before or by any
public, regulatory or governmental agency or body pending or to the
best of such counsel's knowledge, threatened against, or involving the
properties or business of, Vitaquest or its subsidiary which is of a
character required to be disclosed in the Registration Statement and
the Prospectus which has not been properly disclosed therein.
(xvii) To the best knowledge of such counsel, there are no
agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement and the
Prospectus that have not been described therein or filed, as required,
as an exhibit thereto, as the case may be.
(xviii) To the best knowledge of such counsel, no person or
entity has the right, by contract or otherwise, to require
registration under the Act of shares of capital stock or other
securities of Vitaquest or its subsidiary solely because of the filing
or effectiveness of the Registration Statement and the consummation of
the transactions contemplated by this Agreement, except for such
rights as have been legally and effectively waived.
(xix) Upon delivery of and payment for the Shares to be sold
by each Selling Stockholder to each Underwriter and in accordance with
this Agreement, each Underwriter (assuming that it acquires such
Shares without notice of any adverse claim, as such term is used in
Section 8-302 of the Uniform Commercial Code in effect in the State of
New York) will acquire valid title to such Shares, free and clear of
all liens, pledges, charges, security interests, restrictions on
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<PAGE> 23
transfer, agreements or other defects of title whatsoever (other than
those resulting from any action by such Underwriter).
(xx) This Agreement has been duly executed and delivered by
each Selling Stockholder and is a legal and binding obligation each
Selling Stockholder, enforceable against such Selling Stockholder in
accordance with its terms, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally and subject to general principles of equity.
(xxi) The execution, delivery and performance by each Selling
Stockholder of this Agreement and the consummation of the transactions
contemplated hereby, will not (A) conflict with or result in a breach
of any of the terms and provisions of, or constitute a default under
(or an event that with notice or lapse of time, or both, would
constitute a default under) or require approval or consent under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of such Selling Stockholder
pursuant to the terms of any agreement, contract, indenture, mortgage,
lease, license, arrangement or understanding to which such Selling
Stockholder is a party, or to which any of its properties is subject
or (B) violate or conflict with any provision of any judgment, decree,
order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over
such Selling Stockholder or any of his properties or assets.
(xxii) To the best knowledge of such counsel, no consent,
approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or
regulatory agency or body having jurisdiction over the Selling
Stockholders or any of their respective properties or assets is
required for (i) the Selling Stockholders' execution and delivery of,
and performance of their obligations under this Agreement and the
consummation of the transactions contemplated hereby.
In addition, such opinion shall also contain a statement that
such counsel has participated in conferences with officers and representatives
of Vitaquest and its subsidiary, representatives of the independent public
accountants for Vitaquest and its subsidiary and the Underwriters at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, no facts have come to the attention of such counsel which
would lead such counsel to believe that either the
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<PAGE> 24
Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any
amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date as of
the date of such amendment or supplement) and as of the Closing Date contained
or contains an untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial data included or incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of Vitaquest
and its subsidiary and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of Vitaquest and its subsidiary, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for Vitaquest and its
subsidiary shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and, in their opinion, the Representatives and
they are justified in relying thereon.
(c) At the Closing Date, the Representatives shall have received
the opinion of _______________________, special counsel for the Company, dated
the Closing Date addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) To the best of such counsel's knowledge, there are no
material legal or governmental proceedings or investigations by the
U.S. Food and Drug Administration ("FDA") or other federal, state,
local or other governmental
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regulatory officials or bodies or agencies pending or threatened that
are not described or referred to in the Registration Statement and the
Prospectus; and
(ii) Insofar as statements in the Prospectus purport to
summarize the provisions of laws, rules, regulations, orders,
judgments or decrees relating to the regulation by federal, state and
local governmental and regulatory bodies of the development,
manufacturing and marketing of vitamins, nutritional supplements and
specialty nutritional systems, including, but not limited to,
statements regarding the Federal Food, Drug, and Cosmetic Act, the
Nutrition Labeling and Education Act of 1990 and the Dietary
Supplement Health and Education Act of 1994, such statements are
correct in all material respects and are fair and accurate summaries
of the matters referred to therein.
(d) All proceedings taken in connection with the sale of the
Shares as herein contemplated shall be satisfactory in form and substance to
the Representatives and to Underwriters' Counsel, and the Underwriters shall
have received from said Underwriters' Counsel a favorable opinion, dated as of
the Closing Date, with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as the
Representatives may reasonably require, and Vitaquest and the Selling
Stockholders shall have furnished to Underwriters' Counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(e) At the Closing Date the Representatives shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Vitaquest, dated the Closing Date to the effect that (i) the condition set
forth in subsection (a) of this Section 8 has been satisfied, (ii) as of the
date hereof and as of the Closing Date the representations and warranties of
Vitaquest set forth in Section 1 hereof are accurate, (iii) as of the Closing
Date the obligations of Vitaquest to be performed hereunder on or prior thereto
have been duly performed and (iv) subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse change, or
any development involving a material adverse change, in the business prospects,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except in each
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<PAGE> 26
case as described in or contemplated by the Registration Statement and the
Prospectus.
(f) At the Closing Date, the Representatives shall have received a
certificate of each Selling Stockholder, dated the Closing Date, to the effect
that as of the date of such certificate the representations and warranties of
such Selling Stockholder set forth in Section 2 hereof are true and correct as
of the Closing Date and the obligations of the Selling Stockholder to be
performed hereunder on or prior thereto have been duly performed.
(g) At the time this Agreement is executed and at the Closing
Date, the Representatives shall have received a letter, from Grant, Thornton,
LLP, independent public accountants for the Company, dated, respectively, as of
the date of this Agreement and as of the Closing Date addressed to the
Underwriters and in form and substance satisfactory to the Representatives, to
the effect that: (i) they are independent certified public accountants with
respect to Vitaquest and its subsidiary within the meaning of the Act and the
Regulations and stating that the answer to Item 10 of the Registration
Statement is correct insofar as it relates to them; (ii) stating that, in their
opinion, the financial statements and schedules of Vitaquest and its subsidiary
included in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim consolidated
financial statements of Vitaquest and its subsidiary, a reading of the minutes
of meetings and consents of the stockholders and boards of directors of
Vitaquest and its subsidiary and the committees of such boards subsequent to
December 31, 1995, inquiries of officers and other employees of Vitaquest and
its subsidiary who have responsibility for financial and accounting matters of
Vitaquest and its subsidiary with respect to transactions and events subsequent
to December 31, 1995 and other specified procedures and inquiries to a date not
more than five days prior to the date of such letter, nothing has come to their
attention that would cause them to believe that: (A) the unaudited consolidated
financial statements and schedules of Vitaquest and its subsidiary presented in
the Registration Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and,
if applicable, the Exchange Act and the applicable published rules and
regulations of the Commission thereunder or that such unaudited consolidated
financial statements are not fairly presented in conformity with generally
26
<PAGE> 27
accepted accounting principles applied on a basis substantially consistent with
that of the audited consolidated financial statements included in the
Registration Statement and the Prospectus, (B) with respect to the period
subsequent to March 31, 1996 there were, as of the date of the most recent
available monthly consolidated financial statements of Vitaquest and its
subsidiary, if any, and as of a specified date not more than five days prior to
the date of such letter, any changes in the capital stock or long-term
indebtedness of Vitaquest and its subsidiary or any decrease in the net current
assets or stockholders' equity of Vitaquest and its subsidiary, in each case as
compared with the amounts shown in the most recent balance sheet presented in
the Registration Statement and the Prospectus, except for changes or decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter, (C) that during the period
from March 31, 1996 to the date of the most recent available monthly
consolidated financial statements of Vitaquest and its subsidiary, if any, and
to a specified date not more than five days prior to the date of such letter,
there was any decrease, as compared with the corresponding period in the prior
fiscal year, in total revenues, or total or per share net income, except for
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or (D) the
unaudited pro forma consolidated financial information of Vitaquest and its
subsidiary included in the Registration Statement and the Prospectus do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable published rules and regulations
thereunder or the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such financial information; and (iv)
stating that they have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, and other financial information
pertaining to Vitaquest and its subsidiary set forth in the Registration
Statement and the Prospectus, which have been specified by the Representatives
prior to the date of this Agreement, to the extent that such amounts, numbers,
percentages, and information may be derived from the general accounting and
financial records of Vitaquest and its subsidiary or from schedules furnished
by Vitaquest and its subsidiary, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries, and other appropriate procedures specified by
the Representatives set forth in such letter, and found them to be in
agreement.
(h) Prior to the Closing Date Vitaquest and the Selling
Stockholders shall have furnished to the Representatives such
27
<PAGE> 28
further information, certificates and documents as the Representatives may
reasonably request.
(i) The Representatives shall have received from each person who
is a director or officer of Vitaquest or a stockholder of Vitaquest as of the
date hereof to the effect that such person will not, directly or indirectly,
without the Representatives prior written consent, offer, sell, offer or agree
to sell, grant any option to purchase or otherwise dispose (or announce any
offer, sale, grant of an option to purchase or other disposition) of any shares
of Common Stock (or any securities convertible into, exercisable for or
exchangeable or exercisable for shares of Common Stock) for a period of 360
days after the date of the Prospectus.
(j) At the Closing Date, the Shares shall have been approved for
quotation on the NASDAQ-NMS.
If any of the conditions specified in this Section 8 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Representatives or to Underwriters' Counsel pursuant to this Section 8 shall
not be satisfactory in form and substance to the Representatives and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by the Representatives at, or at any time prior to, the Closing Date
and the obligations of the Underwriters to purchase the Additional Shares may
be cancelled by the Representatives at, or at any time prior to, the Additional
Closing Date. Notice of such cancellation shall be given to Vitaquest and the
Selling Stockholders in writing, or by telephone, telex or telegraph, confirmed
in writing.
9. Indemnification.
(a) Vitaquest, and each of the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
28
<PAGE> 29
rgistration of the Shares as originally filed, or any amendment thereof, or any
related preliminary prospectus or the Prospectus, or in any supplement thereto
or amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that Vitaquest and the Selling Stockholders will not be liable in any such case
to the extent but only to the extent that any such loss, liability, claim,
damage or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to Vitaquest
by or on behalf of any Underwriter through the Representatives expressly for
use therein. This indemnity agreement will be in addition to any liability
which Vitaquest and the Selling Stockholders may otherwise have including under
this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless Vitaquest, the Selling Stockholders, each of the
directors of Vitaquest, each of the officers of Vitaquest who shall have signed
the Registration Statement, and each other person, if any, who controls
Vitaquest within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the registration statement for the registration of the Shares as originally
filed, or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to Vitaquest by or on behalf of any Underwriter through
the Representatives expressly for use therein; provided, however, that in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount applicable to the Shares purchased by such
29
<PAGE> 30
Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have including under this Agreement.
Vitaquest and the Selling Stockholders acknowledge that for all purposes of
this Agreement, the statements set forth in the last paragraph of the cover
page and in the third paragraph under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing to Vitaquest by
or on behalf of any Underwriter through the Representatives expressly for use
in the Registration Statement as originally filed or in any amendment thereof,
any related preliminary prospectus or the Prospectus or in any amendment
thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 9 or otherwise). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by one of
the indemnifying parties in connection with the defense of such action, (ii)
the indemnifying parties shall not have employed counsel to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses shall be borne by
the indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
30
<PAGE> 31
10. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 9 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, Vitaquest, the Selling Stockholders
and the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by Vitaquest and the Selling
Stockholders any contribution received by Vitaquest and the Selling
Stockholders from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control Vitaquest within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, officers of
Vitaquest who signed the Registration Statement and directors of Vitaquest) as
incurred to which Vitaquest, the Selling Stockholders and one or more of the
Underwriters may be subject, in such proportions as are appropriate to reflect
the relative benefits received by Vitaquest, the Selling Stockholders and the
Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 9
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of Vitaquest and the
Selling Stockholders, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by Vitaquest and the
Selling Stockholders, on the one hand, and the Underwriters, on the other hand,
shall be deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received in the case of Vitaquest and each of the Selling
Stockholders and (y) the underwriting discounts and commissions received in the
case of the Underwriters, respectively, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of Vitaquest, and the
Selling Stockholders, on the one hand, and of the Underwriters, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
Vitaquest or the Selling Stockholders, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Vitaquest, the Selling Stockholders and the Underwriters agree
31
<PAGE> 32
that it would not be just and equitable if contribution pursuant to this
Section 10 were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 10 and the preceding
sentence, (i) in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section
10, no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 10, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as such Underwriter, and each
person, if any, who controls Vitaquest within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of Vitaquest who shall
have signed the Registration Statement and each director of Vitaquest shall
have the same rights to contribution as Vitaquest, subject in each case to
clauses (i) and (ii) of this Section 10. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have under this Section 10 or
otherwise. No party shall be liable for contribution with respect to any
action or claim settled without its consent; provided, however, that such
consent was not unreasonably withheld.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Shares with respect to which such default relates do not (after giving
effect to arrangements, if any, made by the Representatives pursuant to
subsection (c) below) exceed, in the aggregate, 10% of the number of Firm
Shares or Additional Shares, as the case may be, such Firm Shares or Additional
Shares to which the default relates shall be purchased by the non-de-
32
<PAGE> 33
faulting Underwriters in proportion to the respective proportions which the
numbers of Firm Shares set forth opposite their respective names in Schedule I
hereto bear to the aggregate number of Firm Shares set forth opposite the names
of the non-defaulting Underwriters.
(b) If a default by any Underwriter or Underwriters relates to
more than 10% of the Firm Shares or Additional Shares, as the case may be, the
Representatives may in their discretion arrange for the Representatives or for
another party or parties (including any non-defaulting Underwriter or
Underwriters who so agree) to purchase such Firm Shares or Additional Shares,
as the case may be, to which such default relates on the terms contained
herein. In the event that within five calendar days after such a default the
Representatives do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as
provided in this Section 11, this Agreement or, in the case of a default with
respect to the Additional Shares, the obligations of the Underwriters to
purchase and of Vitaquest and the Selling Stockholders to sell the Additional
Shares shall thereupon terminate, without liability on the part of Vitaquest
and the Selling Stockholders with respect thereto (except in each case as
provided in Section 7, 9(a) and 10 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters, Vitaquest and the Selling
Stockholders for damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
the Representatives or Vitaquest and the Selling Stockholders shall have the
right to postpone the Closing Date or Additional Closing Date, as the case may
be for a period, not exceeding five business days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus or in any other documents and arrangements, and Vitaquest and the
Selling Stockholders agree to file promptly any amendment or supplement to the
Registration Statement or the Prospectus which, in the opinion of Underwriters'
Counsel, may thereby be made necessary or advisable. The term "Underwriter" as
used in this Agreement shall include any party substituted under this Section
11 with like effect as if it had originally been a party to this Agreement with
respect to such Firm Shares and Additional Shares.
12. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters, Vitaquest and the
Selling Stockholders contained in this Agreement, including the agreements
contained in Section 7,
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<PAGE> 34
the indemnity agreements contained in Section 9 and the contribution agreements
contained in Section 10, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of Vitaquest and the Selling
Stockholders, and in the case of Vitaquest, any of its officers and directors
or any controlling person thereof, and shall survive delivery of and payment
for the Shares to and by the Underwriters. The representations contained in
Sections 1 and 2 and the agreements contained in Sections 7, 9, 10 and 13(d)
hereof shall survive the termination of this Agreement, including termination
pursuant to Section 11 or 13 hereof.
13. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when
(i) the Representatives, Vitaquest and the Selling Stockholders shall have
received notification of the effectiveness of the Registration Statement or
(ii) the execution of this Agreement. If either the initial public offering
price or the purchase price per Share has not been agreed upon prior to 5:00
P.M., New York time, on the fifth full business day after the Registration
Statement shall have become effective, this Agreement shall thereupon terminate
without liability to Vitaquest, the Selling Stockholders or the Underwriters
except as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by Vitaquest and the Selling Stockholders by
notifying the Representatives or by the Representatives notifying Vitaquest and
the Selling Stockholders. Notwithstanding the foregoing, the provisions of this
Section 13 and of Sections 1, 2, 7, 9 and 10 hereof shall at all times be in
full force and effect.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, if (i) any domestic or
international event or act or occurrence has materially disrupted, or in the
Representatives opinion will in the immediate future materially disrupt, the
market for Vitaquest's securities or securities in general; or (ii) if trading
on the New York or American Stock Exchanges or in the NASDAQ-NMS or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, on the New York or American Stock Exchanges by the
New York or American Stock Exchanges, or on the NASDAQ-NMS by the NASDAQ-NMS or
by order of the Commission or any other governmental authority having
jurisdiction; (iii)trading in the Shares shall have been suspended by the
Commission, by any exchange that lists the Shares or by the NASDAQ-NMS; (iv) if
a
34
<PAGE> 35
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective; or (v) (A) if the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (B) if there
shall have been such change in political, financial or economic conditions if
the effect of any such event in (A) or (B) in the Representatives' judgment
makes it impracticable or inadvisable to proceed with the offering, sale and
delivery of the Firm Shares or the Additional Shares, as the case may be, on
the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the
Representatives as provided in Section 13(a) hereof or (ii) Section 11 or 13(b)
hereof), or if the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth herein
is not satisfied or because of any refusal, inability or failure on the part of
Vitaquest or the Selling Stockholders to perform any agreement herein or comply
with any provision hereof, Vitaquest and the Selling Stockholders will, jointly
and severally, subject to demand by the Representatives, reimburse the
Underwriters for all out-of-pocket expenses (including the fees and expenses of
their counsel), incurred by the Underwriters in connection herewith.
14. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and , if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245
Park Avenue, New York, N.Y. 10167, Attention:_____________; if sent to
Vitaquest, shall be mailed, delivered, or telegraphed and confirmed in writing
to Vitaquest, 100 Lehigh Drive, Fairfield, New Jersey 07004, Attention: Edward
M. Frankel; if sent to either Selling Stockholders shall be mailed, delivered,
or telexed or telegraphed and confirmed in writing to such Selling Stockholder
c/o Vitaquest International, Inc., 100 Lehigh Drive, Fairfield, New Jersey
07004.
15. Parties. This Agreement shall insure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 9 and
10, and their respective
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<PAGE> 36
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. The term
"successors and assigns" shall not include a purchaser, in its capacity as
such, of Shares from any of the Underwriters.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
If the foregoing correctly sets forth the understanding among the
Representatives, Vitaquest and the Selling Stockholders please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
VITAQUEST INTERNATIONAL INC.
By
------------------------
Edward Frankel
President
---------------------------
Edward Frankel
Selling Stockholder
---------------------------
Keith Frankel
Selling Stockholder
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
[ ]
By
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
36
<PAGE> 37
By
----------------
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
37
<PAGE> 38
SCHEDULE I
<TABLE>
<CAPTION>
Number of [Firm]
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
<S> <C>
Bear, Stearns & Co. Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . .
----------
----------
</TABLE>
38
<PAGE> 39
SCHEDULE II
[Names of selling stockholders]
39
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
GARDEN STATE NUTRITIONALS, INC.,
WINDMILL MARKETING SERVICES, INC.,
CEL-MARK INTERNATIONAL, INC.
AND
VITAQUEST INTERNATIONAL INC.
INTRODUCTION
This Agreement and Plan of Merger, dated as of May 31, 1996, is among
Vitaquest International Inc., a Delaware corporation currently having an address
at 100 Lehigh Drive, Fairfield, New Jersey 07004 (the "Surviving Corporation"),
Garden State Nutritionals, Inc., a New Jersey corporation currently having an
address at 100 Lehigh Drive, Fairfield, New Jersey 07004 ("Garden State"),
Windmill Marketing Services, Inc., a New Jersey corporation currently having an
address at 100 Lehigh Drive, Fairfield, New Jersey 07004 ("Windmill") and
Cel-Mark International, Inc., a New Jersey corporation currently having an
address at 100 Lehigh Drive, Fairfield, New Jersey 07004 ("Cel-Mark", together
with Garden State and Windmill, the "Merging Corporations").
RECITALS
The Surviving Corporation currently has no commercial operations and
has no capital stock issued and outstanding.
The respective Board of Directors of the Surviving Corporation and the
Merging Corporations have determined that it is in the best interest of their
respective corporations to cause the Merging Corporations to merge with and into
the Surviving Corporation, all upon the terms and provisions, and subject to the
conditions, hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
<PAGE> 2
1. Effective Time of Merger. The Surviving Corporation and the Merging
Corporations shall cause certificates of merger to be duly prepared, properly
executed and delivered for filing and thereafter duly filed with the Secretary
of State of the State of Delaware, as provided in Section 252 of the Delaware
General Corporation Law ("DGCL") and with the Secretary of State of the State of
New Jersey, as provided in Section 14A:10-7 Corporations, General, of the New
Jersey Statutes ("NJS"). The Merger shall become effective upon the later of the
filing of the aforementioned certificate of merger by the Secretary of State of
the State of Delaware and the aforementioned certificate of merger by the
Secretary of State of the State of New Jersey (the "Effective Time").
2. Effects of the Merger. At the Effective Time the separate existence of the
Merging Corporations shall cease and the Merging Corporations shall be merged
with and into the Surviving Corporation, and the Merger shall have all the
effects provided by applicable law, including (without limitation) the
provisions of the DGCL and the NJS.
As of the Effective Time, all and singular, the rights,
privileges, powers and franchises of each of the Surviving Corporation and the
Merging Corporations, whether of a public or a private nature, and all property,
real, personal and mixed, and all debts due to each of said corporations, on
whatever account, as well for stock subscriptions as all other things in action
or belonging to either of the said corporations shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of the Merging Corporations and the
Surviving Corporation, and the title to any real or personal property, whether
by deed or otherwise, vested in each of the Merging Corporations and the
Surviving Corporation, shall not revert or be in any way impaired by reason
hereof; provided, however, that all rights of creditors and all liens upon any
property of each of the Merging Corporations and the Surviving Corporation shall
be preserved unimpaired, limited in lien to the property affected by such liens
immediately prior to the time of the said Merger, and all debts, liabilities and
duties of the Surviving Corporation and the Merging Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if all of said debts, liabilities and duties had been
incurred or contracted by it.
If at any time the Surviving Corporation shall consider or be
advised that any further assignments or assurances in law or any things are
necessary or desirable to vest in the Surviving Corporation, according to the
terms hereof, the title to any property or rights of the Merging Corporations,
the proper officers and directors of said Merging Corporations shall and will
execute and make all such proper assignments and assurances in law and do all
things necessary or proper to vest title in such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement
and Plan of Merger.
3. Officers of the Surviving Corporation. From and after the Effective Time the
Officers of the Surviving Corporation preceding the Merger shall be, and hereby
are, elected as the officers of the Surviving Corporation, with corresponding
positions, until the
2
<PAGE> 3
successors of such officers shall have been duly elected or appointed or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
4. Directors of the Surviving Corporation. From and after the Effective Time,
the directors of the Surviving Corporation preceding the Merger shall be, and
hereby are, elected as the directors of the Surviving Corporation until the
successors of such directors shall have been duly elected or appointed or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
5. Certificate of Incorporation and By-Laws. (a) At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, and shall continue as such until
thereafter duly amended in accordance with applicable law.
(b) The By-Laws of the Surviving Corporation, as in effect at
the Effective Time, shall be the By-Laws of the Surviving Corporation, and shall
continue as such until thereafter duly amended as provided by applicable law,
the Certificate of Incorporation of the Surviving Corporation or such By-Laws.
6. Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of capital
stock of the Surviving Corporation or the Merging Corporations:
(a) All shares of capital stock of the Merging Corporations
that are owned by the Merging Corporations as treasury shares shall be canceled
and retired and shall cease to exist.
(b) Each issued and outstanding share of each of the Merging
Corporation's common stock shall be converted into the right to receive fully
paid and nonassessable shares of the Surviving Corporation's common stock, par
value $.01 per share ("Surviving Corporation Common Stock"), as follows:
(i) Each issued and outstanding share of common stock, no
par value, of Garden State shall be converted into
901.40845 shares of Surviving Corporation Common
Stock.
(ii) Each issued and outstanding share of Class A common
stock, no par value, and Class B common stock, no par
value, of Windmill shall be converted into 285.71429
shares of Surviving Corporation Common Stock.
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(iii) Each issued and outstanding share of common
stock, no par value, of Cel-Mark shall be
converted into 36,000 shares of Surviving
Corporation Common Stock.
7. Issuance of Shares of Surviving Corporation Common Stock. As of the Effective
Time, the Surviving Corporation shall make available, for the benefit of the
holders of shares of capital stock of the Merging Corporations, for exchange in
accordance with this Agreement and Plan of Merger, certificates representing the
shares of the Surviving Corporation Common Stock issuable pursuant to Paragraph
6 hereof.
8. No Fractional Shares. No certificate or scrip representing fractional shares
of the Surviving Corporation Common Stock shall be issued upon surrender for
exchange of certificates representing shares of capital stock of the Merging
Corporations. Each owner of capital stock of any of the Merging Corporations
that would entitle the owner to 40% or more of a share of Surviving Corporation
Common Stock, will, upon the surrender of certificates representing shares of
capital stock of the Merging Corporations relating thereto, be issued a whole
share of Surviving Corporation Common Stock by the Surviving Corporation.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
VITAQUEST INTERNATIONAL INC.
By: s/ Edward M. Frankel
----------------------------------------
Edward M. Frankel, President
GARDEN STATE NUTRITIONALS, INC.
By: s/ Edward M. Frankel
----------------------------------------
Edward M. Frankel, President
WINDMILL MARKETING SERVICES, INC.
By: s/ Edward M. Frankel
----------------------------------------
Edward M. Frankel, President
CEL-MARK INTERNATIONAL, INC.
By: s/ Edward M. Frankel
----------------------------------------
Edward M. Frankel, President
Stephen J. Young, the Secretary of the Surviving Corporation, hereby
certifies, pursuant to Section 251(f) of the DGCL, that (i) this Agreement and
Plan of Merger has been adopted by action of the Board of Directors of the
Surviving Corporation pursuant to Section 251(f) and (ii) no shares of common
stock of the Surviving Corporation were issued prior to the adoption by the
Board of Directors of the Surviving Corporation of the resolution approving this
Agreement and Plan of Merger.
s/ Stephen J. Young
___________________________
Stephen J. Young, Secretary
Vitaquest International Inc.
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Exhibit 3.4.1
AMENDED AND RESTATED
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 first Tuesday in June 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 four. Thereafter, subject to the
certificate of incorporation, 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 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,
including a Chief Executive Officer, 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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<PAGE> 13
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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<PAGE> 14
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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<PAGE> 15
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 repeal 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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<PAGE> 1
Exhibit 4.1
VITAQUEST
INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
VO.
COMMON STOCK COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
This certifies that CUSIP 928484 10 5
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.01 PER
SHARE, OF
Vitaquest International Inc., transferable on the books of the Corporation in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
Secretary and President and
Chief Financial Officer Chairman of the Board
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY) TRANSFER AGENT
AND REGISTRAR
AUTHORIZED OFFICER
<PAGE> 2
VITAQUEST INTERNATIONAL INC.
Vitaquest International Inc. will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof of the corporation, and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to the
corporation or the transfer agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -_______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________
_____________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________
_______________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 5.1
735-8600
June 18, 1996
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Gentlemen:
We furnish this opinion to be filed as Exhibit 5.1 to the Registration
Statement on Form S-1 (the "Registration Statement") of Vitaquest International
Inc. (the "Company"), Registration No. 333-3605. The Registration Statement
relates to the proposed public offering by the Company and certain selling
stockholders of 7,200,000 shares of Common Stock (8,280,000 shares of Common
Stock if the over-allotment option described in the Registration Statement is
exercised), as more particularly described in the Registration Statement.
We are familiar with the proceedings taken by the Company in connection
with the Registration Statement and the proposed public offering.
On the basis of the foregoing and such other investigations as we have
deemed necessary in connection with this opinion, and, assuming that the
Registration Statement becomes and remains effective and that applicable state
securities laws are complied with, we are of the opinion that the shares of
Common Stock to which the Registration Statement relates will, when issued and
sold in the manner contemplated in the Registration Statement, be legally
issued, fully paid and nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We further consent to the reference to our firm under
the caption "Legal Matters" in the Prospectus which is part of the Registration
Statement.
Very truly yours,
Morrison Cohen Singer & Weinstein, LLP
<PAGE> 1
Exhibit 10.3
VITAQUEST INTERNATIONAL INC.
RESTRICTED STOCK PLAN
(LIMITED TO 51,000 SHARES)
ARTICLE 1.
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control of the Company" shall have the meaning
given in Section 6.7 hereof.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the common stock of the Company,
par value $.01 per share.
(e) "Company" shall mean Vitaquest International Inc., a
Delaware corporation.
(f) "Discharge for Cause" shall mean (i) such acts or conduct
on the part of the Participant which is contrary to the interests of
the Company, as determined by the Board: (ii) the occurrence of an
event described in Section 6.7(b) of this Plan; (iii) the commission of
any crime or act of material dishonesty by the Participant as against
the Company; or (iv) the commission of any willful, malicious, grossly
negligent or reckless act by the Participant which is deemed, in the
reasonable judgment of the Board, detrimental to the business,
prospects or reputation of the Company. Notwithstanding anything to the
contrary contained herein, however, the term "Discharge for Cause" or
"Cause" shall not include a determination by a Board constituted at any
time following a Change of Control of the Company (as defined below).
(g) "Effective Date of the Plan" shall be as defined in
Article 2.3 hereof.
(h) "Escrow Agent" shall mean any escrow agent or its
successor designated by the Board to act under the provisions of the
Escrow Agreement.
<PAGE> 2
(i) "Escrow Agreement" shall mean the form of escrow agreement
as determined from time to time by the Board.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" shall mean, in the event that the
Stock is not listed on a national securities exchange, such value as
may be determined by the Board or the Committee, or, in the event that
the Stock is listed on Nasdaq (or any other exchange on which it may be
listed), the average of the highest price and the lowest price per
share at which the Stock is sold in the regular way on Nasdaq (or any
other exchange on which it may be listed) on the day Restricted Stock
is purchased hereunder, or in the absence of any reported sales on such
day, the first preceding day on which there were such sales, provided
such price shall not be less than the par value of the Stock.
(l) "Key Management Employees" shall mean officers of the
Company and those key or outstanding employees of the Company, from
time to time, designated by the Board, provided that any director of
the Company who is an officer or employee of the Company, shall not be
deemed a "Key Management Employee" for purposes of this Plan.
(m) "Participant" shall mean a person who has purchased
Restricted Stock pursuant to the provisions hereof and which has not
been forfeited under the Plan
(n) "Plan" shall mean the Vitaquest International Inc.
Restricted Stock Plan, the terms of which are set forth herein.
(o) "Restricted Stock" shall mean Common Stock delivered to or
held by a Participant which is subject to the restrictions described in
Section 6.7 and any new, additional or different stock or securities of
the Company or some other corporation, which a Participant may become
entitled to receive with respect to such shares by virtue of a stock
split or stock dividend or any other change in the corporate or capital
structure of the Company. Shares of Restricted Stock delivered pursuant
to the Plan, at the election of the Board, may consist either in whole
or in part of the Company's authorized and unissued shares or the
Company's authorized and issued shares thereafter re-acquired by the
Company and held in its treasury, as may from time to time, be
determined by the Board.
(p) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(q) "Stock" shall mean the Common Stock of the Company or, in
the event that the outstanding shares of Stock are hereafter changed
into or exchanged for shares of a different stock or securities of the
Company or some other corporation, any new, additional or different
stock or securities of the Company or some other corporation.
2
<PAGE> 3
Shares of Stock delivered pursuant to the Plan, at the election of the
Board, may consist either in whole or in part of the Company's
authorized and unissued shares or the Company's authorized and issued
shares thereafter re-acquired by the Company, and held in its treasury,
as may from time to time be determined by the Board.
(r) "Stock Purchase Agreement" shall mean the form of stock
purchase agreement as determined from time to time by the Board.
(s) "Subsidiary" shall mean any corporation, the majority of
the outstanding capital stock of which is owned, directly or
indirectly, by the Company, and as defined in Section 425 of the Code.
ARTICLE 2.
THE PLAN
2.1. Name. This Plan shall be known as the "Vitaquest International
Inc. Restricted Stock Plan."
2.2. Purpose. The purpose of the Plan is to advance the interests of
the Company and its stockholders by affording to Key Management Employees an
opportunity to acquire or increase their proprietary interest in the Company by
purchasing Restricted Stock under the terms set forth herein. This Plan is
intended to serve as an employment incentive through which the Company seeks to
motivate, retain and attract those highly competent individuals upon whose
judgment, initiative, leadership and continued efforts the success of the
Company in large measure depends.
2.3. Effective Date. The Plan shall become effective upon the earlier
of the date of its adoption by the Board or its approval by the holders of a
majority of the shares of Common Stock of the Company represented at the next
annual or special meeting of the stockholders of the Company.
ARTICLE 3.
PARTICIPANTS
Any Key Management Employee of the Company shall be eligible to
participate in the Plan. Members of the Board shall not be eligible to purchase
Restricted Stock under the Plan. The Board may select any eligible Key
Management Employee who may purchase Restricted Stock in accordance with such
determinations as the Board from time to time in its sole discretion shall make.
The Plan does not entitle an eligible Key Management Employee to purchase
Restricted Stock unless such employee is selected by the Board. A Key Management
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<PAGE> 4
Employee who has been eligible to and/or selected by the Board to purchase
Restricted Stock in one year may not necessarily be eligible and/or selected to
purchase Restricted Stock in subsequent years. The Board may, before it approves
the purchase of Restricted Stock or as a condition of such approval, require the
Participant by whom the purchase is to be made to enter into an Escrow Agreement
and/or Stock Purchase Agreement with the Company containing such terms and
conditions as the Board may prescribe. Nothing contained in the Plan shall give
any employee the right to be retained in the employ of the Company or affect the
right of the Company to dismiss any employee. The adoption of the Plan shall not
constitute a contract between the Company and any employee.
ARTICLE 4.
ADMINISTRATION
4.1. Duties and Powers of the Board. The Plan shall be administered by
the Board. Subject to the express provisions of the Plan, the Board shall have
the sole discretion and authority to determine (a) from among eligible Key
Management Employees those who may purchase Restricted Stock, (b) the time or
times at which Restricted Stock may be purchased, (c) the number of shares of
Restricted Stock which may be purchased, (d) the duration of the restrictions on
the Restricted Stock, (e) the manner and type of restrictions to be imposed on
the Restricted Stock, and (f) the valuation of the consideration to be paid for
the Restricted Stock, provided that the consideration may not be less than the
par value thereof (all of which need not be the same for each grant hereunder).
Subject to the express provisions of the Plan, the Board shall also have the
sole discretion and complete authority to interpret the Plan, to prescribe,
amend, and rescind rules and regulations relating to it, to determine the
details and provisions of each Escrow Agreement and Stock Purchase Agreement,
and to take all such other and further steps as may or shall be necessary or
advisable to administer the Plan.
The Board may employ such legal counsel, consultants and agents as they
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant. None of the members of the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Restricted Stock purchased under it and the Company
shall indemnify and hold harmless each member of the Board against any
liability, cost or expense (including reasonable counsel fees) arising out of
any act or omission to act in connection with the Plan, unless arising out of
such person's own fraud, bad faith or willful misconduct.
4.2. Majority Rule. Any resolution adopted by the Board in accordance
with the by-laws of the Company and provided a quorum is present in accordance
with such by-laws, shall be deemed sufficient for purposes of taking any action
required to be taken by the Board hereunder.
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<PAGE> 5
4.3. Company Assistance. The Company shall supply full and timely
information to the Board on all matters relating to Key Management Employees,
their employment, death, retirement, disability or other termination of
employment, and such other pertinent facts as the Board may require. The Company
shall furnish the Board with such clerical and other assistance as is necessary
in the performance of their duties.
ARTICLE 5.
SHARES OF RESTRICTED STOCK SUBJECT TO PLAN
5.1. Limitations. Subject to adjustment pursuant to the provisions of
Section 5.3 hereof, the number of shares of Restricted Stock which may be issued
and sold hereunder shall not exceed Fifty-One Thousand (51,000) shares. Such
shares may consist, either in whole or in part, of the Company's authorized and
unissued shares or the Company's authorized and issued shares thereafter
re-acquired by the Company and held in its treasury, as may from time to time,
be determined by the Board. Any of such shares which remain unsold at the
termination of the Plan shall cease to be reserved for the purposes of the Plan.
5.2. Stockholder Approval. The Company may, but shall not be required
to, issue or deliver any certificate for restricted stock which may be purchased
under the Plan, until the Plan has been approved by a resolution adopted by the
holders of a majority of the outstanding shares of Stock of the Company at an
annual or special meeting of stockholders held within twelve (12) months from
the date the Plan is approved by the Board, and if such approval is not
obtained, the Company may determine that Restricted Stock previously purchased
pursuant to the Plan shall be void and thereupon the Company shall have no
liability whatsoever in connection with any such Restricted Stock other than to
return the purchase price paid therefor.
5.3. Antidilution. In the event that the Stock hereafter are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of merger, consolidation, or
other reorganization, recapitalization, reclassification, combination of shares,
stock split-up, or stock dividend, then:
(a) The aggregate number and kind of shares in the Plan shall
be adjusted appropriately;
(b) The number of shares of Restricted Stock purchased by a
Participant pursuant hereto shall be adjusted appropriately, both as to
the number of subject shares and the price;
(c) Such new or additional or different shares or securities
which are distributed to a Participant, in his capacity as the owner of
Restricted Stock purchased hereunder, shall be legended in accordance
with Section 6.8(d) hereof and shall be
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<PAGE> 6
subject to all of the conditions and restrictions applicable to
Restricted Stock issued as provided herein.
Any adjustments required hereunder and the manner of application of the
foregoing provisions shall be determined solely by the Board, and any such
adjustment may provide for the elimination of fractional share interests.
ARTICLE 6.
RESTRICTED STOCK PURCHASE
6.1. Restricted Stock Purchase. All Restricted Stock purchased pursuant
hereto shall be authorized by minutes of a meeting or the written consent of the
Board, which shall specify the terms and provisions to be contained in the Stock
Purchase Agreement and/or the Escrow Agreement, in accordance with the Plan. The
Escrow Agreement and the Stock Purchase Agreement shall be executed by an
authorized officer of the Company.
6.2. Restricted Stock Price. The per share Restricted Stock price shall
be determined by the Board, but the per share price shall not be less than the
par value of the Restricted Stock on the date the Restricted Stock is purchased.
The purchase price for the Restricted Stock shall be paid in cash.
6.3. Section 83(b) Election. A Participant who files an election with
the Internal Revenue Service to include the fair market value of any Restricted
Stock in gross income while it is still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
6.4. Withholding. All Restricted Stock purchased pursuant hereto and
dividends on such Restricted Stock shall be subject to withholding as required
by applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory. including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their Fair Market Value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to a Participant, and (iii) requiring a
Participant to pay to the Company the amount required to be withheld as a
condition of releasing the Restricted Stock and any other distributions related
thereto.
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<PAGE> 7
6.5. Nontransferability of Restricted Stock. Unless otherwise permitted
hereunder, no Restricted Stock shall be transferred by a Participant otherwise
than by Last Will and Testament or the laws of Descent and Distribution.
At such time that a Participant purchases Restricted Stock pursuant
hereto, the Participant shall represent to the Company in writing that he or she
will hold the Restricted Stock for his or her own account for investment only
and not with a view to distribution or resale and that the Participant will not
make any sale, transfer or other disposition of any shares of Restricted Stock
purchased except pursuant to registration under the Securities Act or pursuant
to an opinion of counsel satisfactory in form and substance to the Board, that
the sale, transfer or other disposition may be made without such registration.
6.6. No Alienation of Benefits. Except insofar as may otherwise be
required by law, no Restricted Stock held at any time pursuant to an Escrow
Agreement shall be subject in any manner to alienation by anticipation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of
any kind nor in any manner be subject to the debts or liabilities of any person
and any attempt to so alienate or subject any such amount, whether presently or
thereafter payable, shall be void. If any person shall attempt to, or shall
alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber
any Restricted Stock purchased under the Plan, or any part thereof, or if by
reason of his of her bankruptcy or other event happening at any such time such
amount would be made subject to his debts or liabilities or would otherwise not
be enjoyed by him or her, then the Board, if it so elects, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such person, his or her spouse, children or
other dependents, or any of them, in such manner and proportion as the Board may
deem proper, in their sole discretion.
6.7. Restrictions Imposed. The Board may impose any or all of the
restrictions enumerated in subsections (a), (b) and (c) of this Section 6.7 or
such other restrictions as provided in subsection (e) below, with respect to any
Restricted Stock purchased hereunder:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause, or by the act
of the Participant, within five (5) years from the date Restricted
Stock shall have been purchased hereunder, the Company shall have the
option for a period of sixty (60) days after such termination of
employment, to buy any or all of the shares purchased by such
terminated employee which are, at such time, subject to restriction as
provided in the applicable Stock Purchase Agreement, for an amount
equal to the Product of (x) the consideration paid by the terminated
employee to the Company to acquire such shares, multiplied by (y) the
number of shares which the Company repurchases ("Repurchase Price").
The provisions of this paragraph shall automatically terminate and the
restrictions shall be removed in accordance with Section 6.9 hereof,
immediately following a "Change of Control of the Company". A "Change
of Control of the Company" shall be deemed to have occurred if and when
(i) Edward M. Frankel and Keith I. Frankel cease to beneficially own,
in the aggregate, twenty-five percent (25%) or more of the combined
voting power of the
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<PAGE> 8
Company's then outstanding securities or (ii) a change in the
composition of the Board so that a majority of the members of the Board
immediately prior to such change are no longer members of the Board
after such change which, in the sole discretion of the Board
immediately prior to such change of control or change in composition of
the Board, is determined to be a change hostile to, and not in the best
interests of, the stockholders of the Company.
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or
indirectly, own, manage, operate, control, be employed by, or
participate in, as a partner, joint venturer, employee, agent,
salesman, officer, director, five percent (5%) shareholder, or be
connected in any manner with the ownership, management, operation,
control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five percent (5%)
shareholder, of any business similar to the type of business conducted
by the Company at that time, as determined in the sole discretion of
the Board, the Company shall have the option for a period of sixty (60)
days after such determination by the Board, to buy any or all of the
shares purchased by such Participant which are, at such time, subject
to restriction as provided in the applicable Stock Purchase Agreement,
for an amount equal to the Repurchase Price. The provisions of this
paragraph shall automatically terminate and the restrictions shall be
removed in accordance with Section 6.9 hereof, immediately following a
Change of Control of the Company or if the Participant is terminated by
the Company under circumstances which do not constitute a Discharge for
Cause.
(c) If, within nine (9) months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a
registration statement under the Securities Act for the public offer
and sale of shares of its Common Stock and any such registration
statement shall not have been declared effective by the Securities and
Exchange Commission, then the Company shall have the option for a
period of sixty (60) days after the end of such nine (9) month period
to buy any or all of the shares purchased hereunder for an amount equal
to the Repurchase Price.
(d) Stock certificates evidencing Restricted Stock purchased
by a Participant shall be issued and delivered in the sole name of the
Participant and each such certificate shall bear the following legends:
(i) "The shares of Vitaquest International Inc. $.01
par value common stock evidenced by this certificate are
subject to repurchase by Vitaquest International Inc., and
such shares may not be sold or otherwise transferred, pledged
or hypothecated except pursuant to the provisions of the
Escrow Agreement and/or Stock Purchase Agreement by and
between the Escrow Agent, Vitaquest International, Inc. and
the registered owner of such shares."; and
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<PAGE> 9
(ii) "This stock certificate may not be sold,
transferred, pledged or hypothecated unless it has first been
registered under the Securities Act of 1933, as amended, or
unless counsel for Vitaquest International, Inc. has given an
opinion that registration under said Act is not required,
except that after a Change of Control of the Company, an
opinion of counsel that registration under said Act is not
required, may be provided by counsel independent of Vitaquest
International Inc. These shares are subject to the terms of an
Escrow Agreement and/or Stock Purchase Agreement with the
Escrow Agent, Vitaquest International Inc. and the registered
owner of such shares."
No such share may be sold, transferred, or otherwise alienated
or hypothecated so long as the certificate evidencing such share bears
the legends provided above.
The foregoing provisions in subsection (d) hereof shall not be
effective if and to the extent that the shares of Stock delivered under
the Plan are covered by an effective and current registration statement
under the Securities Act, or if and so long as the Board determines
that application of such provisions is no longer required. In making
such determination, the Board shall rely upon an opinion of counsel for
the Company, except that after a Change of Control of the Company, an
opinion of counsel that registration under the Securities Act is not
required may be provided by counsel independent of the Company.
(e) The Board may impose some or all of the restrictions set
forth in this Section and/or such other restrictions on any shares sold
pursuant to the Plan as they may deem advisable in their sole
discretion, including without limitation, restrictions under the
Securities Act, under the requirements of any stock exchange upon which
such shares or shares of same class are then listed, and under any
state or local blue sky or securities laws applicable to such shares.
(f) In the event the Company exercises its sixty (60) day
option with respect to any shares, the Company may set off the
Repurchase Price from any obligation or liability to a Participant,
whether as compensation or otherwise.
6.8. Rights as Stockholder. Subject to the provisions of Section 6.9
hereof, a certificate or certificates for all shares of Restricted Stock
registered in the name of a Participant shall be delivered to him or her as soon
as reasonably practicable and he or she shall thereupon be a stockholder and
have all the rights of a stockholder with respect to such shares, including the
right to vote and receive all dividends or other distributions made or paid with
respect to such shares; provided, that such shares of Restricted Stock, and any
new, additional or different securities the Participant may become entitled to
receive with respect to such shares by virtue of a stock split or stock dividend
or any other change in the corporate or capital structure of the Company, shall
be subject to the restrictions theretofore imposed on the Restricted Stock.
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<PAGE> 10
6.9. Removal of Restrictions. (a) If (i) a Participant shall die,
retire or become permanently and totally disabled as determined in accordance
with applicable Company personnel policies, or (ii) there is a Change of Control
of the Company, at any time within five (5) years from the date Restricted Stock
shall have been purchased hereunder, the events of forfeiture specified in
Section 6.7(a) and (b) (but not Section 6.7(c)) or as otherwise determined by
the Board shall terminate, and upon surrender and presentation to the Company of
the legended certificates evidencing such shares, replacement certificates shall
be issued and delivered to the Participant, free from the legend provided for in
Section 6.7(d)(i) hereof or any other restrictions on the sale or other transfer
of such shares, pursuant to the Plan, but legended in accordance with Section
6.7(d)(ii) hereof, and such shares shall, nonetheless, remain subject to the
Securities Act and the Exchange Act, unless an opinion of counsel is provided in
accordance with Section 6.7(d).
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any shares or such sixty (60) day option period
has expired pursuant to Section 6.7(a), the events of forfeiture
specified in Section 6.7(a) shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing
such shares, replacement certificates shall be issued and delivered to
the Participant, free from the legend provided for in Section 6.7(d)(i)
hereof or any other restrictions on the sale or transfer of such
shares, pursuant to the Plan, but legended in accordance with Section
6.7(d)(ii) hereof, and such shares shall, nonetheless, remain subject
to the Securities Act and the Exchange Act, unless an opinion of
counsel is provided in accordance with Section 6.7(d).
(c) If the Company chooses not to exercise its sixty (60) day
option with respect to any shares or such sixty (60) day option period
has expired pursuant to Section 6.7(b), the events of forfeiture
specified in Section 6.7(b) shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing
such shares, replacement certificates shall be issued and delivered to
the Participant, free from the legend provided for in Section 6.7(d)(i)
hereof or any other restrictions on the sale or transfer of such
shares, pursuant to the Plan, but legended in accordance with Section
6.7(d)(ii) hereof, and such shares shall, nonetheless, remain subject
to the Securities Act and the Exchange Act, unless an opinion of
counsel is provided in accordance with Section 6.7(d).
(d) If a Participant's Stock Purchase Agreement provides for
the release from restriction of portions of the Restricted Stock upon
the passage of time, then upon the passage of such time periods, the
events of forfeiture specified in Section 6.7(a) and 6.7(b) shall
terminate as to such portions of the Restricted Stock and upon
surrender and presentation to the Company of the legended certificates
evidencing such shares, replacement certificates shall be issued and
delivered to the Participant, free from the legend provided for in
Section 6.7(d)(i) hereof or any other restrictions on the sale or
transfer of such shares, pursuant to the Plan, but legended in
accordance with Section 6.7(d)(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act
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<PAGE> 11
and the Exchange Act, unless an opinion of counsel is provided in
accordance with Section 6.7(d).
6.10. Escrow. In order to enforce the restrictions imposed upon shares
issued under the Plan, the Board may require any Participant to deposit with the
Escrow Agent all certificates for Restricted Stock together with stock powers,
appropriately endorsed in blank. and to enter into an Escrow Agreement providing
that the certificates representing shares issued pursuant to the Plan shall
remain in the physical custody of the Escrow Agent until any or all of the
restrictions imposed pursuant to the Plan have terminated.
ARTICLE 7.
STOCK CERTIFICATES
The Company may, but shall not be required to, issue or deliver any
certificate for shares of Restricted Stock purchased hereunder or any portion
thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Board shall in their sole
discretion deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Board shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, the
Stock Purchase Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time in
their sole discretion may establish for reasons of administrative
convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Stock of the Company represented at an annual or special
meeting of the stockholders of the Company; and
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<PAGE> 12
Nothing herein contained shall be construed as imposing any obligation on the
Board or the Company to undertake or complete any act with respect to
subparagraphs (a), (b) and (c) of this Article VII.
ARTICLE 8.
TERMINATION, AMENDMENT, AND MODIFICATION OF PLAN
8.1. Termination. The Plan shall terminate and no further shares shall
be sold or issued hereunder on or after the first anniversary of the Effective
Date, or such earlier date as may be determined by the Board. The termination of
the Plan, however, shall not effect any restrictions previously imposed on
shares issued pursuant to the Plan.
8.2. Amendment and Modification. The Board may at any time terminate,
and may at any time and from time to time and in any respect amend or modify,
the Plan; provided, that no such action of the Board without approval of the
stockholders of the Company may:
(a) Increase the total number of shares of Stock subject to
the Plan except as contemplated in Section 5.3 hereof;
(b) Provide for a purchase price for the Restricted Stock of
less than the par value thereof;
(c) Change the manner for removal of the restrictions set
forth in Section 6.9 hereof; or
(d) Withdraw the administration of the Plan from the Board.
No termination, amendment, or modification of the Plan shall in any
manner affect any Stock Purchase Agreement or Escrow Agreement theretofore
executed pursuant to the Plan without the consent of the Participant.
ARTICLE 9.
MISCELLANEOUS
9.1. Employment. Nothing in the Plan or in any Stock Purchase Agreement
relating hereto shall confer upon any employee the right to continue in the
employ of the Company.
9.2. Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in effect
for the Company, nor shall the
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<PAGE> 13
Plan preclude the Company from establishing any other forms of incentive or
other compensation plans for employees of the Company.
9.3. Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.4. Singular, Plural, Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
9.5. Headings, etc., No Part of Plan. Headings or Articles and Sections
hereof are inserted for convenience and reference and they constitute no part of
the Plan.
9.6. Unfunded Plan. The Plan is intended to constitute an unfunded
deferred compensation arrangement for a select group of management, key or
outstanding personnel.
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<PAGE> 14
I hereby certify that the foregoing Plan was duly approved by the Board
of Directors of Vitaquest International Inc. on June 14, 1996.
Executed as of this 14th day of June, 1996.
s/Stephen J. Young
---------------------------
STEPHEN J. YOUNG, Secretary
Corporate Seal
I hereby certify that the foregoing Plan was duly approved by the
Stockholders of Vitaquest International Inc. on June 14, 1996.
Executed on this 14th day of June, 1996.
s/Stephen J. Young
---------------------------
STEPHEN J. YOUNG, Secretary
Corporate Seal
14
<PAGE> 1
STOCK PURCHASE AGREEMENT
UNDER
VITAQUEST INTERNATIONAL INC.
RESTRICTED STOCK PLAN
AGREEMENT, made this 14th day of June, 1996, by and between VITAQUEST
INTERNATIONAL INC., a Delaware corporation having offices at 100 Lehigh Drive,
Fairfield, New Jersey 07004 (the "Company"), and MYRON JACOBOWITZ residing at 10
Dorset Circle, Caldwell, New Jersey 07006 (the"Participant").
RECITALS:
WHEREAS, the Company has adopted the Vitaquest International Inc.
Restricted Stock Plan (the "Plan") under which eligible employees selected by
the Administrators may purchase certain stock of the Company, subject to those
restrictions as determined by the Administrators; and
WHEREAS, the Participant is an employee of the Company and has been
selected by the Administrators to purchase Restricted Stock in accordance with
the Plan; and
WHEREAS, the defined and capitalized terms of this agreement have the
same meaning and definition as in the Plan, unless otherwise provided herein.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. Purchase of Shares. The Participant subscribes for and, upon
acceptance, shall purchase, subject to the terms and conditions set forth in
this Agreement, 8,000 shares (the
<PAGE> 2
"Restricted Stock") of common stock, par value $.01 per share, of the Company at
a purchase price of $1.00 per share. The aggregate purchase price of the
Restricted Stock shall be paid by the Participant by Check payable to the order
of the Company.
Upon the Company receiving payment for the Restricted Stock, it shall
issue to the Participant one or more certificates in the name of the Participant
for that number of shares of Restricted Stock purchased by Participant. The
Participant agrees that the Restricted Stock shall be subject to the forfeiture
restrictions set forth in Paragraphs 2 and 3 of this Agreement and the
restrictions on transfer set forth in Paragraph 4 of this Agreement and that all
of such shares are Restricted Stock.
2. Repurchase Provisions. Purchase by the Participant of all Restricted
Stock hereunder is subject to the following restrictions:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause, or by the act of the
Participant in voluntarily terminating his employment with the Company, within
five (5) years from the date Restricted Stock shall have been purchased
hereunder, the Company shall have the option for a period of sixty (60) days
after such termination of employment, to buy any or all of the shares purchased
by such terminated employee for an amount equal to the product of (x) the
consideration paid by the terminated employee to the Company to acquire such
shares, multiplied by (y) the number of shares which the Company repurchases
("Repurchase Price"). The provisions of this paragraph shall automatically
terminate and the restrictions shall be removed in accordance with the Section
6.9 of the Plan, (x) as to 20% of the Restricted Stock on each anniversary of
the date hereof, (y) as to all of the Restricted Stock if the Participant shall
die, retire or become
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<PAGE> 3
permanently and totally disabled as determined in accordance with applicable
Company personnel policies, and (z) as to all of the Restricted Stock
immediately following a "Change of Control of the Company." A "Change of Control
of the Company" shall be deemed to have occurred if and when (i) Edward M.
Frankel and Keith I. Frankel cease to beneficially own, in the aggregate,
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities or (ii) a change in the composition of the Board so that
a majority of the members of the Board immediately prior to such change are no
longer members of the Board after such change which, in the sole discretion of
the Board immediately prior to such change of control or change in composition
of the Board, is determined to be a change hostile to, and not in the best
interests of, the stockholders of the Company.
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or indirectly, own,
manage, operate, control, be employed by, or participate in, as a partner, joint
venturer, employee, agent, salesman, officer, director, five (5%) percent
shareholder, or be connected in any manner with the ownership, management,
operation, control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five (5%) percent shareholder,
of any business similar to the type of business conducted by the Company at that
time, as determined in the sole discretion of the Board, the Company shall have
the option for a period of sixty (60) days after such determination to buy any
or all of the shares purchased by Participant for an amount equal to the
Repurchase Price. The provisions of this paragraph shall automatically terminate
and the restrictions shall be removed in accordance with Section 6.9 of the
Plan, (x) as to 20% of the Restricted Stock on each anniversary of the date
hereof, (y) as to all of the Restricted Stock if
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<PAGE> 4
the Participant shall die, retire or become permanently and totally disabled as
determined in accordance with applicable Company personnel policies, and (z) as
to all of the Restricted Stock immediately following a Change of Control of the
Company or if the Participant is terminated by the Company under circumstances
which do not constitute a Discharge for Cause.
(c) If, within nine (9) months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a registration
statement under the Securities Act for the public offer and sale of shares of
its Common Stock and any such registration statement shall not have been
declared effective by the Securities and Exchange Commission, then the Company
shall have the option for a period of sixty (60) days after the end of such nine
(9) month period to buy any or all of the shares purchased hereunder for an
amount equal to the Repurchase Price.
3. Exercise of Repurchase Provision.
(a) If at any time within five (5) years from the date hereof,
the Company determines to exercise its option to purchase all of the Restricted
Stock or such lesser percentage of the Restricted Stock as is, at such time,
subject to restriction as provided in Paragraph 2(a), 2(b) and 2(c), the Company
shall give notice of such exercise to the Participant within the applicable
sixty (60) day period.
(b) Within three (3) business days after the Company gives
notice to the Participant of the exercise of its repurchase option pursuant to
Paragraph 3(a), the Participant shall deliver to the Company at its address
shown above the certificate or certificates representing the Restricted Stock
that the Company has elected to purchase, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached, all in form suitable
for
4
<PAGE> 5
the transfer of the Restricted Stock to the Company. Upon receipt of the
Restricted Stock, the Company shall deliver or mail to the Participant payment
for the aggregate Repurchase Price, or the Company may, at its option, set off
against the Repurchase Price any obligation or liability of the Participant to
the Company.
(c) After the time when any Restricted Stock is required to be
delivered to the Company for transfer pursuant to Paragraph 3(b), the Company
shall not pay any dividend to the Participant on account of such Restricted
Stock, or permit the Participant to exercise any of the privileges or rights of
a stockholder with respect to such Restricted Stock, but shall, insofar as
permitted by law, treat the Company as the owner of such Restricted Stock.
(d) The Company shall not be required to purchase any fraction
of a share of Restricted Stock upon exercise of the repurchase provision, and
any such fraction resulting from a computation made pursuant to paragraph 9 of
this Agreement may be rounded to the nearest whole share (with any one-half
share being rounded upward).
4. Restrictions on Transfer.
(a) Except as otherwise provided in Paragraph 4(b), the
Participant shall not, during the term of the repurchase provisions specified in
Paragraphs 2 and 3, sell, assign, transfer, pledge, hypothecate, or otherwise
dispose of, by operation of law or otherwise (collectively "transfer"), any of
the Restricted Stock, or any interest therein, unless the Restricted Stock is no
longer subject to the repurchase provisions in Paragraphs 2 and 3.
(b) Notwithstanding the foregoing, the Participant may
transfer Restricted Stock by Last Will and Testament or the laws of Descent and
Distribution, provided that such shares shall remain subject to this Agreement,
including without limitation the restrictions on
5
<PAGE> 6
transfer set forth in this Paragraph 4 and the repurchase provisions set forth
in Paragraphs 2 and 3, and the permitted transferee shall, as a condition to the
transfer, deliver to the Company a written instrument confirming that the
transferee shall be bound by all of the terms and conditions of this Agreement.
(c) Except insofar as may otherwise be required by law or this
Agreement, no Restricted Stock held at any time pursuant to an Escrow Agreement
entered into between the Participant, the Company and an Escrow Agent, as
referred to in the Plan, shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge, or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of Participant and/or any person and any attempt to so alienate or
subject any such amount, whether presently or thereafter payable, shall be void.
If Participant and/or any person in violation of the provisions of this
Agreement shall attempt to, or shall alienate, sell, transfer, assign, pledge,
attach, charge, or otherwise encumber any Restricted Stock purchased under this
Agreement, or any part thereof, or if by reason of Participant's bankruptcy or
other event happening at any such time, such Restricted Stock would be made
subject to Participant's debts or liabilities or would otherwise not be enjoyed
by Participant, then the Administrators, if they so elect, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such Participant, his or her spouse, children
or other dependents, or any of them, in such manner and proportion as the
Administrators may deem proper, in their sole discretion.
6
<PAGE> 7
5. Effect of Prohibited Transfer. In the event of a transfer of
Restricted Stock without compliance with the terms of this Agreement or the
Plan, the Company shall not be required:
(a) To transfer on its books any of the Restricted Stock that
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or the Plan; or
(b) To treat as owner of such Restricted Stock or to pay
dividends to any transferee to whom any of such shares shall have been so sold
or transferred.
6. Restrictive Legends. All certificates representing Restricted Stock
shall have affixed thereto legends in substantially the following form, in
addition to any other legends that may be required under federal or state
securities laws:
(i) "The shares of common stock, par value $.01 per share, of
Vitaquest International Inc. evidenced by this certificate are
subject to repurchase by Vitaquest International Inc., and
such shares may not be sold or otherwise transferred, pledged
or hypothecated except pursuant to the provisions of the
Escrow Agreement and/or Stock Purchase Agreement by and
between the Escrow Agent, Vitaquest International Inc. and the
registered owner of such shares."; and
(ii) "This stock certificate may not be sold, transferred,
pledged or hypothecated unless it has first been registered
under the Securities Act of 1933, as amended, or unless
counsel for Vitaquest International Inc. has given an opinion
that registration under said Act is not required, except that
after a Change of Control of the Company, an opinion of
counsel that registration under said Act is not required, may
be provided by counsel independent of Vitaquest International
Inc. These shares are subject to the terms of an Escrow
Agreement and/or Stock Purchase Agreement with the Escrow
Agent, Vitaquest International Inc. and the registered owner
of such shares."
7
<PAGE> 8
7. Removal of Restrictions.
(a) If (i) a Participant shall die, retire, or become
permanently and totally disabled, as determined in accordance with applicable
Company personnel policies, or (ii) there is a Change of Control of the Company
at any time after the date Restricted Stock shall have been purchased hereunder,
or (iii) with respect to Restricted Stock released from restriction upon the
passage of time as provided in Paragraph 2(a)(x) and 2(b)(x), the events of
forfeiture specified in Paragraphs 2(a) and (b) (but not 2(c)) shall
automatically terminate as to all of the Restricted Stock in the case of an
event described in clause 7(a)(i) or 7(a)(ii), or as to the applicable number of
shares in the case of an event described in clause 7(a)(iii), and upon surrender
and presentation to the Company of the legended certificates evidencing such
shares, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or other transfer of such shares, pursuant to the
Plan, but legended in accordance with Section 6(ii) hereof, and such shares
shall, nonetheless, remain subject to the Securities Act and the Exchange Act,
unless an opinion of counsel is provided in accordance with Section 6.7(d) of
the Plan.
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any Restricted Stock or such sixty (60) day option period
has expired pursuant to the applicable provisions of Paragraph 2, the events of
forfeiture specified in Paragraph 2 shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing such
Restricted Stock, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or transfer of such Restricted Stock pursuant to
the Plan or this Agreement, but
8
<PAGE> 9
legended in accordance with Paragraph 6(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act and the Exchange Act, unless
an opinion of counsel is provided in accordance with Section 6.7(d) of the Plan.
8. Investment Representations. The Participant represents, warrants,
and covenants as follows:
(a) The Participant is purchasing the Shares for his or her
own account for investment only, and not with a view to distribution or resale.
(b) The Participant understands that the offering and sale of
the Restricted Stock is intended to be exempt under the Securities Act and any
applicable "Blue Sky" laws.
(c) The Participant understands that the Shares are deemed to
be "Restricted Securities" as defined in Rule 144 under the Securities Act and
that such Shares may not be offered for sale, sold, delivered after sale,
pledged, hypothecated, transferred, assigned, or otherwise disposed of except
pursuant to registration under the Securities Act or pursuant to an opinion of
counsel satisfactory in form and substance to the Company, that the sale,
transfer or other disposition may be made without registration.
9. Adjustments. In the event the Common Stock hereafter is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, or other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, then:
(a) The number of shares of Restricted Stock purchased by
Participant pursuant to this Agreement shall be adjusted appropriately, both as
to the number of shares and the price;
9
<PAGE> 10
(b) Such new or additional or different shares or securities
which are distributed to the Participant, in his or her capacity as the owner of
Restricted Stock purchased hereunder, shall be subject to all of the conditions
and restrictions applicable to Restricted Stock issued as provided herein.
Any adjustments required hereunder and the manner of
application of the foregoing provisions shall be determined solely by the Board,
and any such adjustment may provide for the elimination of fractional share
interests.
10. Withholding Taxes.
(a) A Participant who files an election with the Internal
Revenue Service to include the fair market value of any Restricted Stock in
gross income while such shares are still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
(b) All Restricted Stock purchased pursuant hereto and
dividends on such shares shall be subject to withholding as required by
applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory, including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their fair market value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to the Participant, and (iii)
10
<PAGE> 11
requiring the Participant to pay to the Company the amount required to be
withheld as a condition of releasing the Shares and any other distributions
related thereto.
11. Rights as Stockholder. Subject to the provisions of Paragraph 12
hereof, a certificate or certificates for all Restricted Stock registered in the
name of the Participant shall be delivered to him or her as soon as reasonably
practicable and he or she shall thereupon be a stockholder and have all the
rights of a stockholder with respect to such shares, including the right to vote
and receive all dividends or other distributions made or paid with respect to
such shares; provided, that such shares, and any new, additional or different
securities the Participant may become entitled to receive with respect to such
shares by virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be subject to the
restrictions described in Paragraphs 2, 3 and 4 hereof.
12. Escrow. In order to enforce the restrictions imposed upon the
Restricted Stock issued under the Plan, the Board may require the Participant to
deposit with the Escrow Agent all certificates for Restricted Stock together
with stock powers, appropriately endorsed in blank, and to enter into an Escrow
Agreement providing that the certificates representing Restricted Stock issued
pursuant to the Plan shall remain in the physical custody of the Escrow Agent
until any or all of the restrictions imposed pursuant hereto have terminated. If
required by the Board, the Escrow Agreement shall be executed at the time the
Participant is entitled to receive the Restricted Stock.
13. Stock Certificates. The Company may, but shall not be required to,
issue or deliver any certificate for Restricted Stock purchased hereunder or any
portion thereof, prior to fulfillment of all of the following conditions:
11
<PAGE> 12
(a) The admission of such Restricted Stock to listing on all
stock exchanges on which the Common Stock is then listed;
(b) The completion of any registration or other qualification
of such Restricted Stock under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Administrators shall in their sole discretion deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Administrators shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, this
Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time, in their sole
discretion, may establish for reasons of administrative convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Common Stock of the Company represented at an annual or special
meeting of the stockholders of the Company.
Nothing herein contained shall be construed as imposing any
obligation on the Board or the Company to undertake or complete any act with
respect to subparagraphs (a), (b), (c) or (f) of this Paragraph 13.
14. Severability. The invalidity or enforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each
12
<PAGE> 13
other provision of this Agreement shall be severable and enforceable to the
extent permitted by law.
15. Waiver. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board provided that such
waiver shall be effective only if in writing and confirmed by a writing executed
and delivered with the same formality as this Agreement.
16. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the Company and the Participant and their respective heirs,
executors, administrators, legal representatives, successors, and assigns, as
provided in this Agreement.
17. No Rights to Employment. Nothing contained in this Agreement shall
be construed as giving the Participant any right to be retained, in any
position, as an employee of the Company.
18. Notice. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or three (3)
business days following deposit in the United States Post Office, by registered
or certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Paragraph 18.
19. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine, or neuter
forms. The singular form of nouns and pronouns shall include the plural, and the
plural form of nouns and pronouns shall include the singular.
13
<PAGE> 14
20. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement.
21. Amendment. This Agreement may be amended or modified only by a
written instrument executed with the same formality as this Agreement.
22. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to all the other parties.
23. Headings. The headings contained in this Agreement are for
reference only and shall not under any circumstances be deemed to affect the
meaning or interpretation of this Agreement.
24. Recitals. The recitals are deemed a part of this Agreement.
25. Litigation. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New York and, regardless of the order
in which the signatures of the parties are affixed, it shall be deemed executed
at the Company's address, as above. The parties consent to the jurisdiction and
venue of any state or federal court located within the State of New York, the
County of New York or the Southern District of the U.S. District Court and agree
that all actions or proceedings arising, directly or indirectly, from this
Agreement shall be litigated only in courts having such situs and in any such
action or proceeding, the parties waive trial by jury and the successful party
shall be entitled to recover reasonable counsel fees and the expenses of such
litigation. In any such action or legal proceeding, the court shall apply such
14
<PAGE> 15
rule of law of the State of New York including any conflicts of law rule,
together with the law of any sister state including, without limitation, the
laws of the State of Delaware in which the Company has been incorporated, which
shall have the affect of sustaining the validity of all the terms and provisions
of this Agreement.
26. Receipt of Plan. The Participant hereby acknowledges that prior to
execution of this Agreement, Participant has received, read and fully
understands all of the terms and provisions of the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VITAQUEST INTERNATIONAL INC.
By: s/ EDWARD M. FRANKEL
-----------------------------------------
Edward M. Frankel, President
ATTEST:
PARTICIPANT: s/ MYRON JACOBOWITZ
____________________________ ________________________________
Name: Myron Jacobowitz
ATTEST:
____________________________
15
<PAGE> 16
STOCK PURCHASE AGREEMENT
UNDER
VITAQUEST INTERNATIONAL INC.
RESTRICTED STOCK PLAN
AGREEMENT, made this 14th day of June, 1996, by and between VITAQUEST
INTERNATIONAL INC., a Delaware corporation having offices at 100 Lehigh Drive,
Fairfield, New Jersey 07004 (the "Company"), and HOWARD L. MUNK residing at 21
Dwight Place, Fairfield, New Jersey 07004 (the"Participant").
RECITALS:
WHEREAS, the Company has adopted the Vitaquest International Inc.
Restricted Stock Plan (the "Plan") under which eligible employees selected by
the Administrators may purchase certain stock of the Company, subject to those
restrictions as determined by the Administrators; and
WHEREAS, the Participant is an employee of the Company and has been
selected by the Administrators to purchase Restricted Stock in accordance with
the Plan; and
WHEREAS, the defined and capitalized terms of this agreement have the
same meaning and definition as in the Plan, unless otherwise provided herein.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. Purchase of Shares. The Participant subscribes for and, upon
acceptance, shall purchase, subject to the terms and conditions set forth in
this Agreement, 25,000 shares (the
<PAGE> 17
"Restricted Stock") of common stock, par value $.01 per share, of the Company at
a purchase price of $1.00 per share. The aggregate purchase price of the
Restricted Stock shall be paid by the Participant by Check payable to the order
of the Company.
Upon the Company receiving payment for the Restricted Stock, it shall
issue to the Participant one or more certificates in the name of the Participant
for that number of shares of Restricted Stock purchased by Participant. The
Participant agrees that the Restricted Stock shall be subject to the forfeiture
restrictions set forth in Paragraphs 2 and 3 of this Agreement and the
restrictions on transfer set forth in Paragraph 4 of this Agreement and that all
of such shares are Restricted Stock.
2. Repurchase Provisions. Purchase by the Participant of all Restricted
Stock hereunder is subject to the following restrictions:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause, or by the act of the
Participant in voluntarily terminating his employment with the Company, within
five (5) years from the date Restricted Stock shall have been purchased
hereunder, the Company shall have the option for a period of sixty (60) days
after such termination of employment, to buy any or all of the shares purchased
by such terminated employee for an amount equal to the product of (x) the
consideration paid by the terminated employee to the Company to acquire such
shares, multiplied by (y) the number of shares which the Company repurchases
("Repurchase Price"). The provisions of this paragraph shall automatically
terminate and the restrictions shall be removed in accordance with the Section
6.9 of the Plan, (x) as to 20% of the Restricted Stock on each anniversary of
the date hereof, (y) as to all of the Restricted Stock if the Participant shall
die, retire or become
2
<PAGE> 18
permanently and totally disabled as determined in accordance with applicable
Company personnel policies, and (z) as to all of the Restricted Stock
immediately following a "Change of Control of the Company." A "Change of Control
of the Company" shall be deemed to have occurred if and when (i) Edward M.
Frankel and Keith I. Frankel cease to beneficially own, in the aggregate,
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities or (ii) a change in the composition of the Board so that
a majority of the members of the Board immediately prior to such change are no
longer members of the Board after such change which, in the sole discretion of
the Board immediately prior to such change of control or change in composition
of the Board, is determined to be a change hostile to, and not in the best
interests of, the stockholders of the Company.
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or indirectly, own,
manage, operate, control, be employed by, or participate in, as a partner, joint
venturer, employee, agent, salesman, officer, director, five (5%) percent
shareholder, or be connected in any manner with the ownership, management,
operation, control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five (5%) percent shareholder,
of any business similar to the type of business conducted by the Company at that
time, as determined in the sole discretion of the Board, the Company shall have
the option for a period of sixty (60) days after such determination to buy any
or all of the shares purchased by Participant for an amount equal to the
Repurchase Price. The provisions of this paragraph shall automatically terminate
and the restrictions shall be removed in accordance with Section 6.9 of the
Plan, (x) as to 20% of the Restricted Stock on each anniversary of the date
hereof, (y) as to all of the Restricted Stock if
3
<PAGE> 19
the Participant shall die, retire or become permanently and totally disabled as
determined in accordance with applicable Company personnel policies, and (z) as
to all of the Restricted Stock immediately following a Change of Control of the
Company or if the Participant is terminated by the Company under circumstances
which do not constitute a Discharge for Cause.
(c) If, within nine (9) months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a registration
statement under the Securities Act for the public offer and sale of shares of
its Common Stock and any such registration statement shall not have been
declared effective by the Securities and Exchange Commission, then the Company
shall have the option for a period of sixty (60) days after the end of such nine
(9) month period to buy any or all of the shares purchased hereunder for an
amount equal to the Repurchase Price.
3. Exercise of Repurchase Provision.
(a) If at any time within five (5) years from the date hereof,
the Company determines to exercise its option to purchase all of the Restricted
Stock or such lesser percentage of the Restricted Stock as is, at such time,
subject to restriction as provided in Paragraph 2(a), 2(b) and 2(c), the Company
shall give notice of such exercise to the Participant within the applicable
sixty (60) day period.
(b) Within three (3) business days after the Company gives
notice to the Participant of the exercise of its repurchase option pursuant to
Paragraph 3(a), the Participant shall deliver to the Company at its address
shown above the certificate or certificates representing the Restricted Stock
that the Company has elected to purchase, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached, all in form suitable
for
4
<PAGE> 20
the transfer of the Restricted Stock to the Company. Upon receipt of the
Restricted Stock, the Company shall deliver or mail to the Participant payment
for the aggregate Repurchase Price, or the Company may, at its option, set off
against the Repurchase Price any obligation or liability of the Participant to
the Company.
(c) After the time when any Restricted Stock is required to be
delivered to the Company for transfer pursuant to Paragraph 3(b), the Company
shall not pay any dividend to the Participant on account of such Restricted
Stock, or permit the Participant to exercise any of the privileges or rights of
a stockholder with respect to such Restricted Stock, but shall, insofar as
permitted by law, treat the Company as the owner of such Restricted Stock.
(d) The Company shall not be required to purchase any fraction
of a share of Restricted Stock upon exercise of the repurchase provision, and
any such fraction resulting from a computation made pursuant to paragraph 9 of
this Agreement may be rounded to the nearest whole share (with any one-half
share being rounded upward).
4. Restrictions on Transfer.
(a) Except as otherwise provided in Paragraph 4(b), the
Participant shall not, during the term of the repurchase provisions specified in
Paragraphs 2 and 3, sell, assign, transfer, pledge, hypothecate, or otherwise
dispose of, by operation of law or otherwise (collectively "transfer"), any of
the Restricted Stock, or any interest therein, unless the Restricted Stock is no
longer subject to the repurchase provisions in Paragraphs 2 and 3.
(b) Notwithstanding the foregoing, the Participant may
transfer Restricted Stock by Last Will and Testament or the laws of Descent and
Distribution, provided that such shares shall remain subject to this Agreement,
including without limitation the restrictions on
5
<PAGE> 21
transfer set forth in this Paragraph 4 and the repurchase provisions set forth
in Paragraphs 2 and 3, and the permitted transferee shall, as a condition to the
transfer, deliver to the Company a written instrument confirming that the
transferee shall be bound by all of the terms and conditions of this Agreement.
(c) Except insofar as may otherwise be required by law or this
Agreement, no Restricted Stock held at any time pursuant to an Escrow Agreement
entered into between the Participant, the Company and an Escrow Agent, as
referred to in the Plan, shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge, or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of Participant and/or any person and any attempt to so alienate or
subject any such amount, whether presently or thereafter payable, shall be void.
If Participant and/or any person in violation of the provisions of this
Agreement shall attempt to, or shall alienate, sell, transfer, assign, pledge,
attach, charge, or otherwise encumber any Restricted Stock purchased under this
Agreement, or any part thereof, or if by reason of Participant's bankruptcy or
other event happening at any such time, such Restricted Stock would be made
subject to Participant's debts or liabilities or would otherwise not be enjoyed
by Participant, then the Administrators, if they so elect, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such Participant, his or her spouse, children
or other dependents, or any of them, in such manner and proportion as the
Administrators may deem proper, in their sole discretion.
6
<PAGE> 22
5. Effect of Prohibited Transfer. In the event of a transfer of
Restricted Stock without compliance with the terms of this Agreement or the
Plan, the Company shall not be required:
(a) To transfer on its books any of the Restricted Stock that
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or the Plan; or
(b) To treat as owner of such Restricted Stock or to pay
dividends to any transferee to whom any of such shares shall have been so sold
or transferred.
6. Restrictive Legends. All certificates representing Restricted Stock
shall have affixed thereto legends in substantially the following form, in
addition to any other legends that may be required under federal or state
securities laws:
(i) "The shares of common stock, par value $.01 per share, of
Vitaquest International Inc. evidenced by this certificate are
subject to repurchase by Vitaquest International Inc., and
such shares may not be sold or otherwise transferred, pledged
or hypothecated except pursuant to the provisions of the
Escrow Agreement and/or Stock Purchase Agreement by and
between the Escrow Agent, Vitaquest International Inc. and the
registered owner of such shares."; and
(ii) "This stock certificate may not be sold, transferred,
pledged or hypothecated unless it has first been registered
under the Securities Act of 1933, as amended, or unless
counsel for Vitaquest International Inc. has given an opinion
that registration under said Act is not required, except that
after a Change of Control of the Company, an opinion of
counsel that registration under said Act is not required, may
be provided by counsel independent of Vitaquest International
Inc. These shares are subject to the terms of an Escrow
Agreement and/or Stock Purchase Agreement with the Escrow
Agent, Vitaquest International Inc. and the registered owner
of such shares."
7
<PAGE> 23
7. Removal of Restrictions.
(a) If (i) a Participant shall die, retire, or become
permanently and totally disabled, as determined in accordance with applicable
Company personnel policies, or (ii) there is a Change of Control of the Company
at any time after the date Restricted Stock shall have been purchased hereunder,
or (iii) with respect to Restricted Stock released from restriction upon the
passage of time as provided in Paragraph 2(a)(x) and 2(b)(x), the events of
forfeiture specified in Paragraphs 2(a) and (b) (but not 2(c)) shall
automatically terminate as to all of the Restricted Stock in the case of an
event described in clause 7(a)(i) or 7(a)(ii), or as to the applicable number of
shares in the case of an event described in clause 7(a)(iii), and upon surrender
and presentation to the Company of the legended certificates evidencing such
shares, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or other transfer of such shares, pursuant to the
Plan, but legended in accordance with Section 6(ii) hereof, and such shares
shall, nonetheless, remain subject to the Securities Act and the Exchange Act,
unless an opinion of counsel is provided in accordance with Section 6.7(d) of
the Plan.
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any Restricted Stock or such sixty (60) day option period
has expired pursuant to the applicable provisions of Paragraph 2, the events of
forfeiture specified in Paragraph 2 shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing such
Restricted Stock, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or transfer of such Restricted Stock pursuant to
the Plan or this Agreement, but
8
<PAGE> 24
legended in accordance with Paragraph 6(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act and the Exchange Act, unless
an opinion of counsel is provided in accordance with Section 6.7(d) of the Plan.
8. Investment Representations. The Participant represents, warrants,
and covenants as follows:
(a) The Participant is purchasing the Shares for his or her
own account for investment only, and not with a view to distribution or resale.
(b) The Participant understands that the offering and sale of
the Restricted Stock is intended to be exempt under the Securities Act and any
applicable "Blue Sky" laws.
(c) The Participant understands that the Shares are deemed to
be "Restricted Securities" as defined in Rule 144 under the Securities Act and
that such Shares may not be offered for sale, sold, delivered after sale,
pledged, hypothecated, transferred, assigned, or otherwise disposed of except
pursuant to registration under the Securities Act or pursuant to an opinion of
counsel satisfactory in form and substance to the Company, that the sale,
transfer or other disposition may be made without registration.
9. Adjustments. In the event the Common Stock hereafter is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, or other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, then:
(a) The number of shares of Restricted Stock purchased by
Participant pursuant to this Agreement shall be adjusted appropriately, both as
to the number of shares and the price;
9
<PAGE> 25
(b) Such new or additional or different shares or securities
which are distributed to the Participant, in his or her capacity as the owner of
Restricted Stock purchased hereunder, shall be subject to all of the conditions
and restrictions applicable to Restricted Stock issued as provided herein.
Any adjustments required hereunder and the manner of
application of the foregoing provisions shall be determined solely by the Board,
and any such adjustment may provide for the elimination of fractional share
interests.
10. Withholding Taxes.
(a) A Participant who files an election with the Internal
Revenue Service to include the fair market value of any Restricted Stock in
gross income while such shares are still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
(b) All Restricted Stock purchased pursuant hereto and
dividends on such shares shall be subject to withholding as required by
applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory, including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their fair market value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to the Participant, and (iii)
10
<PAGE> 26
requiring the Participant to pay to the Company the amount required to be
withheld as a condition of releasing the Shares and any other distributions
related thereto.
11. Rights as Stockholder. Subject to the provisions of Paragraph 12
hereof, a certificate or certificates for all Restricted Stock registered in the
name of the Participant shall be delivered to him or her as soon as reasonably
practicable and he or she shall thereupon be a stockholder and have all the
rights of a stockholder with respect to such shares, including the right to vote
and receive all dividends or other distributions made or paid with respect to
such shares; provided, that such shares, and any new, additional or different
securities the Participant may become entitled to receive with respect to such
shares by virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be subject to the
restrictions described in Paragraphs 2, 3 and 4 hereof.
12. Escrow. In order to enforce the restrictions imposed upon the
Restricted Stock issued under the Plan, the Board may require the Participant to
deposit with the Escrow Agent all certificates for Restricted Stock together
with stock powers, appropriately endorsed in blank, and to enter into an Escrow
Agreement providing that the certificates representing Restricted Stock issued
pursuant to the Plan shall remain in the physical custody of the Escrow Agent
until any or all of the restrictions imposed pursuant hereto have terminated. If
required by the Board, the Escrow Agreement shall be executed at the time the
Participant is entitled to receive the Restricted Stock.
13. Stock Certificates. The Company may, but shall not be required to,
issue or deliver any certificate for Restricted Stock purchased hereunder or any
portion thereof, prior to fulfillment of all of the following conditions:
11
<PAGE> 27
(a) The admission of such Restricted Stock to listing on all
stock exchanges on which the Common Stock is then listed;
(b) The completion of any registration or other qualification
of such Restricted Stock under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Administrators shall in their sole discretion deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Administrators shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, this
Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time, in their sole
discretion, may establish for reasons of administrative convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Common Stock of the Company represented at an annual or special
meeting of the stockholders of the Company.
Nothing herein contained shall be construed as imposing any
obligation on the Board or the Company to undertake or complete any act with
respect to subparagraphs (a), (b), (c) or (f) of this Paragraph 13.
14. Severability. The invalidity or enforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each
12
<PAGE> 28
other provision of this Agreement shall be severable and enforceable to the
extent permitted by law.
15. Waiver. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board provided that such
waiver shall be effective only if in writing and confirmed by a writing executed
and delivered with the same formality as this Agreement.
16. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the Company and the Participant and their respective heirs,
executors, administrators, legal representatives, successors, and assigns, as
provided in this Agreement.
17. No Rights to Employment. Nothing contained in this Agreement shall
be construed as giving the Participant any right to be retained, in any
position, as an employee of the Company.
18. Notice. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or three (3)
business days following deposit in the United States Post Office, by registered
or certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Paragraph 18.
19. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine, or neuter
forms. The singular form of nouns and pronouns shall include the plural, and the
plural form of nouns and pronouns shall include the singular.
13
<PAGE> 29
20. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement.
21. Amendment. This Agreement may be amended or modified only by a
written instrument executed with the same formality as this Agreement.
22. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to all the other parties.
23. Headings. The headings contained in this Agreement are for
reference only and shall not under any circumstances be deemed to affect the
meaning or interpretation of this Agreement.
24. Recitals. The recitals are deemed a part of this Agreement.
25. Litigation. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New York and, regardless of the order
in which the signatures of the parties are affixed, it shall be deemed executed
at the Company's address, as above. The parties consent to the jurisdiction and
venue of any state or federal court located within the State of New York, the
County of New York or the Southern District of the U.S. District Court and agree
that all actions or proceedings arising, directly or indirectly, from this
Agreement shall be litigated only in courts having such situs and in any such
action or proceeding, the parties waive trial by jury and the successful party
shall be entitled to recover reasonable counsel fees and the expenses of such
litigation. In any such action or legal proceeding, the court shall apply such
14
<PAGE> 30
rule of law of the State of New York including any conflicts of law rule,
together with the law of any sister state including, without limitation, the
laws of the State of Delaware in which the Company has been incorporated, which
shall have the affect of sustaining the validity of all the terms and provisions
of this Agreement.
26. Receipt of Plan. The Participant hereby acknowledges that prior to
execution of this Agreement, Participant has received, read and fully
understands all of the terms and provisions of the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VITAQUEST INTERNATIONAL INC.
By: s/ EDWARD M. FRANKEL
--------------------------------------
Edward M. Frankel, President
ATTEST:
__________________________________
PARTICIPANT: s/ HOWARD L. MUNK
-----------------------------
Name: Howard L. Munk
ATTEST:
__________________________________
15
<PAGE> 31
STOCK PURCHASE AGREEMENT
UNDER
VITAQUEST INTERNATIONAL INC.
RESTRICTED STOCK PLAN
AGREEMENT, made this 14th day of June, 1996, by and between VITAQUEST
INTERNATIONAL INC., a Delaware corporation having offices at 100 Lehigh Drive,
Fairfield, New Jersey 07004 (the "Company"), and STEPHEN J. YOUNG, residing at
80 Longhill Lane, Chatham, New Jersey 07928 (the"Participant").
RECITALS:
WHEREAS, the Company has adopted the Vitaquest International Inc.
Restricted Stock Plan (the "Plan") under which eligible employees selected by
the Administrators may purchase certain stock of the Company, subject to those
restrictions as determined by the Administrators; and
WHEREAS, the Participant is an employee of the Company and has been
selected by the Administrators to purchase Restricted Stock in accordance with
the Plan; and
WHEREAS, the defined and capitalized terms of this agreement have the
same meaning and definition as in the Plan, unless otherwise provided herein.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. Purchase of Shares. The Participant subscribes for and, upon
acceptance, shall purchase, subject to the terms and conditions set forth in
this Agreement, 8,000 shares (the
<PAGE> 32
"Restricted Stock") of common stock, par value $.01 per share, of the Company at
a purchase price of $1.00 per share. The aggregate purchase price of the
Restricted Stock shall be paid by the Participant by Check payable to the order
of the Company.
Upon the Company receiving payment for the Restricted Stock, it shall
issue to the Participant one or more certificates in the name of the Participant
for that number of shares of Restricted Stock purchased by Participant. The
Participant agrees that the Restricted Stock shall be subject to the forfeiture
restrictions set forth in Paragraphs 2 and 3 of this Agreement and the
restrictions on transfer set forth in Paragraph 4 of this Agreement and that all
of such shares are Restricted Stock.
2. Repurchase Provisions. Purchase by the Participant of all Restricted
Stock hereunder is subject to the following restrictions:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause, or by the act of the
Participant in voluntarily terminating his employment with the Company, within
five (5) years from the date Restricted Stock shall have been purchased
hereunder, the Company shall have the option for a period of sixty (60) days
after such termination of employment, to buy any or all of the shares purchased
by such terminated employee for an amount equal to the product of (x) the
consideration paid by the terminated employee to the Company to acquire such
shares, multiplied by (y) the number of shares which the Company repurchases
("Repurchase Price"). The provisions of this paragraph shall automatically
terminate and the restrictions shall be removed in accordance with the Section
6.9 of the Plan, (x) as to 20% of the Restricted Stock on each anniversary of
the date hereof, (y) as to all of the Restricted Stock if the Participant shall
die, retire or become
2
<PAGE> 33
permanently and totally disabled as determined in accordance with applicable
Company personnel policies, and (z) as to all of the Restricted Stock
immediately following a "Change of Control of the Company." A "Change of Control
of the Company" shall be deemed to have occurred if and when (i) Edward M.
Frankel and Keith I. Frankel cease to beneficially own, in the aggregate,
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities or (ii) a change in the composition of the Board so that
a majority of the members of the Board immediately prior to such change are no
longer members of the Board after such change which, in the sole discretion of
the Board immediately prior to such change of control or change in composition
of the Board, is determined to be a change hostile to, and not in the best
interests of, the stockholders of the Company.
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or indirectly, own,
manage, operate, control, be employed by, or participate in, as a partner, joint
venturer, employee, agent, salesman, officer, director, five (5%) percent
shareholder, or be connected in any manner with the ownership, management,
operation, control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five (5%) percent shareholder,
of any business similar to the type of business conducted by the Company at that
time, as determined in the sole discretion of the Board, the Company shall have
the option for a period of sixty (60) days after such determination to buy any
or all of the shares purchased by Participant for an amount equal to the
Repurchase Price. The provisions of this paragraph shall automatically terminate
and the restrictions shall be removed in accordance with Section 6.9 of the
Plan, (x) as to 20% of the Restricted Stock on each anniversary of the date
hereof, (y) as to all of the Restricted Stock if
3
<PAGE> 34
the Participant shall die, retire or become permanently and totally disabled as
determined in accordance with applicable Company personnel policies, and (z) as
to all of the Restricted Stock immediately following a Change of Control of the
Company or if the Participant is terminated by the Company under circumstances
which do not constitute a Discharge for Cause.
(c) If, within nine (9) months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a registration
statement under the Securities Act for the public offer and sale of shares of
its Common Stock and any such registration statement shall not have been
declared effective by the Securities and Exchange Commission, then the Company
shall have the option for a period of sixty (60) days after the end of such nine
(9) month period to buy any or all of the shares purchased hereunder for an
amount equal to the Repurchase Price.
3. Exercise of Repurchase Provision.
(a) If at any time within five (5) years from the date hereof,
the Company determines to exercise its option to purchase all of the Restricted
Stock or such lesser percentage of the Restricted Stock as is, at such time,
subject to restriction as provided in Paragraph 2(a), 2(b) and 2(c), the Company
shall give notice of such exercise to the Participant within the applicable
sixty (60) day period.
(b) Within three (3) business days after the Company gives
notice to the Participant of the exercise of its repurchase option pursuant to
Paragraph 3(a), the Participant shall deliver to the Company at its address
shown above the certificate or certificates representing the Restricted Stock
that the Company has elected to purchase, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached, all in form suitable
for
4
<PAGE> 35
the transfer of the Restricted Stock to the Company. Upon receipt of the
Restricted Stock, the Company shall deliver or mail to the Participant payment
for the aggregate Repurchase Price, or the Company may, at its option, set off
against the Repurchase Price any obligation or liability of the Participant to
the Company.
(c) After the time when any Restricted Stock is required to be
delivered to the Company for transfer pursuant to Paragraph 3(b), the Company
shall not pay any dividend to the Participant on account of such Restricted
Stock, or permit the Participant to exercise any of the privileges or rights of
a stockholder with respect to such Restricted Stock, but shall, insofar as
permitted by law, treat the Company as the owner of such Restricted Stock.
(d) The Company shall not be required to purchase any fraction
of a share of Restricted Stock upon exercise of the repurchase provision, and
any such fraction resulting from a computation made pursuant to paragraph 9 of
this Agreement may be rounded to the nearest whole share (with any one-half
share being rounded upward).
4. Restrictions on Transfer.
(a) Except as otherwise provided in Paragraph 4(b), the
Participant shall not, during the term of the repurchase provisions specified in
Paragraphs 2 and 3, sell, assign, transfer, pledge, hypothecate, or otherwise
dispose of, by operation of law or otherwise (collectively "transfer"), any of
the Restricted Stock, or any interest therein, unless the Restricted Stock is no
longer subject to the repurchase provisions in Paragraphs 2 and 3.
(b) Notwithstanding the foregoing, the Participant may
transfer Restricted Stock by Last Will and Testament or the laws of Descent and
Distribution, provided that such shares shall remain subject to this Agreement,
including without limitation the restrictions on
5
<PAGE> 36
transfer set forth in this Paragraph 4 and the repurchase provisions set forth
in Paragraphs 2 and 3, and the permitted transferee shall, as a condition to the
transfer, deliver to the Company a written instrument confirming that the
transferee shall be bound by all of the terms and conditions of this Agreement.
(c) Except insofar as may otherwise be required by law or this
Agreement, no Restricted Stock held at any time pursuant to an Escrow Agreement
entered into between the Participant, the Company and an Escrow Agent, as
referred to in the Plan, shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge, or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of Participant and/or any person and any attempt to so alienate or
subject any such amount, whether presently or thereafter payable, shall be void.
If Participant and/or any person in violation of the provisions of this
Agreement shall attempt to, or shall alienate, sell, transfer, assign, pledge,
attach, charge, or otherwise encumber any Restricted Stock purchased under this
Agreement, or any part thereof, or if by reason of Participant's bankruptcy or
other event happening at any such time, such Restricted Stock would be made
subject to Participant's debts or liabilities or would otherwise not be enjoyed
by Participant, then the Administrators, if they so elect, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such Participant, his or her spouse, children
or other dependents, or any of them, in such manner and proportion as the
Administrators may deem proper, in their sole discretion.
6
<PAGE> 37
5. Effect of Prohibited Transfer. In the event of a transfer of
Restricted Stock without compliance with the terms of this Agreement or the
Plan, the Company shall not be required:
(a) To transfer on its books any of the Restricted Stock that
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or the Plan; or
(b) To treat as owner of such Restricted Stock or to pay
dividends to any transferee to whom any of such shares shall have been so sold
or transferred.
6. Restrictive Legends. All certificates representing Restricted Stock
shall have affixed thereto legends in substantially the following form, in
addition to any other legends that may be required under federal or state
securities laws:
(i) "The shares of common stock, par value $.01 per share, of
Vitaquest International Inc. evidenced by this certificate are
subject to repurchase by Vitaquest International Inc., and
such shares may not be sold or otherwise transferred, pledged
or hypothecated except pursuant to the provisions of the
Escrow Agreement and/or Stock Purchase Agreement by and
between the Escrow Agent, Vitaquest International Inc. and the
registered owner of such shares."; and
(ii) "This stock certificate may not be sold, transferred,
pledged or hypothecated unless it has first been registered
under the Securities Act of 1933, as amended, or unless
counsel for Vitaquest International Inc. has given an opinion
that registration under said Act is not required, except that
after a Change of Control of the Company, an opinion of
counsel that registration under said Act is not required, may
be provided by counsel independent of Vitaquest International
Inc. These shares are subject to the terms of an Escrow
Agreement and/or Stock Purchase Agreement with the Escrow
Agent, Vitaquest International Inc. and the registered owner
of such shares."
7
<PAGE> 38
7. Removal of Restrictions.
(a) If (i) a Participant shall die, retire, or become
permanently and totally disabled, as determined in accordance with applicable
Company personnel policies, or (ii) there is a Change of Control of the Company
at any time after the date Restricted Stock shall have been purchased hereunder,
or (iii) with respect to Restricted Stock released from restriction upon the
passage of time as provided in Paragraph 2(a)(x) and 2(b)(x), the events of
forfeiture specified in Paragraphs 2(a) and (b) (but not 2(c)) shall
automatically terminate as to all of the Restricted Stock in the case of an
event described in clause 7(a)(i) or 7(a)(ii), or as to the applicable number of
shares in the case of an event described in clause 7(a)(iii), and upon surrender
and presentation to the Company of the legended certificates evidencing such
shares, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or other transfer of such shares, pursuant to the
Plan, but legended in accordance with Section 6(ii) hereof, and such shares
shall, nonetheless, remain subject to the Securities Act and the Exchange Act,
unless an opinion of counsel is provided in accordance with Section 6.7(d) of
the Plan.
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any Restricted Stock or such sixty (60) day option period
has expired pursuant to the applicable provisions of Paragraph 2, the events of
forfeiture specified in Paragraph 2 shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing such
Restricted Stock, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or transfer of such Restricted Stock pursuant to
the Plan or this Agreement, but
8
<PAGE> 39
legended in accordance with Paragraph 6(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act and the Exchange Act, unless
an opinion of counsel is provided in accordance with Section 6.7(d) of the Plan.
8. Investment Representations. The Participant represents, warrants,
and covenants as follows:
(a) The Participant is purchasing the Shares for his or her
own account for investment only, and not with a view to distribution or resale.
(b) The Participant understands that the offering and sale of
the Restricted Stock is intended to be exempt under the Securities Act and any
applicable "Blue Sky" laws.
(c) The Participant understands that the Shares are deemed to
be "Restricted Securities" as defined in Rule 144 under the Securities Act and
that such Shares may not be offered for sale, sold, delivered after sale,
pledged, hypothecated, transferred, assigned, or otherwise disposed of except
pursuant to registration under the Securities Act or pursuant to an opinion of
counsel satisfactory in form and substance to the Company, that the sale,
transfer or other disposition may be made without registration.
9. Adjustments. In the event the Common Stock hereafter is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, or other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, then:
(a) The number of shares of Restricted Stock purchased by
Participant pursuant to this Agreement shall be adjusted appropriately, both as
to the number of shares and the price;
9
<PAGE> 40
(b) Such new or additional or different shares or securities
which are distributed to the Participant, in his or her capacity as the owner of
Restricted Stock purchased hereunder, shall be subject to all of the conditions
and restrictions applicable to Restricted Stock issued as provided herein.
Any adjustments required hereunder and the manner of
application of the foregoing provisions shall be determined solely by the Board,
and any such adjustment may provide for the elimination of fractional share
interests.
10. Withholding Taxes.
(a) A Participant who files an election with the Internal
Revenue Service to include the fair market value of any Restricted Stock in
gross income while such shares are still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
(b) All Restricted Stock purchased pursuant hereto and
dividends on such shares shall be subject to withholding as required by
applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory, including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their fair market value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to the Participant, and (iii)
10
<PAGE> 41
requiring the Participant to pay to the Company the amount required to be
withheld as a condition of releasing the Shares and any other distributions
related thereto.
11. Rights as Stockholder. Subject to the provisions of Paragraph 12
hereof, a certificate or certificates for all Restricted Stock registered in the
name of the Participant shall be delivered to him or her as soon as reasonably
practicable and he or she shall thereupon be a stockholder and have all the
rights of a stockholder with respect to such shares, including the right to vote
and receive all dividends or other distributions made or paid with respect to
such shares; provided, that such shares, and any new, additional or different
securities the Participant may become entitled to receive with respect to such
shares by virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be subject to the
restrictions described in Paragraphs 2, 3 and 4 hereof.
12. Escrow. In order to enforce the restrictions imposed upon the
Restricted Stock issued under the Plan, the Board may require the Participant to
deposit with the Escrow Agent all certificates for Restricted Stock together
with stock powers, appropriately endorsed in blank, and to enter into an Escrow
Agreement providing that the certificates representing Restricted Stock issued
pursuant to the Plan shall remain in the physical custody of the Escrow Agent
until any or all of the restrictions imposed pursuant hereto have terminated. If
required by the Board, the Escrow Agreement shall be executed at the time the
Participant is entitled to receive the Restricted Stock.
13. Stock Certificates. The Company may, but shall not be required to,
issue or deliver any certificate for Restricted Stock purchased hereunder or any
portion thereof, prior to fulfillment of all of the following conditions:
11
<PAGE> 42
(a) The admission of such Restricted Stock to listing on all
stock exchanges on which the Common Stock is then listed;
(b) The completion of any registration or other qualification
of such Restricted Stock under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Administrators shall in their sole discretion deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Administrators shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, this
Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time, in their sole
discretion, may establish for reasons of administrative convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Common Stock of the Company represented at an annual or special
meeting of the stockholders of the Company.
Nothing herein contained shall be construed as imposing any
obligation on the Board or the Company to undertake or complete any act with
respect to subparagraphs (a), (b), (c) or (f) of this Paragraph 13.
14. Severability. The invalidity or enforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each
12
<PAGE> 43
other provision of this Agreement shall be severable and enforceable to the
extent permitted by law.
15. Waiver. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board provided that such
waiver shall be effective only if in writing and confirmed by a writing executed
and delivered with the same formality as this Agreement.
16. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the Company and the Participant and their respective heirs,
executors, administrators, legal representatives, successors, and assigns, as
provided in this Agreement.
17. No Rights to Employment. Nothing contained in this Agreement shall
be construed as giving the Participant any right to be retained, in any
position, as an employee of the Company.
18. Notice. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or three (3)
business days following deposit in the United States Post Office, by registered
or certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Paragraph 18.
19. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine, or neuter
forms. The singular form of nouns and pronouns shall include the plural, and the
plural form of nouns and pronouns shall include the singular.
13
<PAGE> 44
20. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement.
21. Amendment. This Agreement may be amended or modified only by a
written instrument executed with the same formality as this Agreement.
22. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to all the other parties.
23. Headings. The headings contained in this Agreement are for
reference only and shall not under any circumstances be deemed to affect the
meaning or interpretation of this Agreement.
24. Recitals. The recitals are deemed a part of this Agreement.
25. Litigation. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New York and, regardless of the order
in which the signatures of the parties are affixed, it shall be deemed executed
at the Company's address, as above. The parties consent to the jurisdiction and
venue of any state or federal court located within the State of New York, the
County of New York or the Southern District of the U.S. District Court and agree
that all actions or proceedings arising, directly or indirectly, from this
Agreement shall be litigated only in courts having such situs and in any such
action or proceeding, the parties waive trial by jury and the successful party
shall be entitled to recover reasonable counsel fees and the expenses of such
litigation. In any such action or legal proceeding, the court shall apply such
14
<PAGE> 45
rule of law of the State of New York including any conflicts of law rule,
together with the law of any sister state including, without limitation, the
laws of the State of Delaware in which the Company has been incorporated, which
shall have the affect of sustaining the validity of all the terms and provisions
of this Agreement.
26. Receipt of Plan. The Participant hereby acknowledges that prior to
execution of this Agreement, Participant has received, read and fully
understands all of the terms and provisions of the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VITAQUEST INTERNATIONAL INC.
By: s/ EDWARD M. FRANKEL
-------------------------------------
EDWARD M. Frankel, President
ATTEST:
PARTICIPANT: s/ STEPHEN J. YOUNG
- --------------------------- ----------------------------
Name: Stephen J. Young
ATTEST:
- ---------------------------
15
<PAGE> 46
Exhibit 10.4
STOCK PURCHASE AGREEMENT
UNDER
VITAQUEST INTERNATIONAL INC.
RESTRICTED STOCK PLAN
AGREEMENT, made this 14th day of June, 1996, by and between VITAQUEST
INTERNATIONAL INC., a Delaware corporation having offices at 100 Lehigh Drive,
Fairfield, New Jersey 07004 (the "Company"), and DAN GARCIA, residing at
307 Plymouth Avenue, Brightwaters, New York 11718 (the"Participant").
RECITALS:
WHEREAS, the Company has adopted the Vitaquest International Inc.
Restricted Stock Plan (the "Plan") under which eligible employees selected by
the Administrators may purchase certain stock of the Company, subject to those
restrictions as determined by the Administrators; and
WHEREAS, the Participant is an employee of the Company and has been
selected by the Administrators to purchase Restricted Stock in accordance with
the Plan; and
WHEREAS, the defined and capitalized terms of this agreement have the
same meaning and definition as in the Plan, unless otherwise provided herein.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. Purchase of Shares. The Participant subscribes for and, upon
acceptance, shall purchase, subject to the terms and conditions set forth in
this Agreement, 5,000 shares (the
<PAGE> 47
"Restricted Stock") of common stock, par value $.01 per share, of the Company at
a purchase price of $1.00 per share. The aggregate purchase price of the
Restricted Stock shall be paid by the Participant by Check payable to the order
of the Company.
Upon the Company receiving payment for the Restricted Stock, it shall
issue to the Participant one or more certificates in the name of the Participant
for that number of shares of Restricted Stock purchased by Participant. The
Participant agrees that the Restricted Stock shall be subject to the forfeiture
restrictions set forth in Paragraphs 2 and 3 of this Agreement and the
restrictions on transfer set forth in Paragraph 4 of this Agreement and that all
of such shares are Restricted Stock.
2. Repurchase Provisions. Purchase by the Participant of all Restricted
Stock hereunder is subject to the following restrictions:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause, or by the act of the
Participant in voluntarily terminating his employment with the Company, within
five (5) years from the date Restricted Stock shall have been purchased
hereunder, the Company shall have the option for a period of sixty (60) days
after such termination of employment, to buy any or all of the shares purchased
by such terminated employee for an amount equal to the product of (x) the
consideration paid by the terminated employee to the Company to acquire such
shares, multiplied by (y) the number of shares which the Company repurchases
("Repurchase Price"). The provisions of this paragraph shall automatically
terminate and the restrictions shall be removed in accordance with the Section
6.9 of the Plan, (x) as to 20% of the Restricted Stock on each anniversary of
the date hereof, (y) as to all of the Restricted Stock if the Participant shall
die, retire or become
2
<PAGE> 48
permanently and totally disabled as determined in accordance with applicable
Company personnel policies, and (z) as to all of the Restricted Stock
immediately following a "Change of Control of the Company." A "Change of Control
of the Company" shall be deemed to have occurred if and when (i) Edward M.
Frankel and Keith I. Frankel cease to beneficially own, in the aggregate,
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities or (ii) a change in the composition of the Board so that
a majority of the members of the Board immediately prior to such change are no
longer members of the Board after such change which, in the sole discretion of
the Board immediately prior to such change of control or change in composition
of the Board, is determined to be a change hostile to, and not in the best
interests of, the stockholders of the Company.
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or indirectly, own,
manage, operate, control, be employed by, or participate in, as a partner, joint
venturer, employee, agent, salesman, officer, director, five (5%) percent
shareholder, or be connected in any manner with the ownership, management,
operation, control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five (5%) percent shareholder,
of any business similar to the type of business conducted by the Company at that
time, as determined in the sole discretion of the Board, the Company shall have
the option for a period of sixty (60) days after such determination to buy any
or all of the shares purchased by Participant for an amount equal to the
Repurchase Price. The provisions of this paragraph shall automatically terminate
and the restrictions shall be removed in accordance with Section 6.9 of the
Plan, (x) as to 20% of the Restricted Stock on each anniversary of the date
hereof, (y) as to all of the Restricted Stock if
3
<PAGE> 49
the Participant shall die, retire or become permanently and totally disabled as
determined in accordance with applicable Company personnel policies, and (z) as
to all of the Restricted Stock immediately following a Change of Control of the
Company or if the Participant is terminated by the Company under circumstances
which do not constitute a Discharge for Cause.
(c) If, within nine (9) months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a registration
statement under the Securities Act for the public offer and sale of shares of
its Common Stock and any such registration statement shall not have been
declared effective by the Securities and Exchange Commission, then the Company
shall have the option for a period of sixty (60) days after the end of such nine
(9) month period to buy any or all of the shares purchased hereunder for an
amount equal to the Repurchase Price.
3. Exercise of Repurchase Provision.
(a) If at any time within five (5) years from the date hereof,
the Company determines to exercise its option to purchase all of the Restricted
Stock or such lesser percentage of the Restricted Stock as is, at such time,
subject to restriction as provided in Paragraph 2(a), 2(b) and 2(c), the Company
shall give notice of such exercise to the Participant within the applicable
sixty (60) day period.
(b) Within three (3) business days after the Company gives
notice to the Participant of the exercise of its repurchase option pursuant to
Paragraph 3(a), the Participant shall deliver to the Company at its address
shown above the certificate or certificates representing the Restricted Stock
that the Company has elected to purchase, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached, all in form suitable
for
4
<PAGE> 50
the transfer of the Restricted Stock to the Company. Upon receipt of the
Restricted Stock, the Company shall deliver or mail to the Participant payment
for the aggregate Repurchase Price, or the Company may, at its option, set off
against the Repurchase Price any obligation or liability of the Participant to
the Company.
(c) After the time when any Restricted Stock is required to be
delivered to the Company for transfer pursuant to Paragraph 3(b), the Company
shall not pay any dividend to the Participant on account of such Restricted
Stock, or permit the Participant to exercise any of the privileges or rights of
a stockholder with respect to such Restricted Stock, but shall, insofar as
permitted by law, treat the Company as the owner of such Restricted Stock.
(d) The Company shall not be required to purchase any fraction
of a share of Restricted Stock upon exercise of the repurchase provision, and
any such fraction resulting from a computation made pursuant to paragraph 9 of
this Agreement may be rounded to the nearest whole share (with any one-half
share being rounded upward).
4. Restrictions on Transfer.
(a) Except as otherwise provided in Paragraph 4(b), the
Participant shall not, during the term of the repurchase provisions specified in
Paragraphs 2 and 3, sell, assign, transfer, pledge, hypothecate, or otherwise
dispose of, by operation of law or otherwise (collectively "transfer"), any of
the Restricted Stock, or any interest therein, unless the Restricted Stock is no
longer subject to the repurchase provisions in Paragraphs 2 and 3.
(b) Notwithstanding the foregoing, the Participant may
transfer Restricted Stock by Last Will and Testament or the laws of Descent and
Distribution, provided that such shares shall remain subject to this Agreement,
including without limitation the restrictions on
5
<PAGE> 51
transfer set forth in this Paragraph 4 and the repurchase provisions set forth
in Paragraphs 2 and 3, and the permitted transferee shall, as a condition to the
transfer, deliver to the Company a written instrument confirming that the
transferee shall be bound by all of the terms and conditions of this Agreement.
(c) Except insofar as may otherwise be required by law or this
Agreement, no Restricted Stock held at any time pursuant to an Escrow Agreement
entered into between the Participant, the Company and an Escrow Agent, as
referred to in the Plan, shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge, or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of Participant and/or any person and any attempt to so alienate or
subject any such amount, whether presently or thereafter payable, shall be void.
If Participant and/or any person in violation of the provisions of this
Agreement shall attempt to, or shall alienate, sell, transfer, assign, pledge,
attach, charge, or otherwise encumber any Restricted Stock purchased under this
Agreement, or any part thereof, or if by reason of Participant's bankruptcy or
other event happening at any such time, such Restricted Stock would be made
subject to Participant's debts or liabilities or would otherwise not be enjoyed
by Participant, then the Administrators, if they so elect, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such Participant, his or her spouse, children
or other dependents, or any of them, in such manner and proportion as the
Administrators may deem proper, in their sole discretion.
6
<PAGE> 52
5. Effect of Prohibited Transfer. In the event of a transfer of
Restricted Stock without compliance with the terms of this Agreement or the
Plan, the Company shall not be required:
(a) To transfer on its books any of the Restricted Stock that
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or the Plan; or
(b) To treat as owner of such Restricted Stock or to pay
dividends to any transferee to whom any of such shares shall have been so sold
or transferred.
6. Restrictive Legends. All certificates representing Restricted Stock
shall have affixed thereto legends in substantially the following form, in
addition to any other legends that may be required under federal or state
securities laws:
(i) "The shares of common stock, par value $.01 per share, of
Vitaquest International Inc. evidenced by this certificate are
subject to repurchase by Vitaquest International Inc., and
such shares may not be sold or otherwise transferred, pledged
or hypothecated except pursuant to the provisions of the
Escrow Agreement and/or Stock Purchase Agreement by and
between the Escrow Agent, Vitaquest International Inc. and the
registered owner of such shares."; and
(ii) "This stock certificate may not be sold, transferred,
pledged or hypothecated unless it has first been registered
under the Securities Act of 1933, as amended, or unless
counsel for Vitaquest International Inc. has given an opinion
that registration under said Act is not required, except that
after a Change of Control of the Company, an opinion of
counsel that registration under said Act is not required, may
be provided by counsel independent of Vitaquest International
Inc. These shares are subject to the terms of an Escrow
Agreement and/or Stock Purchase Agreement with the Escrow
Agent, Vitaquest International Inc. and the registered owner
of such shares."
7
<PAGE> 53
7. Removal of Restrictions.
(a) If (i) a Participant shall die, retire, or become
permanently and totally disabled, as determined in accordance with applicable
Company personnel policies, or (ii) there is a Change of Control of the Company
at any time after the date Restricted Stock shall have been purchased hereunder,
or (iii) with respect to Restricted Stock released from restriction upon the
passage of time as provided in Paragraph 2(a)(x) and 2(b)(x), the events of
forfeiture specified in Paragraphs 2(a) and (b) (but not 2(c)) shall
automatically terminate as to all of the Restricted Stock in the case of an
event described in clause 7(a)(i) or 7(a)(ii), or as to the applicable number of
shares in the case of an event described in clause 7(a)(iii), and upon surrender
and presentation to the Company of the legended certificates evidencing such
shares, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or other transfer of such shares, pursuant to the
Plan, but legended in accordance with Section 6(ii) hereof, and such shares
shall, nonetheless, remain subject to the Securities Act and the Exchange Act,
unless an opinion of counsel is provided in accordance with Section 6.7(d) of
the Plan.
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any Restricted Stock or such sixty (60) day option period
has expired pursuant to the applicable provisions of Paragraph 2, the events of
forfeiture specified in Paragraph 2 shall terminate, and upon surrender and
presentation to the Company of the legended certificates evidencing such
Restricted Stock, replacement certificates shall be issued and delivered to the
Participant, free from the legend provided for in Paragraph 6(i) hereof or any
other restrictions on the sale or transfer of such Restricted Stock pursuant to
the Plan or this Agreement, but
8
<PAGE> 54
legended in accordance with Paragraph 6(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act and the Exchange Act, unless
an opinion of counsel is provided in accordance with Section 6.7(d) of the Plan.
8. Investment Representations. The Participant represents, warrants,
and covenants as follows:
(a) The Participant is purchasing the Shares for his or her
own account for investment only, and not with a view to distribution or resale.
(b) The Participant understands that the offering and sale of
the Restricted Stock is intended to be exempt under the Securities Act and any
applicable "Blue Sky" laws.
(c) The Participant understands that the Shares are deemed to
be "Restricted Securities" as defined in Rule 144 under the Securities Act and
that such Shares may not be offered for sale, sold, delivered after sale,
pledged, hypothecated, transferred, assigned, or otherwise disposed of except
pursuant to registration under the Securities Act or pursuant to an opinion of
counsel satisfactory in form and substance to the Company, that the sale,
transfer or other disposition may be made without registration.
9. Adjustments. In the event the Common Stock hereafter is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, or other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, then:
(a) The number of shares of Restricted Stock purchased by
Participant pursuant to this Agreement shall be adjusted appropriately, both as
to the number of shares and the price;
9
<PAGE> 55
(b) Such new or additional or different shares or securities
which are distributed to the Participant, in his or her capacity as the owner of
Restricted Stock purchased hereunder, shall be subject to all of the conditions
and restrictions applicable to Restricted Stock issued as provided herein.
Any adjustments required hereunder and the manner of
application of the foregoing provisions shall be determined solely by the Board,
and any such adjustment may provide for the elimination of fractional share
interests.
10. Withholding Taxes.
(a) A Participant who files an election with the Internal
Revenue Service to include the fair market value of any Restricted Stock in
gross income while such shares are still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
(b) All Restricted Stock purchased pursuant hereto and
dividends on such shares shall be subject to withholding as required by
applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory, including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their fair market value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to the Participant, and (iii)
10
<PAGE> 56
requiring the Participant to pay to the Company the amount required to be
withheld as a condition of releasing the Shares and any other distributions
related thereto.
11. Rights as Stockholder. Subject to the provisions of Paragraph 12
hereof, a certificate or certificates for all Restricted Stock registered in the
name of the Participant shall be delivered to him or her as soon as reasonably
practicable and he or she shall thereupon be a stockholder and have all the
rights of a stockholder with respect to such shares, including the right to vote
and receive all dividends or other distributions made or paid with respect to
such shares; provided, that such shares, and any new, additional or different
securities the Participant may become entitled to receive with respect to such
shares by virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be subject to the
restrictions described in Paragraphs 2, 3 and 4 hereof.
12. Escrow. In order to enforce the restrictions imposed upon the
Restricted Stock issued under the Plan, the Board may require the Participant to
deposit with the Escrow Agent all certificates for Restricted Stock together
with stock powers, appropriately endorsed in blank, and to enter into an Escrow
Agreement providing that the certificates representing Restricted Stock issued
pursuant to the Plan shall remain in the physical custody of the Escrow Agent
until any or all of the restrictions imposed pursuant hereto have terminated. If
required by the Board, the Escrow Agreement shall be executed at the time the
Participant is entitled to receive the Restricted Stock.
13. Stock Certificates. The Company may, but shall not be required to,
issue or deliver any certificate for Restricted Stock purchased hereunder or any
portion thereof, prior to fulfillment of all of the following conditions:
11
<PAGE> 57
(a) The admission of such Restricted Stock to listing on all
stock exchanges on which the Common Stock is then listed;
(b) The completion of any registration or other qualification
of such Restricted Stock under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Administrators shall in their sole discretion deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Administrators shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, this
Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time, in their sole
discretion, may establish for reasons of administrative convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Common Stock of the Company represented at an annual or special
meeting of the stockholders of the Company.
Nothing herein contained shall be construed as imposing any
obligation on the Board or the Company to undertake or complete any act with
respect to subparagraphs (a), (b), (c) or (f) of this Paragraph 13.
14. Severability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each
12
<PAGE> 58
other provision of this Agreement shall be severable and enforceable to the
extent permitted by law.
15. Waiver. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board provided that such
waiver shall be effective only if in writing and confirmed by a writing executed
and delivered with the same formality as this Agreement.
16. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the Company and the Participant and their respective heirs,
executors, administrators, legal representatives, successors, and assigns, as
provided in this Agreement.
17. No Rights to Employment. Nothing contained in this Agreement shall
be construed as giving the Participant any right to be retained, in any
position, as an employee of the Company.
18. Notice. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or three (3)
business days following deposit in the United States Post Office, by registered
or certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Paragraph 18.
19. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine, or neuter
forms. The singular form of nouns and pronouns shall include the plural, and the
plural form of nouns and pronouns shall include the singular.
13
<PAGE> 59
20. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement.
21. Amendment. This Agreement may be amended or modified only by a
written instrument executed with the same formality as this Agreement.
22. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to all the other parties.
23. Headings. The headings contained in this Agreement are for
reference only and shall not under any circumstances be deemed to affect the
meaning or interpretation of this Agreement.
24. Recitals. The recitals are deemed a part of this Agreement.
25. Litigation. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New York and, regardless of the order
in which the signatures of the parties are affixed, it shall be deemed executed
at the Company's address, as above. The parties consent to the jurisdiction and
venue of any state or federal court located within the State of New York, the
County of New York or the Southern District of the U.S. District Court and agree
that all actions or proceedings arising, directly or indirectly, from this
Agreement shall be litigated only in courts having such situs and in any such
action or proceeding, the parties waive trial by jury and the successful party
shall be entitled to recover reasonable counsel fees and the expenses of such
litigation. In any such action or legal proceeding, the court shall apply such
14
<PAGE> 60
rule of law of the State of New York including any conflicts of law rule,
together with the law of any sister state including, without limitation, the
laws of the State of Delaware in which the Company has been incorporated, which
shall have the affect of sustaining the validity of all the terms and provisions
of this Agreement.
26. Receipt of Plan. The Participant hereby acknowledges that prior to
execution of this Agreement, Participant has received, read and fully
understands all of the terms and provisions of the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VITAQUEST INTERNATIONAL INC.
By: s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel, President
ATTEST:
PARTICIPANT: s/ DAN GARCIA
- --------------------- ----------------------------
Name: Dan Garcia
ATTEST:
- ---------------------
15
<PAGE> 1
Exhibit 10.5
VITAQUEST INTERNATIONAL INC.
1996 STOCK OPTION PLAN
1. Purpose
The purpose of this stock option plan (hereinafter the "Plan" or the
"1996 Option Plan") of Vitaquest International Inc. (the "Company), a Delaware
corporation, is to advance the interests of the Company by making available to
it an additional means of providing incentives with which to attract and retain
qualified and competent persons as employees, Outside Directors (as hereinafter
defined), consultants and advisors of the Company, upon whose efforts and
judgment the success of the Company is largely dependent, through the
encouragement of stock ownership in the Company by such persons.
2. Definitions
The terms defined in this Section 2 shall have the respective meanings
set forth herein, unless the context otherwise requires.
(a) "Affiliate". The term "Affiliate" shall mean any corporation,
partnership, joint venture or other entity in which the Company holds an equity,
profits or voting interest of thirty percent (30%) or more.
(b) "Board". The term "Board" shall mean the Company's Board of
Directors or its delegate as set forth in Sections 3(d) and 3(e) below.
(c) "Change of Control". The term "Change of Control" shall be deemed
to mean any of the following events: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such person any
securities acquired directly from the Company or any of its Affiliates)
representing more than 20% of either the then outstanding shares of the Common
Stock of the Company or the combined voting power of the Company's then
outstanding voting securities; or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board and
any new director (other than a director designated by a person who has entered
into an agreement or arrangement with the Company to effect a transaction
described in clause (i) or (ii) of this sentence) whose appointment, election,
or nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office, who either
were directors at the beginning of the period or whose appointment, election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; or (iii) there is consummated a merger or
consolidation of the Company or subsidiary thereof with or into any other
corporation, other than a merger or consolidation which would result in the
holders of the voting securities of the Company outstanding immediately prior
thereto holding securities which represent immediately after such
<PAGE> 2
merger or consolidation more than 50% of the combined voting power of the voting
securities of either the Company or the entity surviving such merger or
consolidation or the parent of such surviving entity; or (iv) the stockholders
of the Company approve a plan of complete liquidation of the Company or there is
consummated the sale or disposition by the Company of all or substantially all
of the Company's assets, other than a sale or disposition by the Company of all
or substantially all of the Company's assets to an entity, at least 80% of the
combined voting power of the voting securities of which are owned by persons who
were owners of the voting securities of the Company immediately prior to such
sale, and whose ownership of the new entity is in substantially the same
proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing (i) no "Change of Control" shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of Common Stock
immediately prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately prior to such
transaction or series of transactions, and (ii) "Change of Control" shall
exclude the acquisition of securities representing more than 20% of either the
then outstanding shares of Common Stock or the combined voting power of the
Company's then outstanding voting securities by the Company or any of its wholly
owned subsidiaries, or any trustee or other fiduciary holding securities of the
Company under an employee benefit plan now or hereafter established by the
Company.
(d) "Code". The term "Code" shall mean the Internal Revenue Code of
1986, as amended to date and as it may be amended from time to time.
(e) "Common Stock". The term "Common Stock shall mean the Company's
common stock, par value $.01 per share.
(f) "Constructive Termination". The term "Constructive Termination"
shall mean the resignation by a Participant who has been elected by the Board as
a corporate officer of the Company due to diminution or adverse change in the
circumstances (including, without limitation, reporting relationships, job
description, duties, responsibilities, compensation, perquisites, office or
location of employment) of such Participant's employment with the Company as
determined in good faith by the Participant. Constructive Termination shall be
communicated by written notice to the Company, and such termination shall be
deemed to occur on the date such notice is delivered to the Company.
(g) "Disinterested Director". The term "Disinterested Director" shall
mean a member of the Board who has not, during the one year prior to his service
as an administrator of the Plan, or during such service, been granted or awarded
equity securities of the Company pursuant to this Plan (except for automatic
grants of options to Outside Directors pursuant to Section 8 hereof) or any
other plan of the Company or any of its Affiliates.
(h) "Effective Date". The term "Effective Date" shall have the meaning
given in Section 14 hereof.
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(i) "Eligible Person". The Term "Eligible Person" shall mean any of the
persons listed in Section 5 to whom Options may be granted pursuant to this
Plan.
(j) "Fair Market Value per Share". The term "Fair Market Value per
Share" shall mean as of any day (i) the closing price for Shares on The Nasdaq
National Market System as reported on the composite tape on the day as of which
such determination is being made or, if there was no sale of Shares reported on
the composite tape on such day, on the most recently preceding day on which
there was such a sale, or (ii) if the Shares are not listed or admitted to
trading on The Nasdaq National Market System on the day as of which the
determination is made, the amount determined by the Board or its delegate to be
the fair market value of a Share on such day, provided that for purposes of the
First Option granted to Outside Directors pursuant to Section 8(a)(i) hereof,
such fair market value shall be equal to the initial public offering price for
the public offer and sale of Shares.
(k) "Insider". The term "Insider" means an officer or director of the
Company or any other person whose transactions in the Company's Common Stock are
subject to Section 16 of the Exchange Act.
(l) "ISO". The term "ISO" shall mean a stock option described in
Section 422(b) of the Code.
(m) "NSO". The term "NSO" shall mean a stock option that is not an ISO.
(n) "Option". The term "Option" shall mean (except as herein otherwise
provided) a stock option granted under this Plan.
(o) "Outside Director". The term "Outside Director" shall mean a member
of the Board of Directors of the Company who is not also an employee of the
Company or an Affiliate.
(p) "Participant". The term "Participant" shall mean any person who
holds an Option granted under this Plan.
(q) "Shares". The term "Shares" shall mean shares of Common Stock of
the Company and any shares of stock or other securities received as a result of
the adjustments provided for in Section 11 of this Plan.
3. Administration of the Plan
(a) The Board, whose authority shall be plenary, shall administer this
Plan and may delegate part or all of its administrative powers with respect to
part or all of this Plan pursuant to Section 3(d) hereof; provided, however,
that the Board shall delegate administration of this Plan to the extent required
by Section 3(e) hereof.
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(b) Except for automatic grants of Options to Outside Directors
pursuant to Section 8 hereof, the Board or its delegate shall have the power,
subject to and within the limits of the express provisions of this Plan:
(1) To grant Options pursuant to this Plan.
(2) To determine from time to time which of the Eligible
Persons shall be granted Options under this Plan, the number of Shares
for which each Option shall be granted, the term of each granted Option
and the time or times during the term of each Option within which all
or portions of each Option may be exercised (which at the discretion of
the Board or its delegate may be accelerated.)
(3) To prescribe the terms and provisions of each Option
granted (which need not be identical) and the form of written
instrument that shall constitute the Option agreement.
(4) To take appropriate action to amend any Option hereunder,
including amendment of the vesting schedule of any outstanding Option,
or to cause any Option granted hereunder to cease to be an ISO,
provided that no such action adverse to a Participant's interest may be
taken by the Board or its delegate without the written consent of the
affected Participant.
(5) To determine whether and under what circumstances an
Option may be settled in cash or Shares.
(c) The Board or its delegate shall also have the power, subject to and
within the limits of the express provisions of this Plan:
(1) To construe and interpret this Plan and Options granted
under this Plan, and to establish, amend and revoke rules and
regulations for administration of this Plan. The Board or its delegate,
in the exercise of this power, shall generally determine all questions
of policy and expediency that may arise and may correct any defect,
omission or inconsistency in this Plan or in any Option agreement in a
manner and to the extent it shall deem necessary or expedient to make
this Plan fully effective.
(2) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best interests
of the Company.
(d) The Board may, by resolution, delegate administration of this Plan
(including, without limitation, the Board's powers under Sections 3(b) and (c)
hereof), under either or both of the following circumstances:
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<PAGE> 5
(1) with respect to the participation of or granting of
Options to an Eligible Person who is not an Insider, to a committee of
one or more members of the Board, whether or not such members of the
Board are Disinterested Directors;
(2) with respect to matters other than the selection for
participation in this Plan, substantive decisions concerning the
timing, pricing, amount or other material term of an Option, to a
committee of one or more members of the Board, whether or not such
members of the Board are Disinterested Directors, or to one or more
Insiders.
(e) Unless each member of the Board is a Disinterested Director, the
Board shall, by resolution, delegate administration of this Plan with respect to
the participation in this Plan of Eligible Persons who are Insiders, including
its powers to select such Eligible Persons for participation in this Plan, to
make substantive decisions concerning the timing, pricing, amount or any other
material term of an Option, to a committee of two or more Disinterested
Directors who are also "outside directors" within the meaning of Section 162(m)
of the Code if the Company is required to have "outside directors" in order to
avoid the deduction limitation imposed by Section 162(m) of the Code. Any
committee to which administration of this Plan is so delegated pursuant to this
Section 3(e) may also administer this Plan with respect to an Eligible Person
described in Section 3(d)(1) hereof.
(f) Except as required by Section 3(e) hereof, the Board shall have
complete discretion to determine the composition, structure, form, term and
operations of any committee established to administer this Plan. If
administration of this Plan is delegated to a committee, unless the Board
otherwise provides, the committee shall have, with respect to the administration
of this Plan, all of the powers and discretion theretofore possessed by the
Board and delegable to such committee, subject to any constraints which may be
adopted by the Board from time to time and which are not inconsistent with the
provisions of this Plan. The Board at any time may revest in the Board any of
its administrative powers under this Plan, except under circumstances where a
committee is required to administer this Plan under Section 3(e) hereof.
(g) The determinations of the Board or its delegate shall be conclusive
and binding on all persons having any interest in this Plan or in any awards
granted hereunder.
4. Shares Subject to This Plan
Subject to the provisions of Section 11 (relating to adjustments upon
changes in capitalization), the Shares which may be available for issuance under
this Plan shall not exceed in the aggregate 1,300,000 Shares and may be unissued
Shares or reacquired Shares or Shares bought on the market for the purposes of
issuance under this Plan. If any Options granted under this Plan shall for any
reason be forfeited or canceled, terminate or expire, the Shares subject to such
Options shall be available again for the purposes of this Plan. Shares which are
delivered or withheld from the Shares otherwise due on exercise of an Option
shall become available for future awards under this Plan. Shares that have
actually been issued under this Plan, upon
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<PAGE> 6
exercise of an Option shall not in any event be returned to this Plan and shall
not become available for future awards under this Plan.
5. Eligibility
(a) The Board or its delegate may from time to time, in its sole
discretion, consistent with the purposes of this Plan, grant Options to full or
part-time employees, officers, directors (including Outside Directors),
consultants and advisors of the Company and/or of any Affiliate; provided,
however, that all Options granted to consultants and advisors pursuant to this
Plan shall be NSOs; and further, provided, that such consultants and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. Outside Directors shall not be
eligible for the benefits of this Plan, except as provided in Section 8 hereof.
(b) Any Participant may hold more than one Option at any time;
provided, however, that, subject to the provisions of Section 11 (relating to
adjustments upon changes in capitalization), the maximum number of shares which
are subject to Options granted to any individual shall not exceed in the
aggregate 350,000 Shares over the full ten year life of this Plan (the "162(m)
Maximum").
6. Stock Options - General Provisions
(a) Except for automatic grants of Options to Outside Directors under
Section 8 hereof, each Option granted pursuant to this Plan may, at the
discretion of the Board, be granted either as an ISO or as an NSO. No Option may
be granted alternatively as an ISO and as an NSO.
(b) To the extent that the aggregate exercise price for ISOs which are
exercisable for the first time by a Participant during any calendar year (under
this Plan or any other plans of the Company or its subsidiaries or parent (as
such terms are defined in Section 424 of the Code)) exceeds $100,000, such
Options shall be treated as NSOs.
(c) No ISO may be granted to a person who, at the time of grant, owns
stock possessing more than 10% of the total combined voting power of the Company
or any of its subsidiaries or parent (as such terms are defined in Section 424
of the Code) unless the exercise price is at least 110% of the Fair Market Value
per Share of the stock subject to the Option and the term of the Option does not
exceed five (5) years from the date such ISO is granted.
(d) Notwithstanding any other provision in this Plan, no term of this
Plan relating to ISOs will be interpreted, amended or altered, nor will any
discretion or authority granted under this Plan be exercised, so as to
disqualify this Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify an ISO under Section 422 of the Code.
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7. Terms of Option Agreement
Except as otherwise required by the terms of Section 8 hereof, each
Option agreement shall be in such form and shall contain such terms and
conditions as the Board from time to time shall deem appropriate.
(a) The term of any NSO shall not be greater than ten (10) years and
one day from the date it was granted. The term of any ISO shall not be greater
than ten (10) years from the date it was granted.
(b) The exercise price of each ISO and NSO shall be not less than the
Fair Market Value per Share of the stock subject to the Option on the date the
Option is granted.
(c) Unless otherwise specified in the Option agreement, no Option shall
be transferable otherwise than by will, pursuant to the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, or as otherwise permitted by regulations and interpretations under
Section 16 of the Exchange Act.
(d) Except as otherwise provided in paragraph (e) of this Section 7,
the rights of a Participant (other than an Outside Director) to exercise an
Option shall be limited as follows:
(1) DEATH OR DISABILITY: If a Participant's service is
terminated by death or disability, then the Participant or the
Participant's estate, or such other person as may hold the Option, as
the case may be, shall have the right for a period of twelve (12)
months following the date of death or disability, or for such other
period as the Board may fix, to exercise the Option to the extent the
Participant was entitled to exercise such Option on the date of his
death or disability, or to such extent as may otherwise be specified by
the Board (which may so specify after the date of his death or
disability but before expiration of the Option), provided, however,
that the actual date of exercise may not be after the expiration of the
term of the Option. A Participant's estate shall mean his legal
representative or any person who acquires the right to exercise an
Option by reason of the Participant's death or disability.
(2) MISCONDUCT: If a Participant is determined by the Board to
have committed an act of theft, embezzlement, fraud, dishonesty, a
breach of fiduciary duty to the Company (or any Affiliate), or
deliberate disregard of the rules of the Company (or any Affiliate), or
if a Participant makes any unauthorized disclosure of any of the trade
secrets or confidential information of the Company (or any Affiliate),
engages in any conduct which constitutes unfair competition with the
Company (or any Affiliate), induces any customer of the Company (or any
Affiliate) to break any contract with the Company (or any Affiliate),
or induces any principal for whom the Company (or any Affiliate) acts
as agent to terminate such agency relationship, neither the
Participant, the
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<PAGE> 8
Participant's estate nor such other person who may then hold the Option
shall be entitled to exercise any Option with respect to any Shares
whatsoever, after termination of service, whether or not after
termination of service the Participant may receive payment from the
Company (or any Affiliate) for vacation pay, for services rendered
prior to termination, for services rendered for the day on which
termination occurs, for salary in lieu of notice, or for any other
benefits. In making such determination, the Board shall give the
Participant an opportunity to present to the Board evidence on his
behalf. For the purpose of this paragraph, termination of service shall
be deemed to occur on the date when the Company dispatches notice or
advice to the Participant that his service is terminated.
(3) TERMINATION FOR OTHER REASONS: If a Participant's service
is terminated for any reason other than those mentioned under Sections
7(d)(1) or 7(d)(2) hereof, the Participant, the Participant's estate,
or such other person who may then hold the Option may, within three
months following such termination, or within such longer period as the
Board may fix, exercise the Option to the extent such Option was
exercisable by the Participant on the date of termination of his
employment or service, or to the extent otherwise specified by the
Board (which may so specify after the date of the termination but
before expiration of the Option) provided the date of exercise is in no
event after the expiration of the term of the Option.
(4) EVENTS NOT DEEMED TERMINATIONS: The service relationship
of a Participant with the Company (or any Affiliate) shall not be
considered interrupted in the case of (i) a Participant who intends to
continue to provide services as a director, employee, consultant or
advisor to the Company or (an Affiliate); (ii) sick leave; (iii)
military leave; (iv) any other leave of absence approved by the Board,
provided such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to formal
policy adopted from time to time by the Company and issued and
promulgated to employees in writing; or (v) in the case of transfer
between locations of the Company or between the Company or its
Affiliates. In the case of any employee on an approved leave of
absence, the Board may make such provisions respecting suspension of
vesting of Options while on leave from the employ of the Company (or an
Affiliate) as it may deem appropriate, except that in no event shall an
Option be exercised after the expiration of the term set forth in the
Option.
(e) If any Participant's employment is terminated by the Company for
any reason other than for Misconduct or, if applicable, by Constructive
Termination, within one year after a Change of Control has occurred, then all
Options held by such Participant shall become fully vested for exercise upon the
date of termination, irrespective of the vesting provisions of the Participant's
Option agreement. For purposes of this subsection (e), the term "Change of
Control" shall have the meaning assigned by this Plan, unless a different
meaning is defined in an individual Participant's Option agreement.
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(f) Options may also contain such other provisions, which shall not be
inconsistent with any of the foregoing terms as the Board or its delegate shall
deem appropriate.
(g) The Board may modify, extend or renew outstanding Options and
authorize the grant of new Options in substitution therefor; provided that any
such action may not, without the written consent of a Participant, impair any
such Participant's rights under any Option previously granted.
8. Automatic Grants to Outside Directors
(a) Subject to the provisions of Section 11 (relating to adjustments
upon changes in capitalization), each Outside Director shall be granted an
Option to purchase 10,000 Shares under this Plan (the "First Option") on such
date as is after this Plan has been both adopted by the Board and approved by
the Stockholders of the Company, and is the later to occur of (i) the date on
which the Securities and Exchange Commission declares effective the Company's
registration statement on Form S-1 for the initial public offer and sale of
Shares or, (ii) the date such Outside Director is first elected or appointed as
a member of the Board. Thereafter, subject to the provisions of Section 11
(relating to adjustments upon changes in capitalization), on the first business
day coincident with or following each annual meeting of the Company's
stockholders, each Outside Director reported as being elected or who continues
in office shall be granted an additional Option to purchase 2,000 Shares under
this Plan (the "Annual Option"). Further, subject to the right of any Outside
Director who has not previously been elected as a member of the Board to receive
a First Option, if there are insufficient Shares available under this Plan for
each Outside Director who is eligible to receive an Annual Option (as adjusted)
in any year, the number of Shares subject to each Annual Option in such year
shall equal the total number of available Shares then remaining under this Plan
divided by the number of Outside Directors who are eligible to receive an Annual
Option on such date, as rounded down to avoid fractional Shares. All Options
granted to Outside Directors shall be subject to the following terms and
conditions of this Section 8.
(b) All Options granted to Outside Directors pursuant to this Plan
shall be NSOs.
(c) The consideration to be paid by Outside Directors for the Shares to
be issued upon exercise of an Option, including the method of payment, may
consist entirely of (i) cash, (ii) certified or cashier's check, (iii) other
Shares which (x) either have been owned by the Participant for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value per Share on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (iv) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
or (v) any combination of the foregoing methods of payment.
(d) Each Option granted to an Outside Director shall vest and become
fully exercisable when granted. Any Shares acquired by an Outside Director upon
exercise of an
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Option shall not be freely transferable until six months after the date
stockholder approval referred to in Section 14 hereof is obtained.
(e) If an Outside Director's tenure on the Board is terminated for any
reason, then the Outside Director or the Outside Director's estate, as the case
may be, shall have the right for a period of twelve months following the date
such tenure is terminated to exercise an Option to the extent the Outside
Director was entitled to exercise such Option on the date the Outside Director's
tenure terminated; provided, however, that the actual date of exercise is in no
event after the expiration of the term of the Option. An Outside Director's
"estate" shall mean the Outside Director's legal representative or any person
who acquires the right to exercise an Option by reason of the Outside Director's
death or disability.
(f) The automatic grants to Outside Directors pursuant to this Section
8 shall not be subject to the discretion of any person. The other provisions of
this Plan shall apply to the Options granted automatically pursuant to this
Section 8, except to the extent such other provisions are inconsistent with this
Section 8.
9. Payments For Shares Upon Exercise of Options
With respect to Options (other than Options granted to Outside
Directors pursuant to Section 8 hereof), the following provisions shall apply:
(a) The method of payment for the Shares to be issued upon exercise of
an Option, shall be determined by the Board or its delegate (and, in the case of
an ISO, shall be determined at the time of grant) and may consist entirely of
(i) cash, (ii) certified or cashier's check, (iii) promissory note, (iv) other
Shares which (x) either have been owned by the Participant for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value per Share on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
or (vi) any combination of the foregoing methods of payment. Any promissory note
shall be a full recourse promissory note having such terms as may be approved by
the Board and bearing interest at a rate sufficient to avoid imputation of
income under Sections 483, 1274 or 7872 of the Code; provided, however, that
Participants who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares; provided, further, that the portion
of the exercise price equal to the par value, if any, of the Shares must be paid
in cash;
(b) The Company may make loans or guarantee loans made by an
appropriate financial institution to individual Participants, including
Insiders, on such terms as may be approved by the Board for the purpose of
financing the exercise of Options granted under this Plan and the payment of any
taxes that may be due by reason of such exercise.
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10. Tax Withholding
(a) Where, in the opinion of counsel to the Company, the Company has or
will have an obligation to withhold federal, state or local taxes relating to
the exercise of any Option, the Board may in its discretion require that such
tax obligation be satisfied in a manner satisfactory to the Company. With
respect to the exercise of an Option, the Company may require the payment of
such taxes before Shares deliverable pursuant to such exercise are transferred
to the holder of the Option.
(b) With respect to the exercise of an Option, a Participant may elect
(a "Withholding Election") to pay his minimum statutory withholding tax
obligation by the withholding of Shares from the total number of Shares
deliverable pursuant to the exercise of such Option, or by delivering to the
Company a sufficient number of previously acquired Shares, and may elect to have
additional taxes paid by the delivery of previously acquired Shares, in each
case in accordance with rules and procedures established by the Board.
Previously owned Shares delivered in payment for such additional taxes must have
been owned for at least six months prior to the delivery or must not have been
acquired directly or indirectly from the Company and may be subject to such
other conditions as the Board may require. The value of Shares withheld or
delivered shall be the Fair Market Value per Share on the date the Option
becomes taxable. All Withholding Elections are subject to the approval of the
Board and must be made in compliance with rules and procedures established by
the Board.
11. Adjustments of and Changes in Capitalization
If there is any change in the Common Stock of the Company by reason of
any stock dividend, stock split, spin-off, split up, merger, consolidation,
recapitalization, reclassification, combination or exchange of Shares, or any
other similar corporate event, then the Board or its delegate shall make
appropriate adjustments to the number of Shares theretofore appropriated or
thereafter subject or which may become subject to an Option under this Plan.
Outstanding Options shall also be automatically converted as to price and other
terms if necessary to reflect the foregoing events. No right to purchase
fractional Shares shall result from any adjustment in Options pursuant to this
Section 11. In case of any such adjustment, the Shares subject to the Option
shall be rounded down to the nearest whole Share. Notice of any adjustment shall
be given by the Company to each holder of any Option which shall have been so
adjusted and such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of this Plan.
12. Privileges of Stock Ownership
No Participant will have any rights of a stockholder with respect to
any Shares until the Shares are issued to the Participant. After Shares are
issued to the Participant, the Participant
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will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
13. Exchange and Buyout of Awards; Rule 16b-3
The Board or its delegate may, at any time or from time to time,
authorize the Company, with the consent of the respective Participants, to issue
new Options in exchange for the surrender and cancellation of any or all
outstanding Options. The Board or its delegate may, at any time or from time to
time, buy from a Participant an Option previously granted with payment in cash,
Shares or other consideration, based on such terms and conditions as the Board
or its delegate and the Participant may agree. Grants of Options to Insiders are
intended to comply with the applicable provisions of Rule 16b-3 and such Options
shall contain such additional conditions or restrictions, if any, as may be
required by Rule 16b-3 to be in the written agreement relating to such Options
in order to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
14. Effective Date of this Plan
This Plan will become effective when adopted by the Board (the
"Effective Date"). This Plan must be approved by the stockholders of the
Company, consistent with applicable laws, within twelve (12) months before or
after the Effective Date. Upon the Effective Date, the Board or its delegate may
grant Options pursuant to this Plan; provided that no Option may be exercised
prior to the initial stockholder approval of this Plan. In the event that
stockholder approval is not obtained within the time period provided herein, all
Options granted hereunder will be canceled. So long as Insiders are
Participants, the Company will comply with the requirements of Rule 16b-3 with
respect to stockholder approval.
15. Termination; Amendment of this Plan
(a) No option may be granted under this Plan after May 30, 2006. The
Board at any time, and from time to time, may amend this Plan; provided,
however, that, except as provided in Section 11 (relating to adjustments upon
changes in capitalization), no amendment for which stockholder approval is
required shall be effective unless such approval is obtained within the required
time period. Whether stockholder approval is required shall be determined by the
Board.
(b) It is expressly contemplated that the Board may, without seeking
approval of the Company's stockholders, amend this Plan in any respect necessary
to provide the Company's employees with the maximum benefits provided or to be
provided under Section 422 of the Code
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or Section 16 of the Exchange Act and the regulations promulgated thereunder
and/or to bring this Plan or Options granted under it into compliance therewith.
(c) Rights and obligations under any Option granted before any
amendment of this Plan shall not be altered or impaired by amendment of this
Plan, except with the consent of the person who holds the Option, which consent
may be obtained in any manner that the Board or its delegate deems appropriate.
(d) To the extent required by Rule 16b-3, the Board may not amend the
provisions of Section 12 hereof more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
16. Registration, Listing, Qualification, Approval of Stock and Options
An award under this Plan will not be effective unless such award is in
compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body, and the requirements of any stock exchange
or automated quotation system upon which the Shares may then be listed or
quoted, as they are in effect on the date of grant of the award and also on the
date of exercise or other issuance. Notwithstanding any other provision in this
Plan, the Company will have no obligation to issue or deliver certificates for
Shares under this Plan prior to: (a) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable; and/or (b)
completion of any registration or other qualification of such Shares under any
state or federal law or ruling of any governmental body that the Company
determines to be necessary or advisable. The Company will be under no obligation
to register the Shares with the Securities and Exchange Commission or to effect
compliance with the registration, qualification or listing requirements of any
state securities laws, stock exchange or automated quotation system, and the
Company will have no liability for any inability or failure to do so.
17. No Right To Employment
Nothing in this Plan or in any Option shall be deemed to confer on any
employee any right to continue in the employ of the Company or any Affiliate or
to limit the rights of the Company or its Affiliates, which are hereby expressly
reserved, to discharge an employee at any time, with or without cause, or to
adjust the compensation of any employee.
18. Miscellaneous
The use of any masculine pronoun or similar term is intended to be
without legal significance as to gender.
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Exhibit 10.6
GARDEN STATE NUTRITIONALS, INC.
EMPLOYEES PROFIT SHARING PLAN
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
<TABLE>
<S> <C> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS 15
2.2 DETERMINATION OF TOP HEAVY STATUS 15
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 19
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 20
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 20
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 20
2.7 RECORDS AND REPORTS 22
2.8 APPOINTMENT OF ADVISERS 22
2.9 INFORMATION FROM EMPLOYER 22
2.10 PAYMENT OF EXPENSES 22
2.11 MAJORITY ACTIONS 22
2.12 CLAIMS PROCEDURE 23
2.13 CLAIMS REVIEW PROCEDURE 23
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 24
3.2 APPLICATION FOR PARTICIPATION 24
3.3 EFFECTIVE DATE OF PARTICIPATION 24
3.4 DETERMINATION OF ELIGIBILITY 24
3.5 TERMINATION OF ELIGIBILITY 25
3.6 OMISSION OF ELIGIBLE EMPLOYEE 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 25
3.8 ELECTION NOT TO PARTICIPATE 25
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER' S CONTRIBUTION 26
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 26
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND
EARNINGS 26
4.4 MAXIMUM ANNUAL ADDITIONS 30
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 35
4.6 TRANSFERS FROM QUALIFIED PLANS 36
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 38
5.2 METHOD OF VALUATION 38
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 39
6.2 DETERMINATION OF BENEFITS UPON DEATH 39
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 40
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 41
6.5 DISTRIBUTION OF BENEFITS 45
6.6 DISTRIBUTION OF BENEFITS UPON DEATH 49
6.7 TIME OF SEGREGATION OR DISTRIBUTION 50
6.8 DISTRIBUTION FOR MINOR BENEFICIARY 51
</TABLE>
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<TABLE>
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6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 51
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION 51
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 52
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 52
7.3 OTHER POWERS OF THE TRUSTEE 53
7.4 LOANS TO PARTICIPANTS 56
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 57
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 58
7.7 ANNUAL REPORT OF THE TRUSTEE 58
7.8 AUDIT 59
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 59
7.10 TRANSFER OF INTEREST 60
7.11 DIRECT ROLLOVER 61
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT 62
8.2 TERMINATION 62
8.3 MERGER OR CONSOLIDATION 63
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS 63
9.2 ALIENATION 63
9.4 GENDER AND NUMBER 65
</TABLE>
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<TABLE>
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9.5 LEGAL ACTION 65
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS 65
9.7 BONDING 65
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 66
9.9 INSURER'S PROTECTIVE CLAUSE 66
9.10 RECEIPT AND RELEASE FOR PAYMENTS 66
9.11 ACTION BY THE EMPLOYER 67
9.12 NAMED FIDUCIARIES AND ALLOCATION OF
RESPONSIBILITY 67
9.13 HEADINGS 67
9.14 APPROVAL BY INTERNAL REVENUE SERVICE 68
9.15 UNIFORMITY 68
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS 68
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 69
10.3 DESIGNATION OF AGENT 70
10.4 EMPLOYEE TRANSFERS 70
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION 70
10.6 AMENDMENT 70
10.7 DISCONTINUANCE OF PARTICIPATION 71
10.8 ADMINISTRATOR'S AUTHORITY 71
</TABLE>
<PAGE> 6
GARDEN STATE NUTRITIONALS, INC.
EMPLOYEES PROFIT SHARING PLAN
THIS AGREEMENT, hereby made and entered into this day of
________________________, 19____, by and between Garden State Nutritionals, Inc.
and Windmill Marketing Services, Inc. (herein jointly referred to as the
"Employer") and Ed Frankel (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing
Plan and Trust effective March 1, 1982, (hereinafter called the "Effective
Date") known as Garden State Nutritionals, Inc. Employees Profit Sharing Plan
(herein referred to as the "Plan") in recognition of the contribution made to
its successful operation by its employees and for the exclusive benefit of its
eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the
ability to amend the Plan, provided the Trustee joins in such amendment if the
provisions of the Plan affecting the Trustee are amended;
NOW, THEREFORE, effective September 1, 1992, except as otherwise
provided, the Employer and the Trustee in accordance with the provisions of the
Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
1.3 "Affiliated Employer" means any corporation which is a member
of a controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant,
the value of all accounts maintained on behalf of a
1
<PAGE> 7
Participant, whether attributable to Employer or Employee contributions,
subject to the provisions of Section 2.2.
1.5 "Anniversary Date" means August 31st.
1.6 "Beneficiary" means the person to whom the share of a
deceased Participant's total account is payable, subject to the restrictions of
Sections 6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as
amended or replaced from time to time.
1.8 "Compensation" with respect to any Participant means
such Participant's wages, salaries, fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Fiscal Year ending with or within the Plan Year.
Compensation shall exclude (a) (1) contributions made
by the Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
For a Participant's initial year of participation,
Compensation shall be recognized for the entire Fiscal Year ending with or
within the Plan Year.
Compensation in excess of $200,000 shall be
disregarded. Such amount shall be adjusted at the same time and in such manner
as permitted under Code Section 415(d) , except that the dollar increase in
effect on January 1 of any calendar
2
<PAGE> 8
year shall be effective for the Fiscal Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Fiscal Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Fiscal Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Fiscal Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q) (6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before limitation
shall be prorated among the affected Family Members in the close of the year.
If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the proportion to each such Family Member's
Compensation prior to the application of this limitation, or the limitation
shall be adjusted in accordance with any other method permitted by Regulation.
If, as a result of such rules, the maximum "annual addition"
limit of Section 4.4(a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.5(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described
in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer),
the $200,000 limitation applies separately with respect to the Compensation of
any Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then, for Plan
Years prior to the Plan Year which includes the adoption date of this amendment
and restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
3
<PAGE> 9
For Plan Years beginning prior to January 1, 1989, the $200,000
limit (without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" means any life insurance policy,
retirement income or annuity policy, or annuity contract (group or individual)
issued pursuant to the terms of the Plan.
1.10. "Early Retirement Date" means the first day of the month (prior
to the Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 60 and has completed at least 15
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after satisfying
the service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.11 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a
collective bargaining agreement between Employee representatives (within the
meaning of Code Section 7701(a)(46)) and the Employer under which retirement
benefits were the subject of good faith bargaining between the parties will not
be eligible to participate in this Plan unless such agreement expressly provides
for coverage in this Plan or two percent or more of the Employees of the
Employer who are covered pursuant to that agreement are professionals as defined
in Regulation 1.410(b)-9.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
1.12 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n) (2) and 414(o) (2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.13 "Employer" means Garden State Nutritionals, Inc. and Windmill
Marketing Services, Inc. and any Participating Employer (as defined in Section
10.1) which shall adopt this Plan; any successor which shall maintain this Plan;
and any predecessor which has maintained this Plan. The Employers are
corporations with principal offices in the State of New Jersey.
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<PAGE> 10
1.14 "Family Member" means, with respect to an affected
Participant, such Participant's spouse, such Participant's lineal descendants
and ascendants and their spouses, all as described in Code Section 414(q)(6)(B).
1.15 "Fiduciary" means any person who (a) exercises any
discretionary authority or discretionary control respecting management of the
Plan or exercises any authority or control respecting management or disposition
of its assets, (b) renders investment advice for a fee or other compensation,
direct or indirect, with respect to any monies or other property of the Plan or
has any authority or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the administration of the Plan,
including, but not limited to, the Trustee, the Employer and its representative
body, and the Administrator.
1.16 "Fiscal Year" means the Employer's accounting year of
12 months commencing on September 1st of each year and ending the following
August 31st.
1.17 "Forfeiture" means that portion of a Participant's
Account that is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion
of a Terminated Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive 1-Year Breaks in
Service.
Furthermore, for purposes of paragraph (a) above, in the
case of a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 6.4(g) (2). In addition, the term Forfeiture shall
also include amounts deemed to be Forfeitures pursuant to any other provision of
this Plan.
1.18 "Former Participant" means a person who has been a
Participant, but who has ceased to be a Participant for any reason.
1.19 "415 Compensation" with respect to any Participant
means such Participant's wages, salaries, fees for professional services and
other amounts received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of employment with
the Employer maintaining the Plan to the extent that the amounts are includible
in gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other
5
<PAGE> 11
expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Fiscal Year ending with or within the Plan Year.
"415 Compensation" shall exclude (a) (1) contributions made by
the Employer to a plan of deferred compensation to the extent that, the
contributions are not incIudible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized
from the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified, then, for
Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "415 Compensation" means compensation determined
pursuant to the Plan then in effect.
1.20 "Highly Compensated Employee" means an Employee described in
Code Section 414(q) and the Regulations thereunder, and generally means an
Employee who performed services for the Employer during the "determination year"
and is in one or more of the following groups:
(a) Employees who at any time during the
"determination year" or "look-back year" were "five percent
owners" as defined in Section 1 .25(c).
(b) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of
$75,000.
(c) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of
$50,000 and were in the Top Paid Group of Employees for the
Plan Year.
(d) Employees who during the "look-back year" were
officers of the Employer (as that term is defined within the
meaning of the Regulations under Code
6
<PAGE> 12
Section 416) and received "415 Compensation" during the
"look-back year" from the Employer greater than 50 percent of
the limit in effect under Code Section 415(b) (1) (A) for any
such Plan Year. The number of officers shall be limited to the
lesser of (i) 50 employees; or (ii) the greater of 3 employees
or 10 percent of all employees. For the purpose of determining
the number of officers, Employees described in Section 1.44(a),
(b), (c) and (d) shall be excluded, but such Employees shall
still be considered for the purpose of identifying the
particular Employees who are officers. If the Employer does not
have at least one officer whose annual "415 Compensation" is in
excess of 50 percent of the Code Section 415(b) (1) (A) limit,
then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
(e) Employees who are in the group consisting of
the 100 Employees paid the greatest "415 Compensation" during
the "determination year" and are also described in (b), (c) or
(d) above when these paragraphs are modified to, substitute
"determination year" for "look-back year".
The "look-back year" shall be the calendar year ending
with or within the Plan Year for which testing is being performed, and the
"determination year" (if applicable) shall be the period of time, if any, which
extends beyond the "look-back year" and ends on the last day of the Plan Year
for which testing is being performed (the "lag period"). If the "lag period" is
less than twelve months long, the dollar threshold amounts specified in (b), (c)
and (d) above shall be prorated based upon the number of months in the "lag
period".
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, by including amounts that would
otherwise be excluded from a Participant's gross income by reason of the
application of Code Section 403 (b). Additionally, the dollar threshold amounts
specified in (b) and (c) above shall be adjusted at such time and in such manner
as is provided in Regulations. In the case of such an adjustment, the dollar
limits which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee,
Employees who are non-resident aliens and who received no earned income (within
the meaning of Code Section 911(d)(2)) from the Employer constituting United
States source income within the meaning of Code Section 861(a) (3) shall not be
treated as Employees. Additionally, all Affiliated Employers shall be taken
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<PAGE> 13
into account as a single employer and Leased Employees within the meaning of
Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such
Leased Employees are covered by a plan described in Code Section 414(n) (5) and
are not covered in any qualified plan maintained by the Employer. The exclusion
of Leased Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees without regard
to whether they performed services during the "determination year".
1.21 "Highly Compensated Former Employee" means a former Employee
who had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner".
For purposes of this Section, "determination year", "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.20. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
1.22 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.23 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of
Service are required to be credited to an Employee on account
8
<PAGE> 14
of any single continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period); (ii) an hour
for which an Employee is directly or indirectly paid, or entitled to payment, on
account of a period during which no duties are performed is not required to be
credited to the Employee if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable worker's compensation, or
unemployment compensation or disability insurance laws; and (iii) Hours of
Service are not required to be credited for a payment which solely reimburses an
Employee for medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer, or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes of accrued
benefits, a 1-Year Break in Service, and employment commencement date (or
reemployment commencement date). In addition, Hours of Service will be credited
for employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.24 "Investment Manager" means an entity that (a) has the power
to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.25 "Key Employee" means an Employee as defined in Code Section
416(i) and the Regulations thereunder. Generally, any Employee or former
Employee (as well as each of his Beneficiaries) is considered a Key Employee if
he, at any time during the Plan Year that contains the "Determination Date" or
any of the preceding four (4) Plan Years, has been included in one of the
following categories:
(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under Code
Section 416) having annual "415 Compensation" greater than 50
percent of the amount in effect under Code Section 415(b) (1)
(A) for any such Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater
9
<PAGE> 15
than the dollar limitation in effect under Code Section
415(c) (1) (A) for the calendar year in which such Plan Year
ends and owning (or considered as owning within the meaning
of Code Section 318) both more than one-half percent interest
and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than five
percent (5%) of the outstanding stock of the Employer or
stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Employer or, in the
case of an unincorporated business, any person who owns more
than five percent (5%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as
separate employers.
(d) a "one percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more than
$150,000. "One percent owner" means any person who owns (or
is considered as owning within the meaning of Code Section
318) more than one percent (1%) of the outstanding stock of
the Employer or stock possessing more than one percent (1%)
of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any
person who owns more than one percent (1%) of the capital or
profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall
be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than
$150,000, "415 Compensation" from each employer required to
be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, by including amounts that would
otherwise be excluded from a Participant's gross income by reason of the
application of Code Section 403 (b).
1.26 "Late Retirement Date" means a Participant's actual
Retirement Date after having reached his Normal Retirement Date.
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1.27 "Leased Employee" means any person (other than an Employee of
the recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase
pension plan providing:
(1) a non-integrated employer contribution rate of at
least 10% of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the
employee's gross income under Code Sections 125, 402(e)(3), 402
(h) or 403 (b);
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of
the recipient's non-highly compensated work force.
1.28 "Non-Highly Compensated Participant" means any Participant who
is neither a Highly Compensated Employee nor a Family Member.
1.29 "Non-Key Employee" means any Employee or former Employee (and
his Beneficiaries) who is not a Key Employee.
1.30 "Normal Retirement Age" means the Participant's 65th birthday,
or his 5th anniversary of joining the Plan, if later. A Participant shall
become fully Vested in his Participant's Account upon attaining his Normal
Retirement Age.
1.31 "Normal Retirement Date" means the date a Participant attains
his Normal Retirement Age.
1.32 "1-Year Break in Service" means the applicable computation
period during which an Employee has not completed more than 500 Hours of Service
with the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
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leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.33 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.34 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's contributions.
1.35 "Plan" means this instrument, including all amendments thereto.
1.36 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on September 1st of each year and ending the following August 31st.
1.37 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.38 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.39 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent
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Disability, whether such retirement occurs on a Participant's Normal Retirement
Date, Early or Late Retirement Date (see Section 6.1).
1.40 "Super Top Heavy Plan" means a plan described in
Section 2.2(b).
1.41 "Terminated Participant" means a person who has been
a Participant, but whose employment has been terminated other than by death,
Total and Permanent Disability or retirement.
1.42 "Top Heavy Plan" means a plan described in Section
2.2(a).
1.43 "Top Heavy Plan Year" means a Plan Year commencing
after December 31, 1983 during which the Plan is a Top Heavy Plan.
1.44 "Top Paid Group" means the top 20 percent of Employees
who performed services for the Employer during the applicable year, ranked
according to the amount of "415 Compensation" (determined for this purpose in
accordance with Section 1.20) received from the Employer during such year. All
Affiliated Employers shall be taken into account as a single employer, and
Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o) (2)
shall be considered Employees unless such Leased Employees are covered by a plan
described in Code Section 414(n) (5) and are not covered in any qualified plan
maintained by the Employer. Employees who are non-resident aliens and who
received no earned income (within the meaning of Code Section 911(d) (2)) from
the Employer constituting United States source income within the meaning of Code
Section 861(a) (3) shall not be treated as Employees. Additionally, for the
purpose of determining the number of active Employees in any year, the following
additional Employees shall also be excluded; however, such Employees shall still
be considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of
service;
(b) Employees who normally work less than 17 1/2 hours
per week;
(c) Employees who normally work less than six (6)
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then
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Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.45 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing his usual and customary
employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
1.46 "Trustee" means the person or entity named as trustee herein
or in any separate trust forming a part of this Plan, and any successors.
1.47 "Trust Fund" means the assets of the Plan and Trust as the
same shall exist from time to time.
1.48 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
1.49 "Year of Service" means the computation period of twelve
(12) consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a 1-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
Year, including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the
Plan Year.
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Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.3 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year
commencing after December 31, 1983 in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under this Plan
and all plans of an Aggregation Group, exceeds sixty percent (60%) of
the Present Value of Accrued Benefits and the Aggregate Accounts of
all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but such Participant was a Key Employee for any prior Plan Year,
such Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, for Plan Years beginning after December 31,
1984, if a Participant or Former Participant has not performed any
services for any Employer maintaining the Plan at any time during the
five year period ending on the Determination Date, any accrued benefit
for such Participant or Former Participant shall not be taken into
account for the purposes of determining whether this Plan is a Top
Heavy or Super Top Heavy Plan.
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(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year commencing after December 31, 1983 in which, as of the
Determination Date, (1) the Present Value of Accrued Benefits of Key
Employees and (2) the sum of the Aggregate Accounts of Key Employees
under this Plan and all plans of an Aggregation Group, exceeds ninety
percent (90%) of the Present Value of Accrued Benefits and the
Aggregate Accounts of all Key and Non-Key Employees under this Plan
and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account
as of the Determination Date is the sum of:
(1) his Participant's Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date.
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but due on
or before the Determination Date, except for the first Plan
Year when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distributions
made after the valuation date and prior to the Determination
Date, such distributions are not included as distributions for
top heavy purposes to the extent that such distributions are
already included in the Participant's Aggregate Account balance
as of the valuation date. Notwithstanding anything herein to
the contrary, all distributions, including distributions made
prior to January 1, 1984, and distributions under a terminated
plan which if it had not been terminated would have been
required to be included in an Aggregation Group, will be
counted. Further, distributions from the Plan (including the
cash value of life insurance policies) of a Participant's
account balance because of death shall be treated as a
distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified
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<PAGE> 22
voluntary employee contributions shall not be considered to be
a part of the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always consider
such rollovers or plan-to-plan transfers as a distribution for
the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall
not consider such rollovers or plan-to-plan transfers as part
of the Participant's Aggregate Account balance. However,
rollovers or plan-to-plan transfers accepted prior to January
1, 1984 shall be considered as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made to
a plan maintained by the same employer), if this Plan provides
the rollover or plan-to-plan transfer, it shall not be counted
as a distribution for purposes of this Section. If this Plan is
the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part
of the Participant's Aggregate Account balance, irrespective of
the date on which such rollover or plan-to-plan transfer is
accepted.
(7) For the purposes of determining whether two employers
are to be treated as the same employer in (5) and (6) above,
all employers aggregated under Code Section 414(b), (c), (m)
and (o) are treated as the same employer.
(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as hereinafter
determined.
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(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which
a Key Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which
a Key Employee participates to meet the requirements of Code
Sections 401(a) (4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the Required
Aggregation Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group, taken
as a whole, would continue to satisfy the provisions of Code
Sections 401(a) (4) and 410. Such group shall be known as a
Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is a Top
Heavy Group. No plan in the Permissive Aggregation Group will
be considered a Top Heavy Plan if the Permissive Aggregation
Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall be
aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last five (5)
years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year, the
last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key
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<PAGE> 24
Employee, shall be as determined using the single accrual method used
for all plans of the Employer and Affiliated Employers, or if no such
single method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate permitted
under Code Section 411(b) (1) (C). The determination of the Present
Value of Accrued Benefit shall be determined as of the most recent
valuation date that falls within or ends with the 12-month period
ending on the Determination Date except as provided in Code Section
416 and the Regulations thereunder for the first and second plan years
of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in
which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for
all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure that the
Plan is being operated for the exclusive benefit of the Participants
and their Beneficiaries in accordance with the terms of the Plan, the
Code, and the Act.
(b) The Employer shall establish a "funding policy and
method", i.e., it shall determine whether the Plan has a short run
need for liquidity (e.g., to pay benefits) or whether liquidity is a
long run goal and investment growth (and stability of same) is a more
current need, or shall appoint a qualified person to do so. The
Employer or its delegate shall communicate such needs and goals to the
Trustee, who shall coordinate such Plan needs with its investment
policy. The communication of such a "funding policy and method" shall
not, however, constitute a directive to the Trustee as to investment
of the Trust Funds. Such "funding policy and method" shall be
consistent with the objectives of this Plan and with the requirements
of Title I of the Act.
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(c) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator; the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
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<PAGE> 26
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to, the
following:
(a) the discretion to determine all questions
relating to the eligibility of Employees to participate or
remain a Participant hereunder and to receive benefits under
the Plan;
(b) to compute, certify, and direct the Trustee
with respect to the amount and the kind of benefits to which
any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with
respect to all nondiscretionary or otherwise directed
disbursements from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to
make and publish such rules for regulation of the Plan as are
consistent with the terms hereof;
(f) to determine the size and type of any Contract
to be purchased from any insurer, and to designate the insurer
from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to
the Trustee from time to time the sums of money necessary or
desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of the Plan
in order that the Trustee can exercise any investment
discretion in a manner designed to accomplish specific
objectives;
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(i) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the
Employer shall supply full and timely information to the Administrator on all
matters relating to the Compensation of all Participants, their Hours of
Service, their Years of Service, their retirement, death, disability, or
termination of employment, and such other pertinent facts as the Administrator
may require; and the Administrator shall advise the Trustee of such of the
foregoing facts as may be pertinent to the Trustee's duties under the Plan. The
Administrator may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust
Fund unless paid by the Employer. Such expenses shall include any expenses
incident to the functioning of the Administrator, including, but not limited to,
fees of accountants, counsel, and other specialists and their agents, and other
costs of administering the Plan. Until paid, the expenses shall constitute a
liability of the Trust Fund. However, the Employer may reimburse the Trust Fund
for any administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
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2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the
Administrator on forms supplied by the Employer. Written notice of the
disposition of a claim shall be furnished to the claimant within 90 days after
the application is filed. In the event the claim is denied, the reasons for the
denial shall be specifically set forth in the notice in language calculated to
be understood by the claimant, pertinent provisions of the Plan shall be cited,
and, where appropriate, an explanation as to how the claimant can perfect the
claim will be provided. In addition, the claimant shall be furnished with an
explanation of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who
has been denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which may
be obtained from the Administrator) a request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and has
attained age 21 shall be eligible to participate hereunder as of the date he has
satisfied such requirements. However, any Employee who was a Participant in the
Plan prior to the effective date of this amendment and restatement shall
continue to participate in the Plan. The Employer shall give each prospective
Eligible Employee written notice of his eligibility to participate in the Plan
prior to the close of the Plan Year in which he first becomes an Eligible
Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
earlier of the first day of the Plan Year or the first day of the seventh month
of such Plan Year coinciding with or next following the date such Employee met
the eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee will participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
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3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee,
such Former Participant shall continue to vest in his interest in the
Plan for each Year of Service completed while a noneligible Employee,
until such time as his Participant's Account shall be forfeited or
distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the
Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate but
has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in Service,
eligibility will be determined under the break in service rules of
the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with
respect to the ineligible person shall constitute a Forfeiture for the Plan
Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For each Plan Year, the Employer shall contribute to
the Plan on behalf of each of the following groups of Participants such
amount as shall be determined by the Employer.
(1) Group A shall consist of: Garden State Nutritionals, Inc.
Employees
(2) Group B shall consist of: Windmill Marketing Services, Inc.
Employees
(3) Group C shall consist of: National Vitamin Concepts, Inc.
Employees
(b) Notwithstanding the foregoing, however, the Employer's
contribution for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash or
in such property as is acceptable to the Trustee.
(c) Except, however, to the extent necessary to provide
the top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible under
Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall pay to the Trustee its contribution to the Plan for
each Plan Year within the time prescribed by law, including extensions of time,
for the filing of the Employer's federal income tax return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator shall
credit as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation of
the Employer's contribution for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of such
information, the Administrator shall allocate the contribution made on
behalf of each group of Participants to the Participants within such
group in
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the same proportion that each such Participant's Compensation bears to
the total Compensation of all Participants within such group.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 6.4(g) (2). The
remaining Forfeitures, if any, shall be used to reduce the contribution
of the Employer hereunder for the Plan Year in which such Forfeitures
occur.
(d) Participants shall be eligible to share in the
allocation of contributions for a Plan Year in accordance with the
following:
(1) Only Participants who have completed a Year of Service
during the Plan Year and are actively employed on the last day
of the Plan Year shall be eligible to share in the allocation
of contributions for that Plan Year.
(2) Notwithstanding the foregoing, Participants who are
not actively employed on the last day of the Plan Year due to
Retirement (Early, Normal or Late), Total and Permanent
Disability or death shall be eligible to share in the
allocation of contributions for that Plan Year.
(3) For any Top Heavy Plan Year, Employees not otherwise
eligible to share in the allocation of contributions as
provided above, shall receive the minimum allocation provided
for in Section 4.3(g) if eligible pursuant to the provisions of
Section 4.3(i).
(e) As of each Anniversary Date or other valuation date,
before the allocation of both the report period Employer profit sharing
contributions and one-half of the current valuation period allocation of
Employer contributions (other than Employer profit sharing
contributions) any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same
proportion that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all Participants' and Former
Participants' nonsegregated accounts as of such date. If any
nonsegregated account of a Participant has been distributed prior to the
Anniversary Date or other valuation date subsequent to a Participant's
termination of employment, no earnings or losses shall be credited to
such account.
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Participants' transfers from other qualified plans deposited in
the general Trust Fund shall share in any earnings and losses (net
appreciation or net depreciation) of the Trust Fund in the same manner
provided above. Each segregated account maintained on behalf of a
Participant shall be credited or charged with its separate earnings and
losses.
(f) Participants' accounts shall be debited for any insurance
or annuity premiums paid, if any, and credited with any dividends
received on insurance contracts.
(g) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer's contributions allocated to the Participant's Account of
each Employee shall be equal to at least three percent (3%) of such
Employee's "415 Compensation" (reduced by contributions and forfeitures,
if any, allocated to each Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However, if
(1) the sum of the Employer's contributions allocated to the
Participant's Account of each Key Employee for such Top Heavy Plan Year
is less than three percent (3%) of each Key Employee's "415 Compensation"
and (2) this Plan is not required to be included in an Aggregation Group
to enable a defined benefit plan to meet the requirements of Code Section
401(a) (4) or 410, the sum of the Employer's contributions allocated to
the Participant's Account of each Employee shall be equal to the largest
percentage allocated to the Participant's Account of any Key Employee.
However, no such minimum allocation shall be required in this
Plan for any Employee who participates in another defined contribution
plan subject to Code Section 412 providing such benefits included with
this Plan in a Required Aggregation Group.
(h) For purposes of the minimum allocations set forth above,
the percentage allocated to the Participant's Account of any Key Employee
shall be equal to the ratio of the sum of the Employer's contributions
allocated on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Account of all
Employees who are Participants and who are employed by the Employer on
the last day of the Plan Year, including Employees who
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<PAGE> 34
have (1) failed to complete a Year of Service; (2) declined to make
mandatory contributions (if required) to the Plan; and (3) been excluded
from participation because of their level of Compensation.
(j) For the purposes of this Section, "415 Compensation" shall
be limited to $200,000. Such amount shall be adjusted at the same time
and in the same manner as permitted under Code Section 415(d), except
that the dollar increase in effect on January 1 of any calendar year
shall be effective for the Fiscal Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall
be effective on January 1, 1990. For any short Fiscal Year the "415
Compensation" limit shall be an amount equal to the "415 Compensation"
limit for the calendar year in which the Fiscal Year begins multiplied by
the ratio obtained by dividing the number of full months in the short
Fiscal Year by twelve (12). However, for Plan Years beginning prior to
January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan
Years and shall not be adjusted.
(k) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
(l) Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would otherwise
fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or
410(b) (2) (A) (i) and the Regulations thereunder because Employer
contributions would not be allocated to a sufficient number or percentage
of Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution for the Plan Year shall be expanded to
include the minimum number of Participants who would not otherwise
be eligible as are necessary to satisfy the applicable test
specified above. The specific Participants who shall become
eligible under the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
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<PAGE> 35
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's contribution for
the Plan Year shall be further expanded to include the minimum
number of Participants who are not actively employed on the last
day of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to share
shall be those Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours of
Service in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated to
satisfy these requirements. In such event, the Employer shall make
an additional contribution equal to the amount such affected
Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the plan would fail to
satisfy Code Section 410(b) if the coverage tests were applied by
treating those Participants whose only allocation would otherwise
be provided under the top heavy formula as if they were not
currently benefiting under the Plan, then, for purposes of this
Section 4.3(1), such Participants shall be treated as not
benefiting and shall therefore be eligible to be included in the
expanded class of Participants who will share in the allocation
provided under the Plan's non top heavy formula.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation year"
shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Code Section 415(b) (1) (A)) or (2)
twenty-five percent (25%) of the Participant's "415 Compensation" for
such "limitation year". For any short "limitation year", the dollar
limitation in (1)
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<PAGE> 36
above shall be reduced by a fraction, the numerator of which is the
number of full months in the short "limitation year" and the denominator
of which is twelve (12).
(b) For purposes of applying the limitations of Code Section
415, "annual additions" means the sum credited to a Participant's
accounts for any "limitation year" of (1) Employer contributions, (2)
Employee contributions for "limitation years" beginning after December
31, 1986, (3) forfeitures, (4) amounts allocated, after March 31, 1984,
to an individual medical account, as defined in Code Section 415(1) (2)
which is part of a pension or annuity plan maintained by the Employer and
(5) amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code Section 419A(d) (3)) under a welfare
benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage limitation
referred to in paragraph (a) (2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise treated as
an "annual addition", or (2) any amount otherwise treated as an "annual
addition" under Code Section 415(1)(1).
(c) For purposes of applying the limitations of Code Section
415, the transfer of funds from one qualified plan to another is not an
"annual addition". In addition, the following are not Employee
contributions for the purposes of Section 4.4(b)(2): (1) rollover
contributions (as defined in Code Sections 402(a) (5), 403(a) (4), 403(b)
(8) and 408(d) (3)); (2) repayments of loans made to a Participant from
the Plan; (3) repayments of distributions received by an Employee
pursuant to Code Section 411 (a) (7) (B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to
a simplified employee pension excludable from gross income under Code
Section 408(k) (6).
(d) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Fiscal Year.
(e) The dollar limitation under Code Section 415(b) (1) (A)
stated in paragraph (a) (1) above shall be adjusted annually as provided
in Code Section 415(d)
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<PAGE> 37
pursuant to the Regulations. The adjusted limitation is effective as of
January 1st of each calendar year and is applicable to "limitation years"
ending with or within that calendar year.
(f) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the Employer
shall be treated as one defined benefit plan, and all qualified defined
contribution plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined contribution plan.
(g) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses under
common control (as defined by Code Section 1563 (a) or Code Section
414(b) and (c) as modified by Code Section 415(h)), is a member of an
affiliated service group (as defined by Code Section 414(m)), or is a
member of a group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(h) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain this
Plan will be considered to be a single Employer.
(i)(1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan shall
equal the maximum "annual additions" for the "limitation year" minus any
"annual additions" previously credited to such Participant's accounts
during the "limitation year".
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, "annual
additions" will be credited to the Participant's accounts under
the defined contribution plan subject to Code Section 412 prior
to crediting "annual additions" to the Participant's accounts
under the defined contribution plan not subject to Code Section
412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have
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<PAGE> 38
the same Anniversary Date, the maximum "annual additions" under
this Plan shall equal the product of (A) the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited under subparagraphs (1) or (2)
above, multiplied by (B) a fraction (i) the numerator of which
is the "annual additions" which would be credited to such
Participant's accounts under this Plan without regard to the
limitations of Code Section 415 and (ii) the denominator of
which is such "annual additions" for all plans described in this
subparagraph.
(j) If an Employee is (or has been) a Participant in one or
more defined benefit plans and one or more defined contribution plans
maintained by the Employer, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any "limitation year" may
not exceed 1.0.
(k) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar
limitation determined for the "limitation year" under Code Sections
415(b) and (d) or 140 percent of the highest average compensation,
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year" beginning
after December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the denominator
of this fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as of
the close of the last "limitation year" beginning before January 1,
1987, disregarding any changes in the terms and conditions of the plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Code Section 415 for all "limitation years" beginning
before January 1, 1987.
(l) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the sum of
the annual additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the
Employer for the current and all
33
<PAGE> 39
prior "limitation years" (including the annual additions attributable to
the Participant's nondeductible Employee contributions to all defined
benefit plans, whether or not terminated, maintained by the Employer,
and the annual additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical accounts, as
defined in Code Section 415(1)(2), maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for the
current and all prior "limitation years" of service with the Employer
(regardless of whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any "limitation year" is the
lesser of 125 percent of the dollar limitation determined under Code
Sections 415(b) and (d) in effect under Code Section 415(c) (1) (A) or
35 percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the
first day of the first "limitation year" beginning after December 31,
1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would
be computed as of the end of the last "limitation year" beginning before
January 1, 1987, and disregarding any changes in the terms and
conditions of the Plan made after May 5, 1986, but using the Code
Section 415 limitation applicable to the first "limitation year"
beginning on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(m) Notwithstanding the foregoing, for any "limitation year"
in which the Plan is a Top Heavy Plan, 100 percent shall be substituted
for 125 percent in Sections 4.4(k) and 4.4(l) unless the extra minimum
allocation is being provided pursuant to Section 4.3. However, for any
"limitation year" in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any event.
(n) If the sum of the defined benefit plan fraction and the
defined contribution plan fraction
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<PAGE> 40
shall exceed 1.0 in any "limitation year" for any Participant in this
Plan, the Administrator shall limit, to the extent necessary, the
"annual additions" to such Participant's accounts for such "limitation
year". If, after limiting the "annual additions" to such Participant's
accounts for the "limitation year", the sum of the defined benefit plan
fraction and the defined contribution plan fraction still exceed 1.0,
the Administrator shall then adjust the numerator of the defined benefit
plan fraction so that the sum of both fractions shall not exceed 1.0 in
any "limitation year" for such Participant.
(o) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the provisions
of Code Section 415 and the Regulations thereunder, the terms of which
are specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating a
Participant's Compensation, a reasonable error in determining the amount
of elective deferrals (within the meaning of Code Section 402(g)(3))
that may be made with respect to any Participant under the limits of
Section 4.4 or other facts and circumstances to which Regulation
1.415-6(b) (6) shall be applicable, the "annual additions" under this
Plan would cause the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute any elective
deferrals (within the meaning of Code Section 402(g) (3)) or return any
voluntary Employee contributions credited for the "limitation year" to
the extent that the return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining after the
return of any elective deferrals or voluntary Employee contributions in
a "Section 415 suspense account" (3) allocate and reallocate the
"Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all Participants in the
Plan before any Employer or Employee contributions which would
constitute "annual additions" are made to the Plan for such "limitation
year" (4) reduce Employer contributions to the Plan for such "limitation
year" by the amount of the "Section 415 suspense account" allocated and
reallocated during such "limitation year".
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual
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<PAGE> 41
additions" which would be credited to his account under the terms of the
Plan without regard to the limitations of Code Section 415 over (2) the
maximum "annual additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of "excess
amounts" for all Participants in the Plan during the "limitation year".
The "Section 415 suspense account" shall not share in any earnings or
losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts", other
than voluntary Employee contributions, to Participants or Former
Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Participants, provided that
the trust from which such funds are transferred permits the transfer to
be made and the transfer will not jeopardize the tax exempt status of
the Plan or Trust or create adverse tax consequences for the Employer.
The amounts transferred shall be set up in a separate account herein
referred to as a "Participant's Rollover Account". Such account shall be
fully Vested at all times and shall not be subject to Forfeiture for any
reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan and may not
be withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective contributions
(as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated
as elective contributions, which are transferred from another qualified
plan in a plan-to-plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market value of the Participant's Rollover Account shall be
used to provide additional benefits to the Participant or his
Beneficiary. Any distributions of amounts held in a Participant's
Rollover Account shall be made in a
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manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements
of Code Section 411(a) (11) and the Regulations thereunder. Furthermore,
such amounts shall be considered as part of a Participant's benefit in
determining whether an involuntary cash-out of benefits without
Participant consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account for
each Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the Trustee
until such time as the allocations pursuant to this Plan have been made,
at which time they may remain segregated or be invested as part of the
general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The term
"amounts transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
lump-sum distributions received by an Employee from another qualified
plan which are eligible for tax free rollover to a qualified plan and
which are transferred by the Employee to this Plan within sixty (60)
days following his receipt thereof; (iii) amounts transferred to this
Plan from a conduit individual retirement account provided that the
conduit individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such conduit
individual retirement account within sixty (60) days of receipt thereof
and other than earnings on said assets; and (iv) amounts distributed to
the Employee from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the Employee to
this Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
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(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that
the amounts to be transferred to this Plan meet the requirements of this
Section and may also require the Employee to provide an opinion of
counsel satisfactory to the Employer that the amounts to be transferred
meet the requirements of this Section.
(h) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code Section
401(a) (11) and the Regulations thereunder) from a defined benefit plan,
money purchase plan (including a target benefit plan), stock bonus or
profit sharing plan which would otherwise have provided for a life
annuity form of payment to the Participant.
(i) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction of any
"Section 411(d) (6) protected benefit" as described in Section 8.1.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date", to determine the net worth of the
assets comprising the Trust Fund as it exists on the "valuation date." In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the
Trust Fund which are listed on a registered stock exchange, the Administrator
shall direct the Trustee to value the same at the prices they were last traded
on such exchange preceding the close of business on the "valuation date". If
such securities were not traded on the "valuation date", or if the exchange on
which they are traded was not open for business on the "valuation date", then
the securities shall be valued at the prices at which they were last traded
prior to the "valuation date". Any unlisted security held in the Trust Fund
shall be valued at its bid price next preceding the close of business on
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the "valuation date", which bid price shall be obtained from a registered broker
or an investment banker. In determining the fair market value of assets other
than securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early Retirement
Date. However, a Participant may postpone the termination of his employment with
the Employer to a later date, in which event the participation of such
Participant in the Plan, including the right to receive allocations pursuant to
Section 4.3, shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date or attainment of his Normal Retirement Date without termination
of employment with the Employer, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Account in
accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited to
such Participant's Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute the value of the
deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute any remaining
Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall be
taken into account in determining the amount of the death benefit.
(d) The Administrator may require such proper proof of
death and such evidence of the right of any person to receive payment
of the value of the account of a deceased Participant or Former
Participant as the Administrator may deem desirable. The
Administrator's
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determination of death and of the right of any person to receive
payment shall be conclusive.
(e) The Beneficiary of the death benefit payable pursuant
to this Section shall be the Participant's spouse. Except, however,
the Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the Participant
has a court order to such effect (and there is no "qualified
domestic relations order" as defined in Code Section 414(p)
which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant may
at any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change
with the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily
elected to relinquish such right. In the event no valid designation
of Beneficiary exists at the time of the Participant's death, the
death benefit shall be payable to his estate.
(f) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or a
notary public. Further, the spouse's consent must be irrevocable and
must acknowledge the specific nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in accordance with
the provisions of Sections 6.5 and 6.7, shall
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<PAGE> 46
distribute to such Participant all amounts credited to such Participant's
Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or
retirement, the Administrator may direct the Trustee to segregate the
amount of the Vested portion of such Terminated Participant's Account
and invest the aggregate amount thereof in a separate, federally
insured savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the Vested
portion of a Participant's Account is not segregated, the amount
shall remain in a separate account for the Terminated Participant and
share in allocations pursuant to Section 4.3 until such time as a
distribution is made to the Terminated Participant.
In the event that the amount of the Vested portion of the
Terminated Participant's Account equals or exceeds the fair market
value of any insurance Contracts, the Trustee, when so directed by
the Administrator and agreed to by the Terminated Participant, shall
assign, transfer, and set over to such Terminated Participant all
Contracts on his life in such form or with such endorsements so that
the settlement options and forms of payment are consistent with the
provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay
over to the Trustee the sum needed to make the distribution equal to
the value of the Contracts being assigned or transferred, or the
Trustee, pursuant to the Participant's election, may borrow the cash
value of the Contracts from the insurer so that the value of the
Contracts is equal to the Vested portion of the Terminated
Participant's Account and then assign the Contracts to the Terminated
Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct the Trustee to cause
the entire Vested portion of the Terminated Participant's Account to
be payable to such Terminated Participant. Any distribution under
this paragraph shall be made in
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a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Section 411 (a) (11) and the Regulations
thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause the
entire Vested benefit to be paid to such Participant in a single lump
sum.
For purposes of this Section 6.4, if the value of a
Terminated Participant's Vested benefit is zero, the Terminated
Participant shall be deemed to have received a distribution of such
Vested benefit.
(b) The Vested portion of any Participant's Account shall
be a percentage of the total amount credited to his Participant's
Account determined on the basis of the Participant's number of Years
of Service according to the following schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
Less than 2 0 %
2 20 %
3 40 %
4 60 %
5 80 %
6 100 %
</TABLE>
(c) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of the later of the effective date or
adoption date of this amendment and restatement.
(d) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the Plan
or upon any full or partial termination of the Plan, all amounts
credited to the account of any affected Participant shall become 100%
Vested and shall not thereafter be subject to Forfeiture.
(e) A Participant with at least three (3) Years of Service
as of the expiration date of the election period may elect to have
his nonforfeitable percentage computed under the Plan without regard
to such amendment and restatement. If a Participant fails to make
such election, then such Participant shall be
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<PAGE> 48
subject to the new vesting schedule. The Participant's election
period shall commence on the adoption date of the amendment and shall
end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
Except, however, any Employee who was a Participant as
of the later of the effective date or adoption date of this
amendment and restatement and who completed three (3) Years of
Service shall be subject to the pre-amendment vesting schedule
provided such schedule is more liberal than the new vesting schedule.
Pre-Amendment Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
4 40 %
5 50 %
6 60 %
7 70 %
8 80 %
9 90 %
10 100 %
</TABLE>
(f) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Plan. For this
purpose, the Plan shall be treated as having been amended if the Plan
provides for an automatic change in vesting due to a change in top
heavy status. In the event that the Plan is amended to change or
modify any vesting schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the election period may
elect to have his nonforfeitable percentage computed under the Plan
without regard to such amendment. If a Participant fails to make such
election, then such Participant shall be subject to the new vesting
schedule. The Participant's election period shall commence on the
adoption date of the amendment and shall end 60 days after the latest
of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
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<PAGE> 49
(3) the date the Participant receives written notice of
the amendment from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had not
occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in Service,
and such Former Participant had received, or was deemed to have
received, a distribution of his entire Vested interest prior to
his reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him before the
earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer or the
close of the first period of five (5) consecutive 1-Year Breaks
in Service commencing after the distribution, or in the event
of a deemed distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay the
full amount distributed to him, or in the event of a deemed
distribution, the undistributed portion of the Participant's
Account must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Anniversary Date or other
valuation date coinciding with or preceding his termination.
The source for such reinstatement shall first be any
Forfeitures occurring during the year. If such source is
insufficient, then the Employer shall contribute an amount
which is sufficient to restore any such forfeited Accounts
provided, however, that if a discretionary contribution is made
for such year, such contribution shall first be applied to
restore any such Accounts and the remainder shall be allocated
in accordance with Section 4.3.
(3) If any Former Participant is reemployed after a 1-Year
Break in Service has occurred, Years of Service shall include
Years of Service prior to his 1-Year Break in Service subject
to the following rules:
(i) If a Former Participant has a 1-Year Break in
Service, his pre-break and post-break service shall be
used for computing Years of Service for eligibility
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<PAGE> 50
and for vesting purposes only after he has been
employed for one (1) Year of Service following the
date of his reemployment with the Employer;
(ii) Any Former Participant who under the Plan does
not have a nonforfeitable right to any interest in the
Plan resulting from Employer contributions shall lose
credits otherwise allowable under (i) above if his
consecutive 1-Year Breaks in Service equal or exceed
the greater of (A) five (5) or (B) the aggregate
number of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be
increased as a result of post-break service;
(iv) If a Former Participant who has not had his
Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes one (1)
Year of Service for eligibility purposes following his
reemployment with the Employer, he shall participate
in the Plan retroactively from his date of
reemployment;
(v) If a Former Participant who has not had his
Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes a Year of
Service (a 1-Year Break in Service previously
occurred, but employment had not terminated), he shall
participate in the Plan retroactively from the first
day of the Plan Year during which he completes one (1)
Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a Participant
or his Beneficiary any amount to which he is entitled under the Plan
in one or more of the following methods:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may
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<PAGE> 51
(A) segregate the aggregate amount thereof in a separate,
federally insured savings account, certificate of deposit in a
bank or savings and loan association, money market certificate
or other liquid short-term security or (B) purchase a
nontransferable annuity contract for a term certain (with no
life contingencies) providing for such payment. The period over
which such payment is to be made shall not extend beyond the
Participant's life expectancy (or the life expectancy of the
Participant and his designated Beneficiary).
(b) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such distribution
commences prior to the later of his Normal Retirement Age or age 62. With
regard to this required consent:
(1) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to consent,
it shall be deemed an election to defer the commencement of
payment of any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(c).
(2) Notice of the rights specified under this paragraph
shall be provided no less than 30 days and no more than 90 days
before the first day on which all events have occurred which
entitle the Participant to such benefit.
(3) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice and
must not be made more than 90 days before the first day on
which all events have occurred which entitle the Participant to
such benefit.
(4) No consent shall be valid if a significant detriment
is imposed under the Plan on any Participant who does not
consent to the distribution.
(c) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits made on or after
January 1, 1985 shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a) (9) and
the Regulations thereunder (including Regulation
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<PAGE> 52
1.401(a)(9)-2), the provisions of which are incorporated herein by
reference:
(1) A Participant's benefits shall be distributed to him
not later than April 1st of the calendar year following the
later of (i) the calendar year in which the Participant attains
age 70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending
in the calendar year in which he attains age 70 1/2 or, in the
case of a Participant who becomes a "five (5) percent owner"
during any subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the April 1st of
the calendar year following the calendar year in which such
subsequent Plan Year ends. Alternatively, distributions to a
Participant must begin no later than the applicable April 1st as
determined under the preceding sentence and must be made over a
period certain measured by the life expectancy of the
Participant (or the life expectancies of the Participant and his
designated Beneficiary) in accordance with Regulations.
Notwithstanding the foregoing, clause (ii) above shall not apply
to any Participant unless the Participant had attained age 70
1/2 before January 1, 1988 and was not a "five (5) percent
owner" at any time during the Plan Year ending with or within
the calendar year in which the Participant attained age 66 1/2
or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries
shall only be made in accordance with the incidental death
benefit requirements of Code Section 401(a) (9) (G) and the
Regulations thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method which
provides that the then present value of the payments to be made
over the period of the Participant's life expectancy exceeds
fifty percent (50%) of the then present value of the total
payments to be made to the Participant and his Beneficiaries.
(d) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in accordance
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<PAGE> 53
with Regulations. The election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be
subject to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V and VI
of Regulation 1.72-9.
(e) The restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to
have his retirement benefit paid in an alternative method acceptable under
Code Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982. Any such written designation made
by a Participant shall be binding upon the Plan Administrator
notwithstanding any contrary provision of Section 6.5.
(f) All annuity Contracts under this Plan shall be non-transferable
when distributed. Furthermore, the terms of any annuity Contract purchased
and distributed to a Participant or spouse shall comply with all of the
requirements of the Plan.
(g) If a distribution is made at a time when a Participant is not
fully Vested in his Participant's Account (employment has not terminated)
and the Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by the
formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage at the
relevant time, AB is the account balance at the relevant time, D is the
amount of distribution, and R is the ratio of the account balance at
the relevant time to the account balance after distribution.
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<PAGE> 54
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a)(1) The death benefit payable pursuant to Section 6.2 shall
be paid to the Participant's Beneficiary within a reasonable time
after the Participant's death by either of the following methods, as
elected by the Participant (or if no election has been made prior to
the Participant's death, by his Beneficiary) subject, however, to the
rules specified in Section 6.6(b):
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be determined by
the Participant or his Beneficiary. After periodic
installments commence, the Beneficiary shall have the
right to direct the Trustee to reduce the period over
which such periodic installments shall be made, and the
Trustee shall adjust the cash amount of such periodic
installments accordingly.
(2) In the event the death benefit payable pursuant to
Section 6.2 is payable in installments, then, upon the death of
the Participant, the Administrator may direct the Trustee to
segregate the death benefit into a separate account, and the
Trustee shall invest such segregated account separately, and
the funds accumulated in such account shall be used for the
payment of the installments.
(b) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant made on or
after January 1, 1985 shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a) (9)
and the Regulations thereunder. If it is determined pursuant to
Regulations that the distribution of a Participant's interest has
begun and the Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution
selected pursuant to Section 6.5 as of his date of death. If a
Participant dies before he has begun to receive any distributions of
his interest under the Plan or before distributions are deemed to
have begun pursuant to Regulations, then his death benefit shall be
distributed to his Beneficiaries by December 31st of the calendar
year in which the fifth anniversary of his date of death occurs.
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<PAGE> 55
However, the 5-year distribution requirement of the
preceding paragraph shall not apply to any portion of the deceased
Participant's interest which is payable to or for the benefit of a
designated Beneficiary. In such event, such portion shall be
distributed over a period not extending beyond the life expectancy of
such designated Beneficiary provided such distribution begins not
later than December 31st of the calendar year immediately following
the calendar year in which the Participant died. However, in the
event the Participant's spouse (determined as of the date of the
Participant's death) is his Beneficiary, the requirement that
distributions commence within one year of a Participant's death shall
not apply. In lieu thereof, distributions must commence on or before
the later of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the Participant would
have attained age 70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution
requirement of this Section shall apply as if the spouse was the
Participant.
(c) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made, shall be
irrevocable. If no election is made by the time distributions must
commence, then the life expectancy of the Participant and the
Participant's spouse shall not be subject to recalculation. Life
expectancy and joint and last survivor expectancy shall be computed
using the return multiples in Tables V and VI of Regulation 1.72-9.
(d) Subject to the spouse's right of consent afforded
under the Plan, the restrictions imposed by this Section shall not
apply if a Participant has, prior to January 1, 1984, made a written
designation to have his death benefits paid in an alternative method
acceptable under Code Section 401(a) as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee
is to make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution or series of payments may be made or begun on
such date or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits
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<PAGE> 56
(such election may not result in a death benefit that is more than incidental),
the payment of benefits shall begin not later than the 60th day after the close
of the Plan Year in which the latest of the following events occurs: (a) the
date on which the Participant attains the earlier of age 65 or the Normal
Retirement Age specified herein; (b) the 10th anniversary of the year in which
the Participant commenced participation in the Plan; or (c) the date the
Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored.
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
separated from service and has not reached the "earliest retirement age" under
the Plan. For the purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age" shall have the meaning
set forth under Code Section 414(p).
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<PAGE> 57
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method"
determined by the Employer, to invest, manage, and control the Plan
assets subject, however, to the direction of an Investment Manager if
the Trustee should appoint such manager as to all or a portion of the
assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the event of
their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year a
written annual report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall
act by a majority of their number, but may authorize one or more of
them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund
to keep the Trust Fund invested without distinction between principal
and income and in such securities or property, real or personal,
wherever situated, as the Trustee shall deem advisable, including, but
not limited to, stocks, common or preferred, bonds and other evidences
of indebtedness or ownership, and real estate or any interest therein.
The Trustee shall at all times in making investments of the Trust Fund
consider, among other factors, the short and long-term financial needs
of the Plan on the basis of information furnished by the Employer. In
making such investments, the Trustee shall not be restricted to
securities or other property of the character expressly authorized by
the applicable law for trust investments; however, the Trustee shall
give due regard to any limitations imposed by the Code or the Act so
that at all times the Plan may qualify as a qualified Profit Sharing
Plan and Trust.
(b) The Trustee may employ a bank or trust company
pursuant to the terms of its usual and
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<PAGE> 58
customary bank agency agreement, under which the duties of such bank or
trust company shall be of a custodial, clerical and record-keeping
nature.
(c) The Trustee, at the direction of the Administrator,
shall ratably apply for, own, and pay premiums on Contracts on the
lives of the Participants. If a life insurance policy is to be
purchased for a Participant, the aggregate premium for ordinary life
insurance for each Participant must be less than 50% of the aggregate
of the contributions and Forfeitures to the credit of the Participant
at any particular time. If term insurance is purchased with such
contributions, the aggregate premium must be less than 25% of the
aggregate contributions and Forfeitures allocated to a Participant's
Account. If both term insurance and contributions, the amount expended
for term insurance ordinary life insurance are purchased with such plus
one-half of the premium for ordinary life insurance may not in the
aggregate exceed 25% of the aggregate contributions and Forfeitures
allocated to a Participant's Account. The Trustee must convert the
entire value of the life insurance contracts at or before retirement
into cash or provide for a periodic income so that no portion of such
value may be used to continue life insurance protection beyond
retirement, or distribute the Contracts to the Participant. In the
event of any conflict between the terms of this Plan and the terms of
any insurance Contract purchased hereunder, the Plan provisions shall
control.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory authority, including the Act, and other provisions of the Plan,
shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of
securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property held
by the Trustee, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the application of
the purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other securities;
to give general or special proxies or
53
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powers of attorney with or without power of substitution; to exercise
any conversion privileges, subscription rights or other options, and to
make any payments incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other changes
affecting corporate securities, and to delegate discretionary powers,
and to pay any assessments or charges in connection therewith; and
generally to exercise any of the powers of an owner with respect to
stocks, bonds, securities, or other property;
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or more of
the Trustee's nominees, and to hold any investments in bearer form, but
the books and records of the Trustee shall at all times show that all
such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as the Trustee shall
deem advisable; and for any sum so borrowed, to issue a promissory note
as Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustee
shall be bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the best
interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may
deem advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to commence
or defend suits or legal or administrative proceedings, and to
represent the Plan in all suits and legal and administrative
proceedings;
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(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may or
may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance
companies, to be selected by the Administrator, as an investment of the
Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect, receive,
and settle for the proceeds of all such annuity or other Contracts as
and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To invest in shares of investment companies registered
under the Investment Company Act of 1940;
(o) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange;
(p) To deposit monies in federally insured savings accounts
or certificates of deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time,
with assets belonging to any other qualified employee pension benefit
trust created by the Employer or an affiliated company of the Employer,
and to commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or
trusts, allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(r) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the Trustee
may deem necessary to carry out the purposes of the Plan.
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7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make
loans to Participants and Beneficiaries under the following
circumstances: (1) loans shall be made available to all Participants
and Beneficiaries on a reasonably equivalent basis; (2) loans shall
not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Participants and
Beneficiaries; (3) loans shall bear a reasonable rate of interest;
(4) loans shall be adequately secured; and (5) shall provide for
repayment over a reasonable period of time.
(b) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date on
which such loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on which such loan
was made, or
(2) the greater of (A) one-half (1/2) of the present value
of the non-forfeitable accrued benefit of the Participant under
the Plan, or (B) $10,000.
For purposes of this limit, all plans of the Employer
shall be considered one plan. Additionally, with respect to any loan
made prior to January 1, 1987, the $50,000 limit specified in (1)
above shall be unreduced.
(c) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a period
not to exceed five (5) years. However, loans used to acquire any
dwelling unit which, within a reasonable time, is to be used
(determined at the time the loan is made) as a principal residence of
the Participant shall provide for periodic repayment over a
reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1, 1987
which are used to acquire, construct, reconstruct or substantially
rehabilitate any dwelling unit which, within a reasonable period of
time is to be used (determined at the time the loan is made) as a
principal residence of the Participant or a
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member of his family (within the meaning of Code Section 267(c) (4))
may provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made
less frequently than quarterly and which do not necessarily result in
level amortization.
(d) Any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988 shall be
made pursuant to a Participant loan program. Such loan program shall
be established in writing and must include, but need not be limited
to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that
will be taken to preserve Plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is hereby
incorporated by reference and made a part of the Plan. Furthermore,
such Participant loan program may be modified or amended in writing
from time to time without the necessity of amending this Section.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time
to time, in accordance with the terms of the Plan, make payments out of the
Trust Fund. The Trustee shall not be responsible in any way for the application
of such payments.
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7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall
from time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel
fees incurred by it as Trustee. Such compensation and expenses shall be paid
from the Trust Fund unless paid or advanced by the Employer. All taxes of any
kind and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust Fund or the income thereof, shall
be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer's contribution for each Plan Year,
the Trustee shall furnish to the Employer and Administrator a written statement
of account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust
Fund upon sales or other dispositon of the assets
(c) the increase, or decrease, in the value of the
Trust Fund;
(d) all payments and distributions made from the
Trust Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its
receipt of each such statement of account, shall acknowledge
receipt thereof in writing and advise the Trustee and/or
Administrator of its approval or disapproval thereof. Failure by
the Employer to disapprove any such statement of account within
thirty (30) days after its receipt thereof shall be deemed an
approval thereof. The approval by the Employer of any statement of
account shall be binding as to all matters embraced therein as
between the Employer and the Trustee to the same extent as if the
account of the Trustee had been settled by judgment or decree in
an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if
the Trustee so desires.
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7.8 AUDIT
(a) If an audit of the Plan's records shall be
required by the Act and the regulations thereunder for any Plan
Year, the Administrator shall direct the Trustee to engage on
behalf of all Participants an independent qualified public
accountant for that purpose. Such accountant shall, after an audit
of the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the
close of the Plan Year, furnish to the Administrator and the
Trustee a report of his audit setting forth his opinion as to
whether any statements, schedules or lists that are required by
Act Section 103 or the Secretary of Labor to be filed with the
Plan's annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently. All
auditing and accounting fees shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to
enable the Administrator to comply with Act Section 103 is
maintained by a bank, insurance company, or similar institution,
regulated and supervised and subject to periodic examination by a
state or federal agency, it shall transmit and certify the
accuracy of that information to the Administrator as provided in
Act Section 103(b) within one hundred twenty (120) days after the
end of the Plan Year or by such other date as may be prescribed
under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by
delivering to the Employer, at least thirty (30) days before its
effective date, a written notice of his resignation.
(b) The Employer may remove the Trustee by mailing
by registered or certified mail, addressed to such Trustee at his
last known address, at least thirty (30) days before its effective
date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or
removal of any Trustee, a successor may be appointed by the
Employer; and such successor, upon accepting such appointment in
writing and delivering same to the Employer, shall, without
further act, become vested with all the estate, rights, powers,
discretions, and duties of his predecessor with like respect as if
he
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were originally named as a Trustee herein. Until such a successor
is appointed, the remaining Trustee or Trustees shall have full
authority to act under the terms of the Plan.
(d) The Employer may designate one or more
successors prior to the death, resignation, incapacity, or
removal of a Trustee. In the event a successor is so designated
by the Employer and accepts such designation, the successor
shall, without further act, become vested with all the estate,
rights, powers, discretions, and duties of his predecessor with
the like effect as if he were originally named as Trustee herein
immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve
as such, he shall furnish to the Employer and Administrator a
written statement of account with respect to the portion of the
Plan Year during which he served as Trustee. This statement shall
be either (i) included as part of the annual statement of account
for the Plan Year required under Section 7.7 or (ii) set forth in
a special statement. Any such special statement of account should
be rendered to the Employer no later than the due date of the
annual statement of account for the Plan Year. The procedures set
forth in Section 7.7 for the approval by the Employer of annual
statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any
such special statement in the manner provided in Section 7.7 shall
have the same effect upon the statement as the Employer's approval
of an annual statement of account. No successor to the Trustee
shall have any duty or responsibility to investigate the acts or
transactions of any predecessor who has rendered all statements of
account required by Section 7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the
Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
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7.11 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Section, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement
plan specified by the distributee in a direct rollover.
(1) An eligible rollover distribution is any distribution
of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to
the extent such distribution is required under section 401(a)
(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(2) An eligible retirement plan is an individual retirement
account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(3) A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former
spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former
spouse.
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(4) A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend
the Plan, subject to the limitations of this Section. However, any
amendment which affects the rights, duties or responsibilities of the
Trustee and Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee shall
not be required to execute any such amendment unless the Trust
provisions contained herein are a part of the Plan and the amendment
affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to be
used for or diverted to any purpose other than for the exclusive
benefit of the Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund to
revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment
or transaction having the effect of a Plan amendment (such as a
merger, plan transfer or similar transaction) shall be effective to
the extent it eliminates or reduces any "Section 411(d)(6) protected
benefit" or adds or modifies conditions relating to "Section
411(d)(6) protected benefits" the result of which is a further
restriction on such benefit unless such protected benefits are
preserved with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type
subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and Administrator
written notice of such termination. Upon any full or partial
termination, all amounts
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credited to the affected Participants' Accounts shall become 100%
Vested as provided in Section 6.4 and shall not thereafter be subject
to forfeiture, and all unallocated amounts shall be allocated to the
accounts of all Participants in accordance with the provisions
hereof.
(b) Upon the full termination of the Plan, the Employer
shall direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Section 6.5. Distributions to a Participant shall be
made in cash or in property or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except as
permitted by Regulations, the termination of the Plan shall not
result in the reduction of "Section 411(d) (6) protected benefits" in
accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d) (6) protected
benefits" in accordance with Section 8.1(c).
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable out of the Trust Fund to any person (including
a Participant or his Beneficiary) shall be subject in any manner to
anticipation,
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alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be void; and no
such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the
Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a result of a
loan from the Plan. At the time a distribution is to be made to or
for a Participant's or Beneficiary's benefit, such proportion of the
amount distributed as shall equal such loan indebtedness shall be
paid by the Trustee to the Trustee or the Administrator, at the
direction of the Administrator, to apply against or discharge such
loan indebtedness. Prior to making a payment, however, the
Participant or Beneficiary must be given written notice by the
Administrator that such loan indebtedness is to be so paid in whole
or part from his Participant's Account. If the Participant or
Beneficiary does not agree that the loam indebtedness is a valid
claim against his Vested Participant's Account, he shall be entitled
to a review of the validity of the claim in accordance with
procedures provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p), and those
other domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order", a
former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
9.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the State of New Jersey, other than its laws respecting
choice of law, to the extent not preempted by the Act.
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9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other
than the exclusive benefit of Participants, Retired Participants, or
their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section 403(c)
(2) (A), the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any
losses attributable thereto must reduce the amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided, however,
that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount
of funds handled shall be determined at the beginning of each Plan
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Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors,
shall be responsible for the validity of any Contract issued hereunder or for
the failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity of this Plan or for the tax or legal aspects
of this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
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9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
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9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed by
law for filing the Employer's return for the taxable year in which
the Plan was adopted, or such later date as the Secretary of the
Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(c), any contribution by the Employer to
the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may, within one (1) year
following the disallowance of the deduction, demand repayment of such
disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance. Earnings
of the Plan attributable to the excess contribution may not be
returned to the Employer, but any losses attributable thereto must
reduce the amount so returned.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity, whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
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10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions made
by Participating Employers, as well as all increments thereof.
However, the assets of the Plan shall, on an ongoing basis, be
available to pay benefits to all Participants and Beneficiaries under
the Plan without regard to the Employer or Participating Employer who
contributed such assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer
or a Participating Employer, shall not affect such Participant's
rights under the Plan, and all amounts credited to such Participant's
Account as well as his accumulated service time with the transferor
or predecessor, and his length of participation in the Plan, shall
continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the Employer or
Participating Employer by which the forfeiting Participant was
employed, except if the Forfeiture is for an Employee whose Employer
is an Affiliated Employer, then said Forfeiture shall be apportioned
to the Employer and Participating Employers who are Affiliated
Employers and be used to reduce contributions to the Plan. Should an
Employee of one ("First") Employer be transferred to an associated
("Second") Employer which is an Affiliated Employer, such transfer
shall not cause his Account balance (generated while an Employee of
"First" Employer) in any manner, or by any amount to be forfeited.
Such Employee's Participant Account balance for all purposes of the
Plan, including length of service, shall be considered as though he
had always been employed by the "Second" Employer and as such had
received contributions, forfeitures, earnings or losses, and
appreciation or depreciation in value of assets totaling the amount
so transferred.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer
bears to the total standing to the credit of all Participants.
69
<PAGE> 75
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
70
<PAGE> 76
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d) (6) protected benefits" in accordance with Section 8.1(c). If no
successor is designated, the Trustee shall retain such assets for the Employees
of said Participating Employer pursuant to the provisions of Article VII hereof.
In no such event shall any part of the corpus or income of the Trust as it
relates to such Participating Employer be used for or diverted to purposes other
than for the exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
71
<PAGE> 77
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
Garden State Nutritionals, Inc.
By /s/ STEPHEN J. YOUNG
------------------------
EMPLOYER
/s/ EDWARD M. FRANKEL
--------------------------
TRUSTEE
77
<PAGE> 78
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
Garden State Nutritionals,
Inc.
By /s/ EDWARD M. FRANKEL
-------------------------
EMPLOYER
Windmill Marketing Services,
Inc.
By /s/ EDWARD M. FRANKEL
-------------------------
EMPLOYER
/s/ EDWARD M. FRANKEL
---------------------------
TRUSTEE
72
<PAGE> 79
GARDEN STATE NUTRITIONALS, INC.
EMPLOYEES PROFIT SHARING PLAN
Amendment
THIS AGREEMENT, by and between Garden State Nutritionals, Inc. and Windmill
Marketing Services, Inc. as the Employer and Ed Frankel as Trustee.
WHEREAS, it is desired to amend the Garden State Nutritionals, Inc. Employees
Profit Sharing Plan heretofore established by the Employer.
NOW THEREFORE, it is hereby agreed by and between the Employer and the Trustee
that said Plan is hereby amended effective September 1, 1992 as follows:
Article IV, Section 4.1(a) shall be amended to read as follows:
(a) For each Plan Year, the Employer shall contribute to the Plan
on behalf of each of the following groups of Participants such amount as shall
be determined by the Employer.
(1) Group A shall consist of: National Vitamin Concepts,
Inc. Employees. Effective September 1, 1993, Garden State
Nutritionals, Inc. Employees.
(2) Group B shall consist of: Garden State
Nutritionals, Inc. Employees. Effective September 1, 1993, Windmill
Marketing Services, Inc. Employees.
(3) Group C shall consist of: Windmill Marketing Services,
Inc. Employees. Effective September 1, 1993, no Employees in Group C.
Effective September 1, 1994, Cel-Mark International, Inc. Employees.
Article IV, Section 4.3, Subsections (d), (e), (f), (g), (h), (j), (j), (k), (l)
shall be renumbered to read as Section 4.3, Subsections (i), (j), (k), (l),
(m), (n), (o), (p) and (q), respectively.
Article IV, Section 4.3(c) shall be amended to read as follows:
(c) The Administrator shall determine the allocations in accordance
with the following steps:
1. For any top heavy plan year, the contribution shall
first be allocated to all participants, regardless of their Group, in
the proportion that each Participant's compensation bears to the total
Compensation of all eligible Participants for such Plan Year, but in no
event in an amount greater than 3% of the Compensation of any
Participant.
2. Any remaining contribution shall then be allocated to
the members of Group A in an amount sufficient so that, in total the
allocation to such
<PAGE> 80
member equals the lesser of: i) 16.377% (Effective September 1,
1993, 15%) of his or her Compensation; or ii) the maximum allocation
permitted under Section 415 of the Code.
3. Any remaining contribution shall then be
allocated to the members of Group 3 in an amount sufficient so that, in
total the allocation to each member equals the lesser of: i) 15.087%
(Effective September 1, 1993, 4.9661%; Effective September 1, 1994, 5%)
of his or her Compensation; or ii) the maximum allocation permitted
under Section 415 of the Code.
4. Any remaining contribution shall then be allocated
to the members of Group C in an amount sufficient so that, in total the
allocation to each member equals the lesser of: i) 6.518% (Effective
September 1, 1994, 5%) of his or her Compensation; or ii) the maximum
allocation permitted under Section 415 of the Code.
5. In the event that any remaining unallocated
contribution exists after completion of the procedure set forth in the
preceding portion of this subsection (c), subject to the maximum
allocation limitations imposed by Section 415 of the Code, such
remaining contribution shall be reallocated among Participants eligible
to share in the contribution by increasing the allocation to each
Participant in the proportion that the Compensation of such Participant
bears to the total Compensation of all Participants eligible to share
in the contribution.
Article IV, Sections 4.3 (d), (e), (f), (g), (h) shall be added to read as
follows:
(d) After completion of an initial allocation in accordance with the
provisions of subsection (c) above, the Administrator shall perform a
discrimination test in accordance with the procedures outlined herein. The
allocation rates and account balances shall be used for each Participant to
compute a normalized benefit, a theoretical reserve, a fractional rule benefit
and actuarial present value of the fractional rule benefit each as hereinafter
defined, as if the Plan were a defined benefit pension plan. For this purpose,
the testing age shall be the Normal Retirement Age hereunder, and benefits
shall be normalized by projecting current contributions at an interest rate of
8.5% per annum and converting to an equivalent annual benefit using the UP-1984
Mortality Table and 8.5% interest. Each Participant's minimum contribution
shall be determined by computing the excess of the actuarial present value of
the fractional rule benefit over the Participant's theoretical reserve for the
current Plan Year and by amortizing such excess over the period beginning on
the determination date for the current plan year and ending with the
determination date in which the participant is projected to reach Normal
Retirement Age. Such excess shall be expressed either as a dollar amount or as
a percentage of each Participant's Compensation and shall be known as the
"equivalent accrual rate".
<PAGE> 81
(e) Adjusting accrual rates -- (1) In general. For purposes of
section (c) above, and in computing a normalized benefit, the adjusted
equivalent accrual rate for each Participant is to be determined by computing
the excess benefit percentage under the hypothetical plan formula that would
yield the employer-provided accrual actually received by the Participant, if
the plan took into account the full permitted disparity in each of the first 35
years of a Participant's testing service under the plan and used the
Participant's covered compensation as the integration level. This adjusted
accrual rate shall be used to determine whether the amount of employer-provided
benefits under the plan satisfies the alternative safe harbor for flat benefit
plans in that the minimum annual rate of increase of the normal accrual rates
for all non highly compensated employees shall be equal to 70 percent of the
average of increase of the normal accrual rates for participants who are
highly-compensated employees or the "general test" as hereinafter defined, in
accordance with subsections (e)(2) and (e)(3) below, depending on whether the
Participant's Compensation exceeds or does not exceed covered compensation
under the Plan.
(2) Participants whose average annual compensation does not exceed covered
compensation. If a Participant's average annual compensation does not exceed
the Participant's covered compensation, the Participant's adjusted accrual rate
is the lesser of the A rate and the B rate determined under the formulas below,
where the permitted disparity factor and the unadjusted accrual rate are
determined under Treasury Regulation Sections 1.401(a)(4) - (7)(c)(4)(iii) and
(v), respectively.
A Rate = 2 x unadjusted accrual rate
B Rate = unadjusted accrual rate + permitted disparity factor
(3) Participants whose average annual compensation exceeds covered
compensation. If a Participant's average annual compensation exceeds the
participant's covered compensation, the participant's adjusted accrual rate is
the lesser of the C rate and D rate determined under the formulas below, where
the employer-provided accrual and the permitted disparity factor are
hereinafter defined.
employer-provided accrual
C Rate = -----------------------------------------
average annual compensation - 1/2 covered compensation
employer-provided accrual
+
D Rate = (permitted disparity factor x covered compensation)
-------------------------------------------------
average annual compensation
(f) In the event that the initial allocation, computed in accordance
with subsection(c) hereof, is less than a Participant's minimum contribution
determined in accordance with subsection (d) hereof for any Participant in
Groups B or C, the Administrator shall increase the allocation on behalf of
such Participants, starting with those Participants who are members of group C
and then for members of group B, (by decreasing the allocation for Participants
in Group A) only in
<PAGE> 82
such amounts necessary that when the discrimination test set forth in
subsection (d) hereof is satisfied. The Administrator shall continue to
increase the allocations of Groups C and B, successively, in the order and
manner above stated, (and by decreasing the allocation to Group A) until the
discrimination test set forth in subsection (d) is satisfied. The allocation
which satisfies the discrimination regulations set forth in subsection (d)
hereof, shall become the final allocation to Participants on account of a
particular Plan Year.
(g) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former participants, if any, in
accordance with Section 6.4(g). The remaining Forfeitures, if any, shall be
allocated among the Participants' Accounts in the same manner as Employer
Contributions in accordance with this Section 4.3. For this purpose the amount
of remaining Forfeitures shall be added to the amount of Employer Contributions
allocated in accordance with Sections 4.3 (a), (b) and (c) hereof. In the event
that the addition of Forfeitures to the Employer contribution causes the
"annual addition" of any Participant to be violated and such violation is not
corrected through application of the procedures in Section 4.3 (d) and (e)
hereof, any amount allocated to a Participant's Account to exceed the amount
allowable by Section 415 of the Code, the excess shall be reallocated in
accordance with Section 4.5
(h) Definitions - For purposes of this section 4.3, the following
definitions apply:
i) Theoretical Reserve shall mean a) initially: zero: and b) in
subsequent Plan Years, as of a determination date, is the employee's
theoretical reserve as of the determination date for the previous Plan
Year plus the employer's required contribution for such prior Plan Year
(as limited by the limitations on maximum contributions hereunder (as
set forth in article 4.4 hereof), but without regard to employer
contributions used to reduce other employers contributions), both
increased with interest through the determination date for the current
plan year, but not beyond the determination date for the Plan Year that
includes the employee's Normal Retirement Date.
ii) Normalized Benefit shall mean the account balance of the
Participant, as if it was a single sum benefit payable immediately and
unconditionally to the Participant, expressed as a straight life
annuity at the Participant's Normal Retirement Age using the interest
and mortality assumptions set forth in this Section 4.3.
iii) Fractional Rule Benefit shall mean the Participant's Annual
benefit commencing at his Normal Retirement Age under the Plan to which
the Participant would be entitled if he continued to earn annually until
such Normal Retirement Age the same rate of Compensation, provided
however, that Compensation may not take into account average
compensation for more than the ten years immediately preceding the
determination.
<PAGE> 83
iv) Present Value of Fractional Rule Benefit shall mean
the actuarial present value of the Fractional Rule Benefit using the
standard interest and mortality tables set forth in this Section 4.3,
on a consistent basis for all Participants, and further assuming no
mortality before the employee's Normal Retirement Age.
v) Permitted Disparity Factor shall mean the mum of a
Participant's annual permitted disparity factors determined for each of
the years in the measurement period used for determining the accrual
rate hereunder which shall be the Plan Year.
vi) Unadjusted Accrual Rate shall mean the most valuable
accrual rate expressed as a percentage of the Participants average
annual compensation without imputing permitted disparity.
vii) General Test shall mean a test whereby the employer
provided benefits for each rate group are non-discriminatory, in that
the average of the normal accrual rates for all non highly compensated
employees in the rate group must be at least 70 percent of the average
of the normal accrual rates for all highly compensated nonexcludable
employees in the rate group. A rate group consists of each Highly
Compensated Employee and all other employees who have a normal accrual
rate greater than or equal to the Highly Compensated Employee's normal
accrual rate and who also have a most valuable accrual rate greater
than or equal to the Highly Compensated Employees most valuable accrual
rate.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, and the
Trustees have caused these presents to be signed this _______ day of
_________________, 19.
<PAGE> 84
GARDEN STATE NUTRITIONALS, INC.
PROFIT BEARING PLAN
AMENDMENT
THIS AGREEMENT, by and between Garden State Nutritionals Inc. as the Employer
and Ed Frankel as Trustee.
WHEREAS, it is desired to amend the Garden State Nutritionals Inc. Profit
Sharing Plan, heretofore established by the Employer.
NOW THEREFORE, it is hereby agreed by and between the Employer and the Trustee
that said Plan is hereby amended effective September 1, 1995 as follows:
Article 1, Section 1.5 shall be amended to read as follows:
1.5 "Anniversary Date" means December 31.
Article 1, Section 1.36 shall be amended to read as follows:
1.36 "Plan Year" means the plan's accounting year of twelve (12)
months commencing on January 1st of each year and ending the following December
31st, except however, for the short Plan Year commending on September 1, 1995
and ending on December 31, 1995. Thereafter, the plan year shall commence on
January 1st of each year and end on the following December 31st.
IN WITNESS WHEREOF, the Employer, by its duly authorized officers, and the
Trustee have caused these presents to be signed this day of__________,
19_______.
By: /s/ EDWARD M. FRANKEL
-------------------------
President
By: /s/ EDWARD M. FRANKEL
-------------------------
Trustee
<PAGE> 85
NAME OF PLAN: GARDEN STATE NUTRITIONALS, INC.
EMPLOYEES PROFIT SHARING PLAN
NAME OF EMPLOYER: GARDEN STATE NUTRITIONALS, INC.
Change to comply with IRS Code Section 401(a)(17) by adoption of Model
Amendment No. 2 pursuant to IRS Revenue Procedure 93-39.
Model Amendment II
The above named employer hereby resolves to amend the above named Plan by
resolution of its board of directiors, its partners or its proprietor, as the
case may be, effective as of the later of the first day of the first Plan Year
beginning after December 31, 1993 or the date this amendment is adopted.
1.8 COMPENSATION
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
<PAGE> 86
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
This amendment constitutes resolutions by the employer, and is executed this
10th day of November, 1994.
Directors, Partners or Trustees
Proprietor (sign below) (sign below)
- ---------------------------------- ----------------------------------
/s/ EDWARD M. FRANKEL /s/ EDWARD M. FRANKEL
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
<PAGE> 87
ADOPTION AND JOINDER AGREEMENT
FOR THE
GARDEN STATE NUTRITIONALS, INC.
EMPLOYEES PROFIT SHARING PLAN
THIS AGREEMENT, hereby made and entered this day of August 22, 1995, by and
between Garden State Nutritionals, Inc. and Cel-Mark International, Inc.
WITNESSETH :
WHEREAS, Cel-Mark International, Inc. hereby adopts and joins the Garden State
Nutritionals, Inc. Employees Profit Sharing Plan as a Participating Employer.
WHEREAS, said Participating Employer agrees to use Ed Frankel as Trustee of the
Plan.
IN WITNESS WHEREOF, this agreement has been executed the day and year first
above written.
GARDEN STATE NUTRITIONALS,INC. CEL-MARK INTERNATIONAL, INC.
11-2496083 22-3049343
BY: /s/ KEITH I. FRANKEL BY: /s/ KEITH I. FRANKEL
--------------------- ---------------------
<PAGE> 1
EXHIBIT 10.8.1
[ART WORK]
<TABLE>
<S> <C>
CHEMICAL BANK April 23, 1996
270 Park Avenue
New York, NY 10017-2070 An Amendment and Waiver, dated as of
April 23, 1996 to Term Loan Agreement
dated September 28, 1995 by and among
Garden State Nutritionals, (the
"Borrower") and Chemical Bank, a New
York banking corporation (together
with its successors and/or assigns,
the "Bank").
</TABLE>
Mr. Stephen J. Young
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Dear Steve:
WHEREAS. The Borrower has requested and the Bank has agreed, subject to the
terms and conditions of this Waiver, to amend and waive the Agreements in
certain aspects.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, that as of December 31, 1995, the parties
hereto agree as follows:
1. The definition of Debt Service Coverage Ratio stated in the Loan
Agreement dated 12/1/95 be amended and replaced completely with the
following:
(a) "Debt Service Coverage Ratio" (i) for the past 12 months, sum of
(x) net profits before taxes. Interest Expense, non-cash Interest
Expense, depreciation and amortization minus (y) Capital
Expenditures. Dividends and distributions plus (z) Chemical Bank
funded debt to finance distributions or Capital Expenditures
divided by (ii) for the next 12 months, the current portion of
long-term debt and/or Interest Expense on the Loan at the time at
which the Debt Service Coverage Ratio is being determined.
2. An increase in allowable capital expenditures from $300,000 to
$587,791 for the fiscal period ended 12/31/95 ONLY.
3. An extension to 120 days, from 90 days after fiscal year end 12/31/95
ONLY on the requirement to provide financial statements.
Except as expressly waived or consented to hereby, the Agreement shall remain in
full force and effect in accordance with the original terms thereof. The Waiver
herein contained is limited specifically to the matter set forth above and does
not constitute directly or by implication waiver of any provision of the
Agreement or any default which may occur or may have occurred under the
Agreement.
<PAGE> 2
In witness whereof, the parties have caused this Waiver to the Agreement to be
duly executed by their authorized officers all as of the day and year first
above written.
<TABLE>
<S> <C>
Chemical Bank Garden State Nutritionals, Inc.
By: /s/ STEPHEN W. REVIS By: /s/ Edward M. Frankel
- -------------------------------------------- --------------------------------------------
Stephen W. Revis Title: President
Vice President By: /s/ STEPHEN J. YOUNG
--------------------------------------------
Title: Vice President, Finance
</TABLE>
<PAGE> 1
EXHIBIT 10.8.2
[ART WORK]
<TABLE>
<S> <C>
CHEMICAL BANK April 23, 1996
270 Park Avenue
New York, NY 10017-2070 Amendment and Waiver, dated as of
April 23, 1996 to Term Loan Agreement
dated December 1, 1995 by and among
Leknarf Associates, LLC (the
"Borrower") and Garden State
Nutritionals (the "Guarantor") and
Chemical Bank, a New York banking
corporation (together with its
successors and/or assigns, the
"Bank").
</TABLE>
Mr. Stephen J. Young
Leknarf Associates, LLC
C/O Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Dear Steve:
WHEREAS. The Borrower and Guarantor have requested and the Bank has agreed,
subject to the terms and conditions of this Waiver, to amend and waive the
Agreements in certain aspects.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, that as of December 31, 1995, the parties
hereto agree as follows:
1. The definition of debt service coverage stated in the Loan Agreement
dates 12/1/95 be amended and replaced completely with the following:
(a) "Debt Service Coverage Ratio" (i) for the past 12 months, sum of
(x) net profits before taxes. Interest Expense, non-cash Interest
Expense, depreciation, and amortization minus (y) Capital
Expenditures, Dividends and distributions plus (z) Chemical Bank
funded debt to finance distributions or Capital Expenditures
divided by (ii) for the next 12 months, the current portion of
long-term debt and/or Interest Expense on the Loan at the time at
which the Debt Service Coverage Ratio is being determined.
2. An extension to 120 days, from 90 days after fiscal year end
12/31/95. ONLY on the requirement to provide financial statements.
Except as expressly waived or consented to hereby, the Agreement shall remain in
full force and effect in accordance with the original terms thereof. The Waiver
herein contained is limited specifically to the matter set forth above and does
not constitute directly or by implication waiver of any provision of the
Agreement or any default which may occur or may have occurred under the
Agreement.
<PAGE> 2
In witness whereof, the parties have caused this Waiver to the Agreement to be
duly executed by their authorized officers all as of the day and year first
above written.
<TABLE>
<S> <C>
Chemical Bank Leknarf Associates, LLC
By: /s/ STEPHEN W. REVIS By: /s/ EDWARD M. FRANKEL
- -------------------------------------------- --------------------------------------------
Stephen W. Revis Title: Member
Vice President By: /s/ KEITH I. FRANKEL
--------------------------------------------
Title: Member
Garden State Nutritionals, Inc.
By: /s/ EDWARD M. FRANKEL
--------------------------------------------
Title: President
By: /s/ STEPHEN J. YOUNG
--------------------------------------------
Title: Vice President, Finance
</TABLE>
<PAGE> 1
Exhibit 10.8.3
[ART WORK]
CHEMICAL BANK June 10, 1996
270 Park Avenue
New York, NY 10017-2070 An Amendment and Waiver to Loan
Agreements dated September 28, 1995
and November 12, 1992, with the
instruments and agreements executed
and delivered in connection
therewith, and Guaranties dated
September 28, 1995 and December 1,
1995 (collectively, the "Agreements")
by and among Garden State
Nutritionals, Inc. and Windmill
Marketing Services, Inc. (the
"Borrowers") and Chemical Bank, a New
York banking corporation (together
with its successors and/or assigns,
the "Bank").
Mr. Stephen J. Young
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Dear Steve:
Whereas, the Borrowers have requested and the Bank has agreed, subject to the
terms and conditions of this letter, to amend and waive the Agreements in
certain aspects.
Now, Therefore, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Borrowers have advised the Bank that they shall merge into a newly
formed corporation named Vitaquest International, Inc. ("Vitaquest").
The Bank hereby consents thereto, notwithstanding anything to the
contrary contained in any of the Agreements provided that the
conditions set forth in Section 4(a), Section 4(b) and Section 4(c),
as it applies to a post-merger balance sheet of Vitaquest, below are
satisfied. In addition, for the period ended March 31, 1996, the Bank
agrees to accept the unaudited, combining financial statement of the
Borrowers and Celebrity International, Inc. t/a Celmark International
in satisfaction of the quarterly financial requirements in the
Affirmative Covenant sections of the Agreements.
2. You have advised the Bank that, on May 13, 1996, Vitaquest filed with
the Securities and Exchange Commission, a preliminary Registration
Statement for the Initial Public Offering of shares of its Capital
Stock. If such Registration Statement is declared effective and
Vitaquest receives at least $30,000,000 of gross proceeds therefrom,
then notwithstanding anything to the contrary contained in any of the
Agreements provided that Vitaquest delivers to the Bank a copy of its
opening balance sheet after such Initial Public Offering (condition c
of Section 4 below in respect of initial public offering) and a copy
of the final Registration Statement (condition d of Section 4 below)
the Bank agrees that:
(a) Vitaquest may incur indebtedness to the holders of its stock
prior to such declaration of effectiveness, equal to the amount
of undistributed 1996 S corporation earnings of the Borrowers;
<PAGE> 2
(b) Vitaquest shall have the right to loan or contribute the net
proceeds of such Initial Public Offering to a wholly-owned to-be
formed subsidiary of Vitaquest, provided that:
(i) such subsidiary is and remains qualified as an investment
company under N.J.S.A. 54: 10A-27; and
(ii) prior to any such loan or contribution, such subsidiary
executes and delivers to the Bank such guarantee of the
obligations of the Borrowers and Vitaquest to the Bank as
the Bank shall require:
(c) Section 4(I) of the November 12, 1992 Loan Agreement and Section
8.8(a) of the September 28, 1995 Loan Agreement are hereby
amended to read as follows:
"4(I): Permit any change in the ownership of Borrower, except
that (x) Borrower's majority shareholders; Edward, Keith and
Frank Frankel and trusts established for the benefit of any of
them may acquire the minority interest in Borrower without the
consent of the Bank, and (y) such ownership may change provided
that same does not result in Edward Frankel, Keith Frankel and
Frank Frankel and any trusts established for the benefit of any
of them, owning in the aggregate less than 25% of the issued and
outstanding shares of Capital Stock of the Borrower".
"8.8(a): Edward Frankel, Keith Frankel and Frank Frankel and any
trust established for the benefit of any of them do not own, in
the aggregate, at least 25% of the issued and outstanding shares
of Capital Stock of the Borrower; or"
3. The Bank agrees to an increase in allowable capital expenditures from
$300,000 to $5,000,000 total for the combined years ended 12/31/96
and 12/31/97 ONLY. If the Initial Public Offering is complete, the
$5,000,000 capital expenditures will be paid for out of capital
raised in the public offering. If the public offering is not
complete, the capital expenditures will be paid for by cash flow from
the operations of Vitaquest.
4. This Amendment and Waiver is subject to receipt and satisfactory
review by the Bank of the following:
(a) A certificate signed by a senior officer or officers of
Vitaquest and the Borrowers certifying:
(i) that the copies of the Certificate of Incorporation and
By-laws of Vitaquest, Plan of Merger of Vitaquest and the
Borrowers, and resolutions adopted by the boards of
directors of Vitaquest and the Borrowers adopting the Plan
of Merger, all as delivered to the Bank on May 22, 1996,
are true and correct in all respects and remain in full
force and effect without amendment; and
(b) the Certificate of Merger merging Vitaquest and the Borrowers,
filed in the offices of the Secretary of State of the State of
New Jersey and Delaware; and
(c) the opening balance sheet of Vitaquest after the merger and
Initial Public Offering;
(d) the final S.E.C. Registration Statement for the Initial Public
Offering; and
(e) an agreement, in form and substance reasonably satisfactory to
the Bank, by Vitaquest assuming and agreeing to be responsible
for the obligations of the Borrowers to the Bank.
Except as expressly waived or consented to hereby, the Agreements shall remain
in full force and effect in accordance with the original terms thereof. The
waivers herein contained are limited specifically to the matter set forth above
and do not constitute directly or by implication waiver of any other provision
of the Agreements or any default which may occur or may have occurred under the
Agreements.
<PAGE> 3
In witness whereof, the parties have caused this Amendment and Waiver to the
Agreements to be duly executed by their authorized officers all as of the day
and year first above written.
<TABLE>
<S> <C>
Chemical Bank Garden State Nutritionals, Inc.
By: /s/ Stephen W. By: /s/ Edward M. Frankel
Revis --------------------------------------------
- -------------------------------------------- Title: President
Stephen W. Revis
Vice President By: /s/ Stephen J. Young
--------------------------------------------
Title: Vice President, Finance
Vitaquest International Inc.
By: /s/ Edward M. Frankel
--------------------------------------------
Title: President
By: /s/ Stephen J. Young
--------------------------------------------
Title: Secretary
Windmill Marketing Services, Inc.
By: /s/ Edward M. Frankel
--------------------------------------------
Title: President
By: /s/ Stephen J. Young
--------------------------------------------
Title: Vice President, Finance
</TABLE>
<PAGE> 1
Exhibit 10.13
PROMISSORY NOTE
June 14, 1996
U.S. $2,428,000.00
FOR VALUE RECEIVED, the undersigned, VITAQUEST INTERNATIONAL INC., a
Delaware corporation with offices at 100 Lehigh Drive, Fairfield, New Jersey
07004 (the "Maker"), hereby promises to pay to the order of EDWARD M. FRANKEL
(the "Payee"), at 100 Lehigh Drive, Fairfield, New Jersey 07004 or at such other
place as the Payee may specify, the principal sum of the lesser of (x) Two
Million Four Hundred Twenty Eight Thousand Dollars ($2,428,000.00), or (y) such
amount as is equal to the product of (i) 48.56%, multiplied by (ii) the amount
of Maker's undistributed earnings (as determined by the Company's independent
certified public accountants) for the period April 1, 1996 to the date on which
Maker ceases to be an S corporation for Federal and State income tax purposes
(the "Termination Date"), together with interest thereon at the rate of eight
and one-half percent (8.5%) per annum from the Termination Date, in lawful money
of the United States, payable in thirty-six (36) equal monthly installments on
the 1st day of each month beginning on the 1st day of the 1st month following
the month in which the amount of such undistributed earnings is so determined.
In the event that any installment of this Note is not paid when due and
such non-payment is not cured within ten (10) days after notice thereof is given
to Maker at Maker's above address, then, and in such event, the holder of this
Note may by delivery of written notice of acceleration to the Maker declare the
entire unpaid principal balance of this Note to be due and payable, whereupon,
the same shall become and be immediately due and payable.
All notices, requests, demands and other communications which are required
or permitted to be given under this Note shall be in writing and shall be deemed
to have been duly given upon the delivery or mailing thereof, as the case may
be, if delivered personally or sent by overnight commercial mail service or by
registered or certified mail, return receipt requested, postage prepaid.
The Maker agrees to pay all costs of enforcement and collection of this
Note, including but not limited to, reasonable attorneys' fees, disbursements
and court costs.
The Maker hereby waives presentment, demand for payment, notice of
dishonor, protest and notice of protest, and all other notices or demands in
connection with the delivery, acceptance, performance, default, endorsement or
guarantee of this Note.
The Maker shall have the right to prepay this Note in whole or in part,
without premium or penalty from time to time.
This Note shall be construed in accordance with, and any dispute arising in
connection herewith shall be governed by, the laws of the State of New York
applicable to contracts made and to be performed in said state.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
<PAGE> 2
PROMISSORY NOTE
U.S. $2,039,500.00 June 14, 1996
FOR VALUE RECEIVED, the undersigned, VITAQUEST INTERNATIONAL INC., a
Delaware corporation with offices at 100 Lehigh Drive, Fairfield, New Jersey
07004 (the "Maker"), hereby promises to pay to the order of KEITH I. FRANKEL
(the "Payee"), at 100 Lehigh Drive, Fairfield, New Jersey 07004 or at such other
place as the Payee may specify, the principal sum of the lesser of (x) Two
Million Thirty Nine Thousand Five Hundred Dollars ($2,039,500.00), or (y) such
amount as is equal to the product of (i) 40.79%, multiplied by (ii) the amount
of Maker's undistributed earnings (as determined by the Company's independent
certified public accountants) for the period April 1, 1996 to the date on which
Maker ceases to be an S corporation for Federal and State income tax purposes
(the "Termination Date"), together with interest thereon at the rate of eight
and one-half percent (8.5%) per annum from the Termination Date, in lawful money
of the United States, payable in thirty-six (36) equal monthly installments on
the 1st day of each month beginning on the 1st day of the 1st month following
the month in which the amount of such undistributed earnings is so determined.
In the event that any installment of this Note is not paid when due and
such non-payment is not cured within ten (10) days after notice thereof is given
to Maker at Maker's above address, then, and in such event, the holder of this
Note may by delivery of written notice of acceleration to the Maker declare the
entire unpaid principal balance of this Note to be due and payable, whereupon,
the same shall become and be immediately due and payable.
All notices, requests, demands and other communications which are required
or permitted to be given under this Note shall be in writing and shall be deemed
to have been duly given upon the delivery or mailing thereof, as the case may
be, if delivered personally or sent by overnight commercial mail service or by
registered or certified mail, return receipt requested, postage prepaid.
The Maker agrees to pay all costs of enforcement and collection of this
Note, including but not limited to, reasonable attorneys' fees, disbursements
and court costs.
The Maker hereby waives presentment, demand for payment, notice of
dishonor, protest and notice of protest, and all other notices or demands in
connection with the delivery, acceptance, performance, default, endorsement or
guarantee of this Note.
The Maker shall have the right to prepay this Note in whole or in part,
without premium or penalty from time to time.
This Note shall be construed in accordance with, and any dispute arising in
connection herewith shall be governed by, the laws of the State of New York
applicable to contracts made and to be performed in said state.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
<PAGE> 3
STOCK REDEMPTION AGREEMENT
STOCK REDEMPTION AGREEMENT (the "Agreement"), dated this 28th day of May,
1992, by and among 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, EARL WEISMAN ("Weisman" or the "Seller"),
residing at 8934 Kenton Avenue, Skokie, IL 60076 and, solely for the purposes of
Paragraph 6 hereto, MORRISON COHEN SINGER & WEINSTEIN (the "Escrow Agent"), as
escrow agent hereunder.
W I T N E S S E T H:
WHEREAS, the authorized capital stock of the Company consists of 2,500
shares of common stock, no par value (the "Common Stock"), of which, as of the
date hereof, 100 shares are issued and outstanding;
WHEREAS, Weisman currently owns an aggregate of 19 shares of Common Stock;
WHEREAS, Weisman desires to sell to the Company and the Company desires to
purchase and redeem from Weisman all of the shares of Common Stock owned by
Weisman (the "Shares") on the terms and conditions set forth herein; and
WHEREAS, it is contemplated that contemporaneously with the redemption of
the Shares hereunder, the following related transactions will also occur: (i)
Windmill Marketing Services, Inc. ("Windmill Marketing"), an affiliate of the
Company, will purchase and redeem all of Weisman's shares of capital stock of
Windmill Marketing, (ii) Windmill Marketing will purchase the business and all
or substantially all of the assets of Windmill Natural Vitamin Company, Inc., an
Illinois corporation, a majority of whose shares of capital stock are owned by
Weisman, (iii) Edward M. Frankel ("Frankel"), the majority shareholder of both
the Company and Windmill Marketing, shall purchase Weisman's entire equity
interest in Vitareal Associates, L.P., and (iv) Weisman shall purchase all of
Frankel's shares of capital stock of E. Burnham, Inc. (the transactions
described in clauses (i) through (iv) above shall hereinafter collectively be
referred to as the "Related Transactions").
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Redemption of the Shares. Subject to the terms and conditions herein
set forth the Seller shall sell, transfer, assign, convey and deliver to the
Company, and the Company shall purchase, redeem and accept from the Seller, on
the Closing Date (as defined hereinafter), all of the Seller's right, title and
interest in the Shares. The sale, transfer, assignment, conveyance and delivery
of the Shares by the Seller to the Company, as herein provided, shall be
effected on the Closing Date by delivery of the certificates representing the
Shares, stock powers endorsed in blank, a bill of sale and such other
instruments of sale,
<PAGE> 4
transfer, assignment and conveyance reasonably satisfactory in form and
substance to counsel for the Company. The Seller shall bear all state and local
sales, transfer, excise, value-added or other similar taxes, in each case that
may be imposed by reason of the sale, transfer, assignment, conveyance and
delivery of the Shares.
2. Closing. The closing of the transaction contemplated herein (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032 at 10:00 A.M., Central Daylight
Time, on Thursday, May 28, 1992 or at such other time and place as may be
mutually agreed upon in writing by the Seller and the Company (the "Closing
Date").
3. The Purchase Price. Upon and subject to the terms and conditions herein
set forth and in consideration of the sale, transfer, assignment, conveyance and
delivery of the Shares to the Company, the Company agrees to pay to the Seller
an aggregate purchase price of Two Hundred Nine Thousand Dollars ($209,000) (the
"Purchase Price").
4. Form of purchase Price. The Purchase Price shall be payable as follows:
(a) Ten Thousand Dollars shall be payable on the Closing Date, by
certified, banker's or cashier's check, to the Seller;
(b) Sixty-Five Thousand Dollars ($65,000) shall be payable on each of
the second and third anniversaries of the Closing Date (the "First
Principal Installment Payment" and "Second Principal Installment Payment,"
respectively), and Sixty-Nine Thousand Dollars ($69,000) shall be payable
on the fourth such anniversary (the "Third Principal Installment Payment"),
in each case, together with interest thereon, payable quarterly in arrears,
commencing with the third month following the month hereof, on the same day
of the month as the day hereof (or the last day of the month if there is no
corresponding day), at a fluctuating rate per annum equal to the prime or
equivalent rate of interest from time to time announced or published by
Chemical Bank, N.A., or if the foregoing ceases to exist or ceases to
announce or publish a prime rate of interest, such other New York money
center as the Company and the Seller may agree. All amounts payable
pursuant to this Paragraph 4(b) shall be evidenced by a promissory note
substantially in the form attached hereto as Exhibit A (the "Company
Note").
5. Delivery. At the Closing, the Seller shall deliver to the Company the
stock certificates evidencing the Shares, with all necessary transfer stamps
affixed thereto, together with separate stock powers endorsed in blank, and such
evidence of title to the Shares and of compliance with the terms and conditions
of this Agreement as may be reasonably required by counsel for the Company in
order that good and marketable title to the Shares shall pass from the Seller to
the Company.
2
<PAGE> 5
6. Collateral; Escrow.
(a) Immediately subsequent to the delivery, by the Seller to the
Company, of the stock certificates evidencing the Shares, as required by
Paragraph 5 hereto, the Company, in order to secure to the Seller the
prompt, full and faithful payment of its obligations under (i) Paragraph
4(b) hereto, as evidenced by the Company Note, and (ii) Paragraph 3(b) to
the Consulting and Non-Competition Agreement (the "Consulting and
Non-Competition Agreement") of even date herewith between the Company and
the Seller (the "Non-Compete Fee"), shall grant to the Seller a security
interest in the Shares. In connection therewith, and as evidence thereof,
the Company shall cause such stock certificates to be cancelled and a new
stock certificate evidencing the Shares to be issued in the name of the
Company, which new stock certificate, together with a stock power endorsed
in blank, shall be delivered to the Escrow Agent, to be held and delivered
by the Escrow Agent as hereinafter provided.
(b) All incidents of ownership of the Shares shall be vested solely in
the Company for so long as there are no Defaults (as defined below) by the
Company under the Company Note or the Consulting and Non-Competition
Agreement.
(c) If the Company defaults with respect to any of its obligations
under the Company Note or with respect to the Non-Compete Fee, and fails to
cure such default within the grace periods provided for therein (each such
default hereinafter to be referred to as a "Default"), the holder of the
Company Note or the Seller, as the case may be, upon fifteen (15) days
prior written notice to the Company, shall have the right to sell the
Shares evidenced by the stock certificates held by the Escrow Agent, in
accordance with Section 9-504 of the Illinois Uniform Commercial Code. Such
right shall be in addition to all other rights and remedies available under
law to the holder of the Company Notes and the Seller.
(d) Upon receipt by the Escrow Agent of the written notice from the
Company (the "Company Notice") that (i) the First, Second and Third
Principal Installment Payments have been made on a timely basis in
accordance with the terms of the Company Note, (ii) the Non-Compete Fee has
been paid in full, and (iii) all interest due and payable with respect to
the obligations described in (i) and (ii) immediately above has likewise
been paid, the Escrow Agent shall send a copy of such notice to the Seller
(the "Seller's Notice"). If the Escrow Agent does not receive any written
notice from the Seller within fifteen (15) days after having sent the
Seller's Notice which challenges the validity of the Company's Notice, or
which alleges Defaults by the Company under the Company Note or with
respect to the Non-Compete Fee subsequent to the sending of the Company
Notice, the Escrow Agent shall release from escrow and deliver to the
Company the stock certificate representing the Shares, together with a
stock power endorsed in blank.
(e) Upon receipt by the Escrow Agent of written notice from the Seller
that the entire unpaid balance of the Company Note or the Non-Compete Fee
has been declared due and payable following a Default by the Company, the
Escrow Agent shall send a copy of such notice (the "Default Notice") to the
Company and, unless within fifteen (15) days after
3
<PAGE> 6
having sent such Default Notice to the Company, the Escrow Agent receives
written notice from the Company which challenges the validity of the
statements made by the Seller in the Default Notice, the Escrow Agent shall
deliver to the Seller the stock certificate representing the Shares,
together with a corresponding stock power endorsed in blank.
(f) Each of the notices which, pursuant to subparagraph (d) to this
Paragraph 6, may be given by the Seller in response to the Company's
Notice, and pursuant to subparagraph (e) to this Paragraph 6, may be given
by the Company in response to a Default Notice, are collectively
hereinafter referred to as "No Validity Notices." If the Escrow Agent
receives a No Validity Notice from either party, it shall promptly notify,
in writing, the other party, and shall withhold delivery of all instruments
otherwise to be delivered by it hereunder until the controversy is settled
by written agreement of both parties or by a final judgment of a court of
competent jurisdiction.
(g) The Escrow Agent may, in its sole discretion, at any time (and
whether before or after its receipt of any No Validity Notices) deliver any
or all of the stock certificates representing the Shares into a court of
competent jurisdiction in an action for interpleader for such disposition
as may be directed by such court.
(h) The Escrow Agent shall be charged only with holding and delivering
the stock certificate as provided herein. The Escrow Agent assumes no
responsibility except for the holding and safekeeping of the stock
certificate as provided herein, and the delivery thereof as required
hereby, and shall not be liable for any action taken by it in good faith in
accordance with the terms of this Agreement.
(i) The Escrow Agent shall not be responsible in any manner for the
validity or sufficiency of any instruments, documents or any other property
delivered hereunder, or for any representations made or obligations assumed
by any other party to this Agreement. The Escrow Agent shall have the right
to act in reliance upon any document, instrument or signature believed by
it to be genuine and to assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof shall have
been duly authorized to do so. The Escrow Agent shall not be liable for any
action taken or omitted hereunder except in the case of its gross
negligence or willful misconduct. The Escrow Agent shall be entitled to
consult with independent counsel of its own choosing and shall not be
liable for any action taken, suffered or omitted by it in good faith in
accordance with the advice of such counsel.
(j) The Escrow Agent may at any time resign hereunder by giving
written notice of its resignation to the other parties hereto at least
twenty days prior to the date specified for such resignation to take
effect, and upon the effective date of such resignation, all property then
held by the Escrow Agent hereunder shall be delivered by it to such person
as may be designated in writing by all of the other parties hereto,
whereupon all obligations of the Escrow Agent hereunder shall cease and
terminate. If no such person shall have been designated by such date, all
obligations of the Escrow Agent shall, nevertheless, cease and terminate.
The Escrow Agent's sole responsibility thereafter shall be to keep safely
all property then held by
4
<PAGE> 7
it hereunder in accordance with this Agreement and to deliver the same to
the person or persons designated in writing by all of the parties hereto or
in accordance with the directions of a final, nonappealable order or
judgement of a court of competent jurisdiction.
(k) If there is any dispute relating to the property held hereunder,
or its disposition, the Company and the Seller shall be obligated to
reimburse the Escrow Agent jointly and severally for all of its costs and
expenses (including reasonable attorneys' fees and expenses), and the
Company and the Seller shall indemnify the Escrow Agent and hold harmless
the Escrow Agent jointly and severally from and against any claim asserted
against it, or any liability, loss or damage incurred by it, in connection
therewith provided that none of the foregoing was caused by Escrow Agent's
negligence or willful misconduct. Notwithstanding the foregoing, the
Seller's obligation to reimburse the Escrow Agent for its reasonable
attorneys' fees and expenses shall be limited to the lesser of one-half of
the aggregate costs thereof, or $10,000.
(l) Notwithstanding any other provision of this Agreement, no notice,
demand, request or other communication to the Escrow Agent in connection
herewith shall be binding on the Escrow Agent unless it is in writing,
refers specifically to this Agreement, is addressed to the Escrow Agent at
the address set forth in Paragraph 11 hereof, to the attention of the
person specified in said paragraph, or to such other address and person as
the Escrow Agent may at any time or from time to time designate, and is
actually received by the Escrow Agent at that address.
(m) The parties acknowledge that the Escrow Agent has served and will
continue to serve as legal counsel to the Company and each party hereto
consents to such continued representation, whether in litigation or
otherwise.
7. Subsequent Documentation. Seller shall at any time and from time to
time after the Closing Date, upon the request of the Company and at the expense
of the Seller, do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all further assignments, transfers,
conveyances and other evidence of the same as may be reasonably required for the
better assigning, transferring, granting, conveying and confirming to the
Company or its successors and assigns, or for aiding and assisting in collecting
and reducing to possession, the Shares
8. Representations and Warranties. The Seller represents and warrants to
the Company as follows:
(a) The Seller has full right, power and authority to execute, deliver
and enter into this Agreement and to carry out all the obligations
hereunder. This Agreement has been duly executed by the Seller and is the
valid and legally binding obligation of the Seller, enforceable against the
Seller in accordance with the terms hereof;
5
<PAGE> 8
(b) As of the date hereof, the Seller has good and marketable title to
the Shares, free and clear of all liens, mortgages, pledges, encumbrances,
charges, agreements, claims and equities whatsoever, with full right, power
and authority to sell, convey, transfer, assign and deliver the Shares to
the Company at the Closing;
(c) The Shares represent the Seller's entire interest in the Company.
The Seller does not own directly, indirectly or beneficially any other
shares of Common Stock or any options, warrants or other rights to purchase
additional shares of Common Stock;
(d) Upon delivery to the Company of the stock certificates
representing the shares, together with all necessary transfer tax stamps
affixed thereto, and separate stock powers endorsed in blank, the Company
will acquire good and marketable title to the Shares, free and clear of all
mortgages, liens, pledges, encumbrances, charges, agreements, claims and
equities whatsoever;
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
violate or conflict with any provision of law, or any order, judgment or
decree of any court or other governmental or regulatory authority to which
the Seller is subject, nor any contract or other agreement to which the
Seller is a party or is otherwise subject to;
(f) All transfer taxes which are required to be paid in connection
with the sale, transfer, conveyance, assignment and delivery of the Shares
pursuant to this Agreement shall have been fully paid and all laws imposing
such taxes shall have been fully complied with;
9. Waiver. Notwithstanding anything to the contrary contained in the stock
purchase agreement dated as of November 10, 1982, as amended, by and among, the
Seller, the Company and various other third parties (the "Stock Purchase
Agreement"), by consummation of this Agreement: (a) Seller and the Company
hereby waive any and all restrictions on the transferability of the Shares
contained in the Stock Purchase Agreement and (b) Seller agrees that payment for
the Shares shall be made in accordance with the provisions of Section 4 hereof
and Seller hereby waives his right to receive payment for the Shares in
accordance with the terms of Article Six of the Stock Purchase Agreement.
10. Conditions Precedent. The obligations of the parties hereto to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Closing Date, of the following conditions:
(a) All Related Transactions shall been consummated and closed.
(b) The Seller shall resign, in writing, from all official positions
with the Company in his capacity as an officer or director thereof.
6
<PAGE> 9
(c) The Seller shall enter into a consulting and non-competition
agreement with the Company.
(d) The Company shall have received such other certificates,
instruments and documents in confirmation of the representations and
warranties of the Seller or in furtherance of the transactions contemplated
by this Agreement as the Company or its counsel may reasonably request.
11. 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
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 Seller, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: 708/498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
7
<PAGE> 10
(c) If to the Escrow Agent, to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
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.
12. 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.
13. 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.
14. Waivers and Amendments. The Seller, on the one hand, and the Company,
on the other, may by written notice to the 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.
15. 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
8
<PAGE> 11
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.
16. 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.
17. 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.
18. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 11 hereof.
19. 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
9
<PAGE> 12
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 hereto have executed and delivered this
Agreement as of the day and year first above written.
GARDEN STATE NUTRITIONALS, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
By: /s/ EARL WEISMAN
------------------------------------
Earl Weisman
MORRISION COHEN SINGER & WEINSTEIN,
as Escrow Agent hereunder
By: /s/ STEPHEN A. COHEN
------------------------------------
Stephen A. Cohen
10
<PAGE> 13
Exhibit 10.24
SUBORDINATED PROMISSORY NOTE
$199,000 May 28, 1992
1. FOR VALUE RECEIVED, the undersigned, GARDEN STATE NUTRITIONALS, INC.
(the "Obligor"), a New Jersey corporation, with its principal office and address
at 100 Lehigh Drive, Fairfield, New Jersey 07006, hereby promises to pay to the
order of EARL WEISMAN (the "Payee"), residing 8934 Kenton Avenue, Skokie,
Illinois 60076, the principal sum of ONE HUNDRED NINETY-NINE THOUSAND DOLLARS
($199,000) together with interest at a fluctuating rate per annum on an amount
equal to the outstanding unpaid principal amount of this Subordinated Promissory
Note (the "Note") equal to the prime or equivalent rate of interest from time to
time announced or published by Chemical Bank, N.A., or if the foregoing ceases
to exist or ceases to announce or publish a prime or equivalent rate of
interest, such other New York money center bank as the Obligor and Payee may
agree.
2. Principal shall be payable in three annual installments as follows:
(a) Sixty-Five Thousand Dollars ($65,000) shall be payable on each of
the second and third anniversaries of the date hereof; and
(b) Sixty-Nine Thousand Dollars ($69,000) shall be payable on the
fourth anniversary of the date hereof.
3. Interest hereunder shall be payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the month as
the day hereof (or the last day of the month if there is no corresponding day).
4. Principal shall be prepayable without penalty, in whole or in
installments of Ten Thousand Dollars ($10,000) or multiples thereof, at any time
and from time to time.
5. The Obligor's payment, whether voluntary or involuntary, whether in
cash, property, securities or otherwise and whether by application of offset or
otherwise (each hereinafter a "Payment") of any of its obligations under this
Note or the Stock Redemption Agreement (the "Stock Redemption Agreement") dated
as of the date hereof between the Obligor and the Payee, shall be subject to the
following restrictions:
(a) Anything in this Note or the Stock Redemption Agreement to the
contrary notwithstanding, the obligations of the Obligor in respect of the
principal of and interest (including any premium or penalty) on this Note
and any other amounts due under this Note and the Stock Redemption
Agreement shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the Senior Debt. Senior
Debt, when used with respect to the Obligor, means (i) all indebtedness for
borrowed money, purchase money indebtedness, or capitalized lease
obligations of the Obligor originating from a bank, insurance or other
financial institution, (ii) all guarantees by the Obligor of any type of
indebtedness des-
<PAGE> 14
cribed in clause (i), and (iii) renewals, extensions, refinancing,
deferrals, restructurings, amendments, modifications and waivers of the
indebtedness described in clause (i) and (ii) above. Notwithstanding the
foregoing, "Senior Debt" shall not include any indebtedness which, by its
terms, is specifically made pari passu or subordinate to this Note.
(b) So long as the Senior Debt has not been paid in full, if there
shall occur an event of default or there shall occur any event which with
the passage of time or giving of notice, or both, would constitute an event
of default under the terms of any instrument or agreement relating to
Senior Debt (any of the foregoing being a "Senior Debt Default") then,
unless and until such Senior Debt Default shall have been remedied or
waived, or shall have ceased to exist or the Cut Off Period (as hereafter
defined) shall have expired as provided in paragraph 5(c)(iii) below, the
Obligor will not make any Payment on this Note or any other subordinated
debt instrument (this Note and all other subordinated debt instruments
shall hereinafter collectively be referred to as "Subordinated Debt"), and
the holders of Subordinated Debt, upon notice of an event of default as
described in this Paragraph 5(b), will not receive or accept any direct or
indirect Payment in respect thereof, and the Obligor may not redeem or
otherwise acquire this Note or any other Subordinated Debt instrument.
(c) If there shall exist any Senior Debt Default, and notice shall
have been given to the holder of this Note or any other Subordinated Debt
Instruments, then the holder of this Note or any other Subordinated Debt
instrument shall not take or continue any action or exercise or continue to
exercise any rights, remedies or powers under the terms of this Note, or
exercise or continue to exercise any other right or remedy at law or equity
that such holder might otherwise possess, to collect any amount due and
payable in respect of the Subordinated Debt, including, without limitation,
the acceleration of this Note, the commencement of any foreclosure on any
lien or security interest, the filing (or joining the filing) or any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction, unless and until the Senior Debt shall have been fully
and finally paid and satisfied, or unless and until
(i) Senior Debt in an amount greater than $5,000,000 shall have
been accelerated, in which case the holder of this Note and of any other
Subordinated Debt instrument shall be entitled to accelerate the
maturity thereof, if the holder of this Note or any other Subordinated
Debt instrument concurrently gives notice of such acceleration to the
holders of the Senior Debt, but shall not be entitled to take any other
action described above unless otherwise permitted to do so by paragraphs
5(c)(ii) or (iii) below and, provided further, that the holder of this
Note and any other Subordinated Debt instrument will reverse any
acceleration if the holders of Senior Debt take similar action, or
(ii) one or more of the holders of the Senior Debt or the Obligor
shall have commenced, a Proceeding (as defined in paragraph 5(d) below),
or
2
<PAGE> 15
(iii) a period of time shall have expired which began upon the
occurrence of such Senior Debt Default and shall have ended 180 days
after the holder of Senior Debt learns of the Senior Debt Default,
unless such default is earlier cured or waived or such period is
extended as hereinafter provided (the original cut-off period, plus any
extension, being hereinafter referred to as the "Cut-Off Period"). If
any holder of Senior Debt accelerates the time for payment of Senior
Debt held by such holder prior to the end of the original Cut-Off
Period, the Cut-Off Period shall be deemed extended indefinitely until
such time as the acceleration has been rescinded by the Senior Debt
holder or the accelerated Senior Debt has been fully paid and satisfied.
(d) (i) Except as hereinafter provided and subject to the restrictions
set forth in paragraph 5(c) above, the holder of this Note may without the
request or consent of any holder of Senior Debt, file any claim, proof of
claim, or other instrument of similar character reasonably necessary to
enforce the obligations in respect of this Note ("Claim") in any
insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other proceeding for the relief of debtors
relating to the Obligor or its properties, or any proceeding for the
liquidation, dissolution or other winding up of the Obligor, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings
(each such action brought by any Person being herein defined as a
"Proceeding") and will, pursuant to the provisions of paragraph 5(g) below,
hold in trust for the holders of Senior Debt and promptly assign, transfer
and pay over to the holders of Senior Debt, in the form received, any and
all monies, dividends or other assets received in any such Proceeding on
account of this Note;
(ii) In the event (A) of any Proceeding, (B) of any assignment by the
Obligor for the benefit of creditors, (C) of any marshalling of all or a
substantial part of the assets of the Obligor, (D) the Obligor makes an
assignment for the benefit of creditors or admits in writing its inability
to pay its debts generally as they become due, (E) an order, judgment or
decree is entered adjudicating the Obligor as bankrupt or insolvent, (F)
any order for relief with respect to the Obligor is entered under the
Federal Bankruptcy Code, (G) the Obligor petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Obligor or of any substantial part of the assets of the
Obligor, or commences any proceeding relating to the Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, (H) any petition or
application described in (G) above is filed, or any such proceeding is
commenced, against the Obligor and either (I) the Obligor by any act
indicates its approval thereof, consents thereto or acquiescence therein or
(II) such petition application or proceeding is not dismissed within 60
days (each such event is hereinafter collectively referred to as an
"Insolvency Event"), then:
(aa) the holders of Senior Debt shall be entitled to receive
Payment in full in cash of all Senior Debt (including interest thereon
accrued after the date of commencement of such proceedings) before the
3
<PAGE> 16
holder of this Note shall be entitled to receive any Payment or
distribution of assets of the Obligor, of any kind or character, whether
in cash, property or securities or by set-off or otherwise, on account
of any Subordinated Debt;
(bb) any Payment or distribution of assets of the Obligor, of any
kind or character, whether in cash, property or securities, to which the
holders of Subordinated Debt would be entitled except for the provisions
of this paragraph 5(d) shall be paid or delivered by the Obligor
directly to the holders of Senior Debt in payment thereof until all
Senior Debt (including interest thereon accrued after the date of
commencement of such proceedings) shall have been paid in cash in full;
and
(cc) the holder of this Note, to the extent permitted by applicable
law, grants to the Senior Debt holders, or their agents, an irrevocable
power of attorney to file and thereafter prosecute any Claim which the
holders of Subordinated Debt may have in any Insolvency Event proceeding
with respect to such Subordinated Debt; provided, however, no holder of
Senior Debt shall be liable for any action or omission to act pursuant
to the Power of Attorney herein granted absent the gross negligence or
willful misconduct of such holder;
provided further, however, that: (x) in the event that Payment or delivery
of such assets, whether in cash, property or securities, to the holder of
Subordinated Debt, is authorized by an order or decree giving effect, and
stating specifically in such order or decree that effect is given to the
subordination of such Subordinated Debt to the Senior Debt hereunder, and
made by a court of competent jurisdiction in a reorganization proceeding to
a duly adopted plan or reorganization, no payment or delivery of such asset
payable or deliverable with respect to the Subordinated Debt shall be made
to the holders of Senior Debt; and (y) no such delivery shall be made to
holders of Senior Debt of securities which are issued pursuant to
reorganization proceedings or dissolution or liquidation proceedings (other
than as provided in Clause (x) above), or upon any merger, consolidation,
sale, lease, transfer or other disposal not prohibited by the provisions of
this Note, by the Obligor, as reorganized, or by the corporation succeeding
to the Obligor or acquiring its property and assets, (AA) if such
securities are subordinate and junior at least to the extent provided in
this paragraph 5 to the payment in full in cash of all Senior Debt then
outstanding and to the payment in full in cash of any securities which are
issued in exchange or substitution for any Senior Debt then outstanding,
and (BB) if no payment in respect of such securities is due by their terms
prior to payment in full in cash of the Senior Debt.
(e) Any holder of Senior Debt may, at any time and from time to time,
without the consent of, or notice to, the holder of this Note and without
incurring responsibility to the holder of this Note, and without impairing
or releasing the obligations of such holder:
4
<PAGE> 17
(i) Change the manner, place or terms of payment or change or
extend the time of payment of or renew or alter the Senior Debt or any
portion thereof;
(ii) Sell, exchange, release or otherwise deal with any collateral
securing the Senior Debt or any other property by whomsoever at any time
pledged or mortgaged to secure, or however securing, the Senior Debt or
any portion thereof; and
(iii) Apply all sums by whomsoever paid or however released to the
Senior Debt or any portion thereof.
(f) By acceptance of this Note, the holder hereby consents to the
making of Senior Debt and hereby acknowledges that each current and future
holder of Senior Debt has relied, and in the future will rely, upon the
terms of this Note. The holders of Senior Debt shall have no liability to
the holder of this Note and the holder of this Note hereby waives any claim
which it may have now or hereafter against any holder of Senior Debt
arising from any and all actions which any holder of Senior Debt may take
or omit to take in good faith with regard to the Senior Debt or its rights
or obligations hereunder.
(g) Until the Senior Debt has been repaid in full, in the event the
holder of this Note shall receive any Payment in contravention of the
provisions of this paragraph 5, including Payments arising under the
subordination provisions of any other indebtedness of the Obligor, the
holder of this Note shall hold all such Payments so received in trust for
the holders of Senior Debt and shall forthwith turn over all such Payments
to the holders of Senior Debt in the form received (except for the
endorsement or assignment of the holder as necessary, without recourse or
warranty) to be applied to payment of the Senior Debt whether or not then
due and payable. Any Payment so received in trust and turned over to the
holders of Senior Debt shall not be deemed a Payment in satisfaction of
this Note.
(h) If any payment or distribution to which the holder of this Note
would otherwise have been entitled but for the provisions of this paragraph
5 shall have been applied, pursuant to the provisions of this paragraph 5,
to the payment of Senior Debt, then and in such case, the holder of this
Note (i) shall be entitled to receive from the holders of Senior Debt at
the time outstanding any payments or distributions received by such holders
of Senior Debt in excess of the amount sufficient to pay all Senior Debt in
cash in full (whether or not then due), and (ii) following payment of the
Senior Debt in full, shall be subrogated to any right of the holders of
Senior Debt to receive any and all further payments or distributions
applicable to Senior Debt, until all the Subordinated Debt shall have been
paid in full. If the holder of this Note has been subrogated to the rights
of the holders of Senior Debt due to the operation of this paragraph 5(h),
the Obligor agrees to take all such reasonable actions as are requested by
such holder of this Note in order to cause such holder to be able to obtain
payments from the Obligor with respect to such subrogation rights as soon
as possible.
5
<PAGE> 18
(i) Except as expressly provided herein, nothing contained in this
paragraph 5 shall impair, as between the Obligor and the holder of this
Note, the obligation of the Obligor, which is absolute and unconditional,
to pay to the holder the amount of the Subordinated Debt due hereunder as
and when the same shall become due and payable in accordance with the terms
hereof.
(j) The holder of this Note, by its acceptance thereof, agrees that
each holder of Senior Debt has advanced funds or may in the future advance
funds in reliance upon the terms and conditions hereof.
(k) No right of any holder of Senior Debt to enforce its right of
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Obligor, or by
any act or failure to act by any such holder, or by any non-compliance by
the Obligor with the terms, provisions and covenants of the Subordinated
Debt, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(l) Any Payments received by a holder of Senior Debt from the Obligor
or the holder of this Note which, in connection with an Insolvency Event or
Proceeding, is required to be remitted to the payor or the bankrupt estate
shall not be deemed a Payment to such holder of Senior Debt for all
purposes hereunder.
6. In the event of (i) a sale of 80% or more of the then issued and
outstanding shares of capital stock of the Obligor or (ii) a sale of all or
substantially all of the assets of the Obligor (in each case, a "Triggering
Event"), the principal sum then remaining unpaid hereunder shall become due and
payable in full upon the payment of the aggregate purchase price with respect to
either such transaction; and if the aggregate purchase price is payable in
installments, principal shall become due and payable on the same date on which
each such purchase price installment payment is made, in each case, in amount
equal to the principal sum remaining unpaid as of the date of the Triggering
Event, multiplied by a fraction, the numerator of which is equal to the amount
of the purchase price installment payment and the denominator of which is equal
to the aggregate purchase price. Nothing in this paragraph 6 shall be deemed to
extend the due dates nor decrease the amounts of the installments set forth in
paragraph 2 hereof, except that the aggregate principal payments pursuant to
paragraph 2 and 6 hereof shall not exceed the principal amount of this Note.
7. All sums payable hereunder shall be payable in lawful money of the
United States of America at 8934 Kenton Avenue, Skokie, Illinois 60076, or, upon
receipt of notification by the Obligor, at such other place designated in
writing by the holder hereof. If the date on which any payment is required to be
made hereunder is not a Business Day (as defined hereinafter), then such date
for payment shall be extended to the next succeeding Business Day. "Business
Day" means any day other than a day on which banks in New York City are
authorized or required by law or executive order to be closed.
6
<PAGE> 19
8. Subject to the provisions of paragraph 5, if any amount of principal or
interest is not paid when due and such default is not cured within fifteen (15)
days after written notice thereof from the holder of this Note to the Obligor,
this Note, if not yet then due, shall at the option of the holder hereof become
due and payable in full immediately without demand or notice to the Obligor; and
if the Note is then due or, at the option of the holder hereof becomes due and
payable in full, thereafter any principal remaining unpaid shall bear interest
until said principal amount is paid in full, at a rate of eighteen percent (18%)
per annum, or, if such rate is not lawful with respect to Obligor, then at the
highest rate allowed by law.
9. The Obligor agrees to pay reasonable attorneys' fees to the holder
hereof if an attorney is retained to enforce or collect this Note by reason of
non-payment of any amounts of principal or interest under this Note when such
amounts are due (whether at stated maturity, by acceleration or otherwise).
10. This Note is referred to in Paragraph 4(b) of the Stock Redemption
Agreement. Subject to the provisions of paragraph 5, it shall be entitled to the
benefit of all of the terms and conditions and the security of all security
interests, liens and rights granted by the Obligor to the Payee under and
pursuant to the Stock Redemption Agreement.
11. This Note shall be construed and enforced in accordance with the laws
of the State of New York. Both the Obligor and Payee, 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 Note, and consent and
subject themselves to the jurisdiction of, the courts of the state of Illinois,
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Note. All other matters arising under this Agreement, including those
involving equitable remedies sought by either the Obligor or Payee, shall be
brought exclusively in the courts of the state of New York located in New York
City, and/or the United States District Court for the Southern District of New
York, and the Obligor and Payee, acting for themselves and for their
beneficiaries, heirs, successors and assigns in that without regard to domicile,
citizenship or residence, hereby expressly and irrevocably elect such forum as
the sole judicial forum for the adjudication of all such matters, and consent
and subject themselves to the jurisdiction of such courts. Service of process,
notices and demands of such courts may be made upon any such party by personal
service at any place where it may be found.
12. The Obligor hereof hereby waives presentment, demand for payment,
notice of dishonor, protest and notice of protest, and any or all other notices
or demands in connection with this Note. The liability of the Obligor hereunder
shall be unconditional and shall not be in any manner affected by any indulgence
whatsoever granted or consented to by the holder hereof, including but not
limited to any extension of time, renewal, waiver or other modification. No
failure by the Payee or holder hereof to file, record or otherwise perfect any
lien or security interest given or to be given with respect to this Note, nor
any improper filing
7
<PAGE> 20
or recording, nor any failure by the Payee or holder hereof to insure or protect
any security given or to be given with respect to this Note nor any other
dealing (or failure to deal) with, or any modification or waiver of any rights
with respect to, any such security by such Payee or holder shall impair or
release the obligations of the Obligor hereunder. Any failure of the Payee or
holder hereof to exercise any right hereunder shall not be construed as a waiver
of the right to exercise the same or any other right at any time and from time
to time thereafter.
13. Assignment of this Note shall not be valid nor shall it confer any
rights to the assignee against the Obligor unless and until written notice of
the assignment is received by the Obligor.
GARDEN STATE NUTRITIONALS, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
8
<PAGE> 21
10.25
CONSULTING AND NON-COMPETITION AGREEMENT
CONSULTING AND NON-COMPETITION AGREEMENT (the "Agreement") made as of this
28th day of May, 1992 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 EARL WEISMAN
("Weisman"), residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H :
WHEREAS, Weisman has been a shareholder, director and executive officer of
the Company for more than five (5) years and has intimate knowledge of the
Company's business and customers, as well as the markets in which it operates;
WHEREAS, pursuant to that certain Stock Redemption Agreement (the "Stock
Redemption Agreement"), dated as of the date hereof, by and between Weisman and
the Company, Weisman has agreed to sell, transfer, convey, assign and deliver,
and the Company has agreed to purchase and accept, all of Weisman's shares of
capital stock in the Company provided that Weisman agrees not to thereafter
compete with the Company on the terms and conditions hereinafter provided;
WHEREAS, the Company desires to engage Weisman as a consultant, and Weisman
desires to be so engaged by the Company, upon the terms and conditions
hereinafter provided; and
WHEREAS, it is contemplated that contemporaneously with the redemption of
Weisman's shares of capital stock in the Company, as provided for in the Stock
Redemption Agreement, the following related transactions will also occur: (i)
Windmill Marketing Services, Inc. ("Windmill Marketing"), an affiliate of the
Company, will purchase and redeem all of Weisman's shares of capital stock of
Windmill Marketing, (ii) Windmill Marketing will purchase the business and all
or substantially all of the assets of Windmill Natural Vitamin Company, Inc., an
Illinois corporation, a majority of whose shares of capital stock are owned by
Weisman, (iii) Edward M. Frankel ("Frankel"), the majority shareholder of both
the Company and Windmill Marketing, shall purchase Weisman's entire equity
interest in Vitareal Associates, L.P., and (iv) Weisman shall purchase all of
Frankel's shares of capital stock of E. Burnham, Inc. (the transactions
described in clauses (i) through (iv) above shall hereinafter collectively be
referred to as the "Related Transactions").
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:
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<PAGE> 22
1. Consulting Duties. Weisman shall advise and consult with senior
executives, and managerial and supervisory personnel of the Company with respect
to the marketing of the Company. All consulting duties shall be performed upon
written notice provided by the Company, which notice shall be delivered a
reasonable time period before such duties are to be performed, such duties to be
performed either via telephone, in Chicago or at such other location as may be
agreed to by Weisman.
2. Time To Be Devoted To The Company; Term of Agreement.
(a) Weisman shall be available at such times as may reasonably be
requested by the Company and agreed to by Weisman. However, both the
Company and Weisman recognize that during the term of this Agreement,
Weisman may be engaged or employed by other persons as a consultant or in
any other capacity, and therefore will have other demands on his
professional time.
(b) The term of this Agreement shall be eight (8) years, commencing on
the date hereof.
3. Compensation; Non-Compete Fee; Certain Covenants.
(a) Weisman shall receive an aggregate fee in consideration of his
consulting services rendered hereunder equal to Eight Hundred Ninety
Thousand Dollars ($890,000), of which Two Hundred Forty Thousand Dollars
($240,000) shall be payable on the date hereof for consulting services
rendered during the immediately preceding year to the date hereof; Two
Hundred Thousand Dollars ($200,000) shall be payable on the first
anniversary of the date hereof for consulting services rendered during the
immediately preceding year to such anniversary; and One Hundred Fifty
Thousand Dollars ($150,000) shall be payable on each of the second through
fourth anniversaries of the date hereof for consulting services rendered
during the immediately preceding year to each such anniversary.
(b) Weisman shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of his covenant not-to-compete, the terms and conditions of
which are set forth in paragraph 5 hereto, equal to Six Hundred Thousand
Dollars ($600,000), payable in equal installments of One Hundred Fifty
Thousand Dollars ($150,000) on the fifth through eighth anniversaries of
the date hereof, together with interest thereon payable quarterly in
arrears, commencing with the third month following the month hereof, on the
same day of the month as the day hereof (or the last day of the month if
there is no corresponding day), at a fluctuating rate per annum equal to
the prime or equivalent rate of interest from time to time announced or
published by Chemical Bank, N.A., or if the foregoing ceases to exist or
ceases to announce or publish a prime or equivalent rate of interest, such
other New York money center bank as the Company and Weisman may agree.
(c) If any amount of the consulting fees which are to be paid to
Weisman pursuant to Paragraph 3(a) hereto are not paid when due and such
default is not cured within
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<PAGE> 23
fifteen (15) days after written notice thereof from Weisman to the Company,
all amounts which are to be paid pursuant to Paragraph 3(b) hereto, if not
yet due, shall at the option of Weisman become due and payable in full
immediately without demand or notice to the Company; and if such amount is
then due or, at the option of Weisman becomes due and payable in full,
thereafter any principal remaining unpaid shall bear interest until such
amount is paid in full, at a rate or eighteen percent (18%) per annum, or,
if such rate is not lawful with respect to the Company, then at the highest
rate allowed by law.
(d) Weisman 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.
(e) Upon prior written request from Weisman with respect to each
fiscal year, the Company hereby agrees to furnish to Weisman, with 120 days
after the close of such fiscal year, the unaudited financial statements
regularly prepared by the Company's accountants.
4. Confidentiality. All memoranda, notes, records or other documents made
or compiled by Weisman 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.
Weisman 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. For purposes of this
paragraph 4, the term "proprietary or confidential information" shall mean all
information which is known only to Weisman or to Weisman 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, marketing strategies, strategic partners
or potential strategic partners, pricing and credit techniques, research and
development activities, books and records and private processes, as they may
exist from time to time, which Weisman 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 Weisman, or is not in the public domain. In the event of
a breach or a threatened breach by Weisman of the provisions of this paragraph
4, the Company shall be entitled to an injunction restraining Weisman 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 Weisman.
5. Restrictive Covenants.
(a) Weisman hereby acknowledges and recognizes the highly competitive
nature of the Company's business and, accordingly, agrees that in
consideration of the premises
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<PAGE> 24
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 five 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; of (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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
(c) In the event of a breach or threatened breach by Weisman of the
provisions of this paragraph 5, 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 3 hereof and paragraph 3 of the Stock Redemption Agreement 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.
(d) Anything herein to the contrary notwithstanding, Weisman shall no
longer be bound by any of the restrictions contained herein in the event
that (i) the Company defaults in payment of any of its obligations pursuant
to the terms hereof or the terms of the Stock Redemption Agreement (or the
promissory note executed in connection therewith), and (ii) the default
described in paragraph 5(d)(i) is not cured within 30 days after the
Company has received written notice of such default from Weisman.
6. Death or Disability. As an inducement for Weisman to enter into this
Agreement, the Company agrees that all amounts payable to Weisman hereunder
shall be paid to Weisman, or to Weisman's estate in the event of his death,
notwithstanding his disability or death, and neither Weisman nor the estate of
Weisman shall be required to repay any amount paid to Weisman prior to Weisman's
death or disability.
7. Scope of Agreement. Weisman understands and agrees that he is not
authorized to enter into any binding agreement, accept any orders for products
or otherwise bind the Company to any obligation of any nature whatsoever.
Weisman is an independent contractor hereunder, not an employee of the Company,
and shall have no rights of an employee hereunder.
8. 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
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<PAGE> 25
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
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 Weisman, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
9. 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.
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<PAGE> 26
10. 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.
11. 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 arrangements
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.
12. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
paragraph 8 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. 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
6
<PAGE> 27
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 Weisman hereby
consents and agrees that such scope may be judicially modified accordingly in
any such jurisdiction in any proceeding brought to enforce such restriction.
15. 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
By: /s/ EARL WEISMAN
------------------------------------
Earl Weisman
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<PAGE> 28
Exhibit 10.26
STOCK REDEMPTION AGREEMENT
STOCK REDEMPTION AGREEMENT (the "Agreement"), dated this 28th day of May,
1992, by and among WINDMILL MARKETING SERVICES, INC. (the "Company"), a New
Jersey corporation, having its principal office and place of business at 100
Lehigh Drive, Fairfield, New Jersey 07006 (the "Company"), EARL WEISMAN
("Weisman" or the "Seller"), residing at 8934 Kenton Avenue, Skokie, IL 60076
and, solely for the purpose of Paragraph 6 hereto, MORRISON COHEN SINGER &
WEINSTEIN (the "Escrow Agent"), as escrow agent hereunder.
W I T N E S S E T H :
WHEREAS, the authorized capital stock of the Company consists of 1,000
shares of common stock, no par value (the "Common Stock"), of which there are
500 shares of Class A Common Stock (the "Class A Common Stock") and 500 shares
of Class B Common Stock (the "Class B Common Stock"), and as of the date hereof,
90 shares of Class A Common Stock and 5 shares of Class B Common Stock are
issued and outstanding;
WHEREAS, Weisman currently owns an aggregate of 30 shares of Class A Common
Stock; and
WHEREAS, Weisman desires to sell to the Company and the Company desires to
purchase and redeem from Weisman all of the shares of Class A Common Stock owned
by Weisman (the "Shares") on the terms and conditions set forth herein;
WHEREAS, it is contemplated that contemporaneously with the redemption of
the Shares hereunder, the following related transactions will also occur: (i)
Garden State Nutritionals, Inc. ("Garden State"), an affiliate of the Company,
will purchase and redeem all of Weisman's shares of capital stock of Garden
State, (ii) the Company will purchase the business and all or substantially all
of the assets of Windmill Natural Vitamin Company, Inc., an Illinois
corporation, a majority of whose shares of capital stock are owned by Weisman,
(iii) Edward M. Frankel ("Frankel"), the majority shareholder of both the
Company and Garden State, shall purchase Weisman's entire equity interest in
Vitareal Associates, L.P., and (iv) Weisman shall purchase all of Frankel's
shares of capital stock of E. Burnham, Inc. (the transactions described in
clauses (i) through (iv) above shall hereinafter collectively be referred to as
the "Related Transactions").
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Redemption of the Shares. Subject to the terms and conditions herein
set forth, the Seller shall sell, transfer, assign, convey and deliver to the
Company, and the Company shall purchase, redeem and accept from the Seller, on
the Closing Date (as defined hereinafter), all of the Seller's right, title and
interest in the Shares. The sale, transfer, assignment, conveyance and delivery
by the Seller of the Shares to the Company, as herein
<PAGE> 29
provided, shall be effected on the Closing Date by delivery of the certificates
representing the Shares, stock powers endorsed in blank, a bill of sale and such
other instruments of sale, transfer, assignment and conveyance reasonably
satisfactory in form and substance to counsel for the company. The Seller shall
bear all state and local sales, transfer, excise, value-added or other similar
taxes, in each case that may be imposed by reason of the sale, transfer,
assignment, conveyance and delivery of the Shares.
2. Closing. The closing of the transaction contemplated herein (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032 at 10:00 A.M., Central Daylight
Time, on Thursday, May 28, 1992 or at such other time and place as may be
mutually agreed upon in writing by the Seller and the Company (the "Closing
Date").
3. The Purchase Price. Upon and subject to the terms and conditions herein
set forth and in consideration of the sale, transfer, assignment, conveyance and
delivery of the Shares to the Company, the Company agrees to pay to the Seller
an aggregate purchase price of One Hundred Fifty Thousand Dollars ($150,000)
(the "Purchase Price").
4. Form of Purchase Price. The Purchase Price shall be payable as follows:
(a) Ten Thousand Dollars shall be payable on the Closing Date, by
certified, banker's or cashier's check, to the Seller;
(b) Fifty Thousand Dollars shall be payable on each of the second and
third anniversaries of the Closing Date (the "First Principal Installment
Payment" and "Second Principal Installment Payment," respectively), and
Forty Thousand Dollars shall be payable on the fourth such anniversary (the
"Third Principal Installment Payment"), in each case, together with
interest thereon, payable quarterly in arrears, commencing with the third
month following the month hereof, on the same day of the month as the day
hereof (or the last day of the month if there is no corresponding day), at
a fluctuating rate per annum, equal to the prime or equivalent rate of
interest from time to time announced or published by Chemical Bank, N.A.,
or if the foregoing ceases to exist or ceases to announce or publish a
prime rate of interest, such other New York money center as the Company and
the Seller may agree. All amounts payable pursuant to this Paragraph 4(b)
shall be evidenced by a promissory note substantially in the form attached
hereto as Exhibit A (the "Company Note").
5. Delivery. At the Closing, the Seller shall deliver to the Company the
stock certificates evidencing the Shares, with all necessary transfer stamps
affixed thereto, together with separate stock powers endorsed in blank, and such
evidence of title to the Shares and of compliance with the terms and conditions
of this Agreement as may be reasonably required by counsel for the Company in
order that good and marketable title to the Shares shall pass from the Seller to
the Company.
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<PAGE> 30
6. Collateral; Escrow.
(a) Immediately subsequent to the delivery, by the Seller to the
Company, of the stock certificates evidencing the Shares, as required by
Paragraph 5 hereto, the Company, in order to secure to the Seller the
prompt, full and faithful payment of its obligations under (i) Paragraph
4(b) hereto, as evidenced by the Company Note, and (ii) Paragraph 3(b) to
the Consulting and Non-Competition Agreement (the "Consulting and
Non-Competition Agreement") of even date herewith between the Company and
the Seller (the "Non-Compete Fee"), shall grant to the Seller a security
interest in the Shares. In connection therewith, and as evidence thereof,
the Company shall cause such stock certificates to be cancelled and a new
stock certificate evidencing the Shares to be issued in the name of the
Company, which new stock certificate, together with stock powers endorsed
in blank, shall be delivered to the Escrow Agent, to be held and delivered
by the Escrow Agent as hereinafter provided.
(b) All incidents of ownership of the Shares shall be vested solely in
the Company for so long as there are no Defaults (as defined below) by the
Company under the Company Note or the Consulting and Non-Competition
Agreement.
(c) If the Company defaults with respect to any of its obligations
under the Company Note or with respect to the Non-Compete Fee and fails to
cure such default within the grace periods provided for therein (each such
default hereinafter to be referred to as a "Default"), the holder of the
Company Note or the Seller, as the case may be, upon fifteen (15) days
prior written notice to the Company, shall have the right to sell the
Shares evidenced by the stock certificate held by the Escrow Agent in
accordance with Section 9-504 of the Illinois Uniform Commercial Code. Such
right shall be in addition to all other rights and remedies available under
law to the holder of the Company Note and the Seller.
(d) Upon receipt by the Escrow Agent of the written notice from the
Company (the "Company Notice") that (i) the First, Second and Third
Principal Installment Payment(s) has (have) been made on a timely basis in
accordance with the terms of the Company Note, (ii) the Non-Compete Fee has
been paid in full, and (iii) all interest due and payable with respect to
the obligations described in (i) and (ii) immediately above has likewise
been paid, the Escrow Agent shall send a copy of such notice to the Seller
(the "Seller's Notice"). If the Escrow Agent does not receive any written
notice from the Seller within fifteen (15) days after having sent the
Seller's Notice which challenges the validity of the Company's Notice, or
which alleges Defaults by the Company under the Company Note or with
respect to the Non-Compete Fee subsequent to the sending of the Company
Notice, the Escrow Agent shall release from escrow and deliver to the
Company the stock certificate representing the Shares together with a stock
power endorsed in blank.
(e) Upon receipt by the Escrow Agent of written notice from the Seller
that the entire unpaid balance of the Company Note has been declared due
and payable following a Default by the Company, the Escrow Agent shall send
a copy of such notice (the "Default Notice") to the Company and, unless
within fifteen (15) days after having sent such Default
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<PAGE> 31
Notice to the Company, the Escrow Agent receives written notice from the
Company which challenges the validity of the statements made by the Seller
in the Default Notice, the Escrow Agent shall deliver to the Seller the
stock certificate representing the Shares together with a corresponding
stock power endorsed in blank.
(f) Each of the notices which, pursuant to subparagraph (d) to this
Paragraph 6, may be given by the Seller in response to the Company's
Notice, and pursuant to subparagraph (e) to this Paragraph 6, may be given
by the Company in response to a Default Notice, are collectively
hereinafter referred to as "No Validity Notices." If the Escrow Agent
receives a No Validity Notice from either party, it shall promptly notify,
in writing, the other party, and shall withhold delivery of all instruments
otherwise to be delivered by it hereunder until the controversy is settled
by written agreement of both parties or by a final judgment of a court of
competent jurisdiction.
(g) The Escrow Agent may, in its sole discretion, at any time (and
whether before or after its receipt of any No Validity Notices) deliver any
or all of the stock certificates representing the Shares into a court of
competent jurisdiction in an action for interpleader for such disposition
as may be directed by such court.
(h) The Escrow Agent shall be charged only with holding and delivering
the stock certificates as provided herein. The Escrow Agent assumes no
responsibility except for the holding and safekeeping of the stock
certificates as provided herein, and the delivery thereof as required
hereby, and shall not be liable for any action taken by it in good faith in
accordance with the terms of this Agreement.
(i) The Escrow Agent shall not be responsible in any manner for the
validity or sufficiency of any instruments, documents or any other property
delivered hereunder, or for any representations made or obligations assumed
by any other party to this Agreement. The Escrow Agent shall have the right
to act in reliance upon any documents, instrument or signature believed by
it to be genuine and to assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof shall have
been duly authorized to do so. The Escrow Agent shall not be liable for any
action taken or omitted hereunder except in the case of its gross
negligence or willful misconduct. The Escrow Agent shall be entitled to
consult with independent counsel of its own choosing and shall not be
liable for any action taken, suffered or omitted by it in good faith in
accordance with the advice of such counsel.
(j) The Escrow Agent may at any time resign hereunder by giving
written notice of its resignation to the other parties hereto at least
twenty days prior to the date specified for such resignation to take
effect, and upon the effective date of such resignation, all property then
held by the Escrow Agent hereunder shall be delivered by it to such person
as may be designated in writing by all of the other parties hereto,
whereupon all obligations of the Escrow Agent hereunder shall cease and
terminate. If no such person shall have been designated by such date, all
obligations of the Escrow Agent shall, nevertheless, cease and terminate.
The Escrow Agent's sole responsibility thereafter shall be to keep safely
all property then held by
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<PAGE> 32
it hereunder in accordance with this Agreement and to deliver the same to
the person or persons designated in writing by all of the parties hereto or
in accordance with the directions of a final, nonappealable order or
judgement of a court of competent jurisdiction.
(k) If there is any dispute relating to the property held hereunder,
or its disposition, the Company and the Seller shall be obligated to
reimburse the Escrow Agent jointly and severally for all of its costs and
expenses (including reasonable attorneys' fees and expenses), and the
Company and the Seller shall indemnify the Escrow Agent and hold harmless
the Escrow Agent jointly and severally from and against any claim asserted
against it, or any liability, loss or damage incurred by it, in connection
therewith provided that none of the foregoing was caused by Escrow Agent's
negligence or willful misconduct. Notwithstanding the foregoing, the
Seller's obligation to reimburse the Escrow Agent for its reasonable
attorneys' fees and expenses shall be limited to the lesser of one-half of
the aggregate costs thereof, or $10,000.
(l) Notwithstanding any other provision of this Agreement, no notice,
demand, request or other communication to the Escrow Agent in connection
herewith shall be binding on the Escrow Agent unless it is in writing,
refers specifically to this Agreement, is addressed to the Escrow Agent at
the address set forth in Paragraph 11 hereof, to the attention of the
person specified in said paragraph, or to such other address and person as
the Escrow Agent may at any time or from time to time designate, and is
actually received by the Escrow Agent at that address.
(m) The parties acknowledge that the Escrow Agent has served and will
continue to serve as legal counsel to the Company and each party hereto
consents to such continued representation, whether in litigation or
otherwise.
7. Subsequent Documentation. Seller shall at any time and from time to
time after the Closing Date, upon the request of the Company and at the expense
of the Seller, do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all further assignments, transfers,
conveyances and other evidence of the same as may be reasonably required for the
better assigning, transferring, granting, conveying and confirming to the
Company or its successors and assigns, or for aiding and assisting in collecting
and reducing to possession, the Shares.
8. Representations and Warranties. The Seller represents and warrants to
the Company as follows:
(a) The Seller has full right, power and authority to execute, deliver
and enter into this Agreement and to carry out all the obligations
hereunder. This Agreement has been duly executed by the Seller and is the
valid and legally binding obligation of the Seller enforceable against the
Seller in accordance with the terms hereof;
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<PAGE> 33
(b) As of the date hereof, the Seller has good and marketable title to
the Shares, free and clear of all liens, mortgages, pledges, encumbrances,
charges, agreements, claims and equities whatsoever, and full right, power
and authority to sell, convey, transfer, assign and deliver the Shares to
the Company at the Closing;
(c) The Shares represent the Seller's entire interest in the Company.
The Seller does not own directly, indirectly or beneficially any other
shares of Common Stock or any options, warrants or other rights to purchase
additional shares of Common Stock;
(d) Upon delivery of the Company of the stock certificates
representing the Shares, together with all necessary transfer tax stamps
affixed thereto, and separate stock powers endorsed in blank, the Company
will acquire good and marketable title to the Shares, free and clear of all
mortgages, liens, pledges, encumbrances, charges, agreements, claims and
equities whatsoever;
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
violate or conflict with any provision of law, or any order, judgment or
decree of any court or other governmental or regulatory authority to which
the Seller is subject, nor any contract or other agreement to which the
Seller is a party or is otherwise subject to;
(f) All transfer taxes which are required to be paid in connection
with the sale, transfer, conveyance, assignment and delivery of the Shares
pursuant to this Agreement shall have been fully paid and all laws imposing
such taxes shall have been fully complied with;
9. Waiver. Notwithstanding anything to the contrary contained in the
Shareholders Agreement dated as of January 4, 1977, as amended, by and among,
the Seller, the Company and various other third parties (the "Shareholders
Agreement"), by consummation of this Agreement: (a) Seller and the Company
hereby waive any and all restrictions on the transferability of the Shares
contained in the Shareholders Agreement and (b) Seller agrees that payment for
the Shares shall be made in accordance with the provisions of Section 4 hereof
and Seller hereby waives his right to receive payment for the Shares in
accordance with the terms of the Shareholders Agreement.
10. Conditions Precedent. The obligations of the parties hereto to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Closing Date, of the following conditions:
(a) All Related Transactions shall have been consummated and closed.
(b) The Seller shall resign, in writing, from all official positions
with the Company in his capacity as an officer or director thereof.
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<PAGE> 34
(c) The Seller shall enter into a consulting and non-competition
agreement with the Company.
(d) The Company shall have received such other certificates,
instruments and documents in confirmation of the representations and
warranties of the Seller or in furtherance of the transactions contemplated
by this Agreement as the Company or its counsel may reasonably request.
11. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
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
(b) If to the Seller, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: 708/498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
7
<PAGE> 35
(c) If to the Escrow Agent, to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
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.
12. 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.
13. 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.
14. Waivers and Amendments. The Seller, on the one hand, and the Company,
on the other, may by written notice to the 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.
15. 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
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<PAGE> 36
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.
16. 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.
17. 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.
18. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 11 hereof.
19. 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
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<PAGE> 37
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 hereto have executed and delivered this
Agreement as of the day and year first above written.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
By: /s/ EARL WEISMAN
------------------------------------
Earl Weisman
By: /s/ STEPHEN A. COHEN
------------------------------------
Stephen A. Cohen
10
<PAGE> 38
Exhibit 10.27
SUBORDINATED PROMISSORY NOTE
$140,000 May 28, 1992
1. FOR VALUE RECEIVED, the undersigned, WINDMILL MARKETING SERVICES, INC.
(the "Obligor"), a New Jersey corporation, with its principal office and address
at 100 Lehigh Drive, Fairfield, New Jersey 07006, hereby promises to pay to the
order of EARL WEISMAN (the "Payee"), residing 8934 Kenton Avenue, Skokie,
Illinois 60067, the principal sum of ONE HUNDRED FORTY THOUSAND DOLLARS
($140,000) together with interest at a fluctuating rate per annum on an amount
equal to the outstanding unpaid principal amount of this Subordinated Promissory
Note (the "Note") equal to the prime or equivalent rate of interest from time to
time announced or published by Chemical Bank, N.A., or if the foregoing ceases
to exist or ceases to announce or publish a prime or equivalent rate of
interest, such other New York money center bank as the Obligor and Payee may
agree.
2. Principal shall be payable in three annual installments as follows:
(a) Fifty Thousand dollars ($50,000) shall be payable on each of the
second and third anniversaries of the date hereof; and
(b) Forty Thousand Dollars ($40,000) shall be payable on the fourth
anniversary of the date hereof.
3. Interest hereunder shall be payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the month as
the day hereof (or the last day of the month if there is no corresponding day).
4. Principal shall be prepayable without penalty, in whole or in
installments of Ten Thousand Dollars ($10,000) or multiples thereof, at any time
and from time to time.
5. The Obligor's payment, whether voluntary or involuntary, whether in
cash, property, securities or otherwise and whether by application of offset or
otherwise (each hereinafter a "Payment") of any of its obligations under the
Stock Redemption Agreement (the "Stock Redemption Agreement") dated as of the
date hereof between the Obligor and the Payee, or this Note shall be subject to
the following restrictions:
(a) Anything in this Note or the Stock Redemption Agreement to the
contrary notwithstanding, the obligations of the Obligor in respect of the
principal of and interest (including any premium or penalty) on this Note
and any other amounts due under this Note and the Stock Redemption
Agreement shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the Senior Debt. Senior
Debt, when used with respect to the Obligor, means (i) all indebtedness for
borrowed money, purchase money indebtedness, or capitalized lease
obligations of the Obligor originating from a bank, insurance or other
financial institution, (ii) all guarantees by the Obligor of any type of
indebtedness des-
<PAGE> 39
cribed in clause (i), and (iii) renewals, extensions, refinancings,
deferrals, restructurings, amendments, modifications and waivers of the
indebtedness described in clause (i) and (ii) above. Notwithstanding the
foregoing, "Senior Debt" shall not include any indebtedness which, by its
terms, is specifically made pari passu or subordinate to this Note.
(b) So long as the Senior Debt has not been paid in full, if there
shall occur an event of default or there shall occur any event which with
the passage of time or giving of notice, or both, would constitute an event
of default under the terms of any instrument or agreement relating to
Senior Debt (any of the foregoing being a "Senior Debt Default") then,
unless and until such Senior Debt Default shall have been remedied or
waived, or shall have ceased to exist or the Cut Off Period (as hereafter
defined) shall have expired as provided in paragraph 5(c)(iii) below the
Obligor will not make any Payment on this Note or any other subordinated
debt instrument (this Note and all other subordinated debt instruments
shall hereinafter collectively be referred to as "Subordinated Debt"), and
the holders of Subordinated Debt, upon notice of an event of default as
described in this paragraph 5(b), will not receive or accept any direct or
indirect Payment in respect thereof, and the Obligor may not redeem or
otherwise acquire this Note or any other Subordinated Debt instrument.
(c) If there shall exist any Senior Debt Default, and notice shall
have been given to the holder of this Note or any other Subordinated Debt
instruments, then the holder of this Note or any other Subordinated Debt
instrument shall not take or continue any action or exercise or continue to
exercise any rights, remedies or powers under the terms of this Note, or
exercise or continue to exercise any other right or remedy at law or equity
that such holder might otherwise possess, to collect any amount due and
payable in respect of the Subordinated Debt, including, without limitation,
the acceleration of this Note, the commencement of any foreclosure on any
lien or security interest, the filing (or joining the filing) of any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction, unless and until the Senior Debt shall have been fully
and finally paid and satisfied, or unless and until
(i) Senior Debt in an amount greater than $5,000,000 shall have
been accelerated, in which case the holder of this Note and of any other
Subordinated Debt instrument shall be entitled to accelerate the
maturity thereof, if the holder of this Note or any other Subordinated
Debt instrument concurrently gives notice of such acceleration to the
holders of the Senior Debt, but shall not be entitled to take any other
action described above unless otherwise permitted to do so by paragraph
5(c)(ii) or (iii) below and, provided further, that the holder of this
Note and any other Subordinated Debt instrument will reverse any
acceleration if the holders of Senior Debt take similar action, or
(ii) one or more of the holders of the Senior Debt or the Obligor
shall have commenced, a Proceeding (as defined in paragraph 5(d) below),
or
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<PAGE> 40
(iii) a period of time shall have expired which began upon the
occurrence of such Senior Debt Default and shall have ended 180 days
after the holder of Senior Debt learns of the Senior Debt Default,
unless such default is earlier cured or waived or such period is
extended as hereinafter provided (the original cut-off period, plus any
extension, being hereinafter referred to as the "Cut-Off Period"). If
any holder of Senior Debt accelerates the time for payment of Senior
Debt held by such holder prior to the end of the original Cut-Off
Period, the Cut-Off Period shall be deemed extended indefinitely until
such time as the acceleration has been rescinded by the Senior Debt
Holder or the accelerated Senior Debt has been fully paid and satisfied.
(d) (i) Except as hereinafter provided and subject to the restrictions
set forth in paragraph 5(c) above, the holder of this Note may without the
request or consent of any holder of Senior Debt, file any claim, proof of
claim, or other instrument of similar character reasonably necessary to
enforce the obligations in respect of this Note ("Claim") in any
insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other proceeding for the relief of debtors
relating to the Obligor or its properties, or any proceeding for the
liquidation, dissolution or other winding up of the Obligor, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings
(each such action brought by any Person being herein defined as a
"Proceeding") and will, pursuant to the provisions of paragraph 5(g) below,
hold in trust for the holders of Senior Debt and promptly assign, transfer
and pay over to the holders of Senior Debt, in the form received, any and
all monies, dividends or other assets received in any such Proceeding on
account of this Note;
(ii) In the event (A) of any Proceeding, (B) of any assignment by the
Obligor for the benefit of creditors, (C) of any marshalling of all or a
substantial part of the assets of the Obligor, (D) the Obligor makes an
assignment for the benefit of creditors or admits in writing its inability
to pay its debts generally as they become due, (E) an order, judgment or
decree is entered adjudicating the Obligor as bankrupt or insolvent, (F)
any order for relief with respect to the Obligor is entered under the
Federal Bankruptcy Code, (G) the Obligor petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Obligor or of any substantial part of the assets of the
Obligor, or commences any proceeding relating to the Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, (H) any petition or
application described in (G) above is filed, or any such proceeding is
commenced, against the Obligor and either (I) the Obligor by any act
indicates its approval thereof, consents thereto or acquiescence therein or
(II) such petition application or proceeding is not dismissed within 60
days (each such event is hereinafter collectively referred to as an
"Insolvency Event"), then:
(aa) the holders of Senior Debt shall be entitled to receive
Payment in full in cash of all Senior Debt (including interest thereon
accrued after the date of commencement of such proceedings) before the
3
<PAGE> 41
holder of this Note shall be entitled to receive any Payment or
distribution of assets of the Obligor, of any kind or character, whether
in cash, property or securities or by set-off or otherwise, on account
of any Subordinated Debt;
(bb) any Payment or distribution of assets of the Obligor, of any
kind or character, whether in cash, property or securities, to which the
holders of Subordinated Debt would be entitled except for the provisions
of this paragraph 5(d) shall be paid or delivered by the Obligor
directly to the holders of Senior Debt in payment thereof until all
Senior Debt (including interest thereon accrued after the date of
commencement of such proceedings) shall have been paid in cash in full;
and
(cc) the holder of this Note, to the extent permitted by applicable
law, grants to the Senior Debt holders, or their agents, an irrevocable
power of attorney to file and thereafter prosecute any Claim which the
holders of Subordinated Debt may have in any Insolvency Event proceeding
with respect to such Subordinated Debt; provided, however, no holder of
Senior Debt shall be liable for any action or omission to act pursuant
to the Power of Attorney herein granted absent the gross negligence or
willful misconduct of such holder;
provided further, however, that: (x) in the event that Payment or delivery
of such assets, whether in cash, property or securities, to the holder of
Subordinated Debt, is authorized by an order or decree giving effect, and
stating specifically in such order or decree that effect is given to the
subordination of such Subordinated Debt to the Senior Debt hereunder, and
made by a court of competent jurisdiction in a reorganization proceeding to
a duly adopted plan or reorganization, no payment or delivery of such asset
payable or deliverable with respect to the Subordinated Debt shall be made
to the holders of Senior Debt; and (y) no such delivery shall be made to
holders of Senior Debt of securities which are issued pursuant to
reorganization proceedings or dissolution or liquidation proceedings (other
than as provided in Clause (x) above), or upon any merger, consolidation,
sale, lease, transfer or other disposal not prohibited by the provisions of
this Note, by the Obligor, as reorganized, or by the corporation succeeding
to the Obligor or acquiring its property and assets, (AA) if such
securities are subordinate and junior at least to the extent provided in
this paragraph 5 to the payment in full in cash of all Senior Debt then
outstanding and to the payment in full in cash of any securities which are
issued in exchange or substitution for any Senior Debt then outstanding,
and (BB) if no payment in respect of such securities is due by their terms
prior to payment in full in cash of the Senior Debt.
(e) Any holder of Senior Debt may, at any time and from time to time,
without the consent of, or notice to, the holder of this Note and without
incurring responsibility to such holder, and without impairing or releasing
the obligations of such holder;
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<PAGE> 42
(i) Change the manner, place or terms of payment or change or
extend the time of payment of or renew or alter the Senior Debt or any
portion thereof;
(ii) Sell, exchange, release or otherwise deal with any collateral
securing the Senior Debt or any other property by whomsoever at any time
pledged or mortgaged to secure, or however securing, the Senior Debt or
any portion thereof; and
(iii) Apply any sums by whomsoever paid or however released to the
Senior Debt or any portion thereof.
(f) By acceptance of this Note, the holder hereby consents to the
making of Senior Debt and hereby acknowledges that each current and future
holder of Senior Debt has relied, and in the future will rely, upon the
terms of this Note. The holders of Senior Debt shall have no liability to
the holder of this Note and the holder of this Note hereby waives any claim
which it may have now or hereafter against any holder of Senior Debt
arising from any and all actions which any holder of Senior Debt may take
or omit to take in good faith with regard to the Senior Debt or its rights
or obligations hereunder.
(g) Until the Senior Debt has been repaid in full, in the event the
holder of this Note shall receive any Payment in contravention of the
provisions of this paragraph 5, including Payments arising under the
subordination provisions of any other indebtedness of the Obligor, the
holder of this Note shall hold all such Payments so received in trust for
the holders of Senior Debt and shall forthwith turn over all such Payments
to the holders of Senior Debt in the form received (except for the
endorsement or assignment of the holder of this Note as necessary, without
recourse or warranty) to be applied to payment of the Senior Debt whether
or not then due and payable. Any Payment so received in trust and turned
over to the holders of Senior Debt shall not be deemed a Payment in
satisfaction of this Note.
(h) If any payment or distribution to which the holder of this Note
would otherwise have been entitled but for the provisions of this paragraph
5 shall have been applied, pursuant to the provisions of this paragraph 5,
to the payment of Senior Debt, then and in such case, the Holders of this
Note (i) shall be entitled to receive from the holders of Senior Debt at
the time outstanding any payments or distributions received by such holders
of Senior Debt in excess of the amount sufficient to pay all Senior Debt in
cash in full (whether or not then due), and (ii) following payment of the
Senior Debt in full, shall be subrogated to any right of the holders of
Senior Debt to receive any and all further payments or distributions
applicable to Senior Debt, until all the Subordinated Debt shall have been
paid in full. If the holder of this Note has been subrogated to the rights
of the holders of Senior Debt due to the operation of this paragraph 5(h),
the Obligor agrees to take all such reasonable actions as are requested by
such holder of this Note in order to cause such holder to be able to obtain
payments from the Obligor with respect to such subrogation rights as soon
as possible.
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<PAGE> 43
(i) Except as expressly provided herein, nothing contained in this
paragraph 5 shall impair, as between the Obligor and the holder of this
Note, the obligation of the Obligor, which is absolute and unconditional,
to pay to the holder of this Note the amount of the Subordinated Debt due
hereunder as and when the same shall become due and payable in accordance
with the terms hereof.
(j) The holder of this Note, by its acceptance thereof, agrees that
each holder of Senior Debt has advanced funds or may in the future advance
funds in reliance upon the terms and conditions hereof.
(k) No right of any holder of Senior Debt to enforce its right of
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Obligor, or by
any act or failure to act by any such holder, or by any non-compliance by
the Obligor with the terms, provisions and covenants of the Subordinated
Debt, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(l) Any Payments received by a holder of Senior Debt from the Obligor
or the holder of this Note which, in connection with an Insolvency Event or
Proceeding, is required to be remitted to the payor or the bankrupt estate
shall not be deemed a Payment to such holder of Senior Debt for all
purposes hereunder.
6. In the event of (i) a sale of 80% or more of the then issued and
outstanding shares of capital stock of the Obligor or (ii) a sale of all or
substantially all of the assets of the Obligor (in each case, a "Triggering
Event"), the principal sum then remaining unpaid hereunder shall become due and
payable in full upon the payment of the aggregate purchase price with respect to
either such transaction; and if the aggregate purchase price is payable in
installments, principal shall become due and payable on the same date on which
each such purchase price installment payment is made, in each case, in an amount
equal to the principal sum remaining unpaid as of the date of the Triggering
Event, multiplied by a fraction, the numerator of which is equal to the amount
of the purchase price installment payment and the denominator of which is equal
to the aggregate purchase price. Nothing in this paragraph 6 shall be deemed to
extend the due dates nor decrease the amounts of the installments set forth in
paragraph 2 hereof, except that the aggregate principal payments pursuant to
paragraphs 2 and 6 hereof shall not exceed the principal amount of this Note.
7. All sums payable hereunder shall be payable in lawful money of the
United States of America at 8934 Kenton Avenue, Skokie, Illinois 60076, or, upon
receipt of notification by the Obligor, at such other place designated in
writing by the holder hereof. If the date on which any payment is required to be
made hereunder is not a Business Day (as defined hereinafter), then such date
for payment shall be extended to the next succeeding Business Day. "Business
Day" means any day other than a day on which banks in New York City are
authorized or required by law or executive order to be closed.
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<PAGE> 44
8. Subject to the provisions of paragraph 5, if any amount of principal or
interest is not paid when due and such default is not cured within fifteen (15)
days after written notice thereof from the holder of this Note to the Obligor,
this Note, if not yet then due, shall at the option of the holder hereof become
due and payable in full immediately without demand or notice to the Obligor; and
if the Note is then due or, at the option of the holder hereof becomes due and
payable in full, thereafter any principal remaining unpaid shall bear interest
until said principal amount is paid in full, at a rate of eighteen percent (18%)
per annum, or, if such rate is not lawful with respect to the Obligor, then at
the highest rate allowed by law.
9. The Obligor agrees to pay reasonable attorneys' fees to the holder
hereof if an attorney is retained to enforce or collect this Note by reason of
non-payment of any amounts or principal or interest under this Note when such
amounts are due (whether at stated maturity, by acceleration or otherwise).
10. This Note is referred to in Paragraph 4(b) of this stock Redemption
Agreement. Subject to the provisions of paragraph 5, it shall be entitled to the
benefit of all of the terms and conditions and the security of all security
interests, liens and rights granted by the Obligor to the Payee under and
pursuant to the Stock Redemption Agreement.
11. This Note shall be construed and enforced in accordance with the laws
of the State of New York. Both the Obligor and Payee, 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 Note, and consent and
subject themselves to the jurisdiction of, the courts of the state of Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Note. All other matters arising under this Agreement, including those
involving equitable remedies sought by either the Obligor or Payee, shall be
brought exclusively in the courts of the state of New York located in New York
City, and/or the United States District Court for the Southern District of New
York, and the Obligor and Payee, acting for themselves and for their
beneficiaries, heirs, successors and assigns in that without regard to domicile,
citizenship or residence, hereby expressly and irrevocably elect such forum as
the sole judicial forum for the adjudication of all such matters, and consent
and subject themselves to the jurisdiction of such courts. Service of process,
notices and demands of such courts may be made upon any such party by personal
service at any place where it may be found.
12. The Obligor hereof hereby waives presentment, demand for payment,
notice of dishonor, protest and notice of protest, and any or all other notices
or demands in connection with this Note. The liability of the Obligor hereunder
shall be unconditional and shall not be in any manner affected by any indulgence
whatsoever granted or consented to by the holder hereof, including but not
limited to any extension of time, renewal, waiver or other modification. No
failure by the Payee or holder hereof to file, record or otherwise perfect any
lien or security interest given or to be given with respect to this Note, nor
any improper filing
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<PAGE> 45
or recording, nor any failure by the Payee or holder hereof to insure or protect
any security given or to be given with respect to this Note nor any other
dealing (or failure to deal) with, or any modification or waiver of any rights
with respect to, any such security by such Payee or holder shall impair or
release the obligations of the Obligor hereunder. Any failure of the Payee or
holder hereof to exercise any right hereunder shall not be construed as a waiver
of the right to exercise the name or any other right at any time and from time
to time thereafter.
13. Assignment of this Note shall not be valid nor shall it confer any
rights to the assignee against the Obligor unless and until written notice of
the assignment is received by the Obligor.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
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<PAGE> 46
Exhibit 10.28
CONSULTING AND NON-COMPETITION AGREEMENT
CONSULTING AND NON-COMPETITION AGREEMENT (the "Agreement") made as of this
28th day of May, 1992 by and between WINDMILL MARKETING SERVICES, INC. (the
"Company"), a New Jersey corporation having its principal office and place of
business at 100 Lehigh Drive, Fairfield, New Jersey 07006 and EARL WEISMAN
("Weisman"), residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H :
WHEREAS, Weisman has been a shareholder, director and executive officer of
the Company since its incorporation on January 4, 1977 and has intimate
knowledge of the Company's business and customers, as well as the markets in
which it operates;
WHEREAS, pursuant to that certain Stock Redemption Agreement (the "Stock
Redemption Agreement"), dated as of the date hereof, by and between Weisman and
the Company, Weisman has agreed to sell, transfer, convey, assign and deliver,
and the Company has agreed to purchase and accept, all of Weisman's shares of
capital stock in the Company provided that Weisman agrees not to thereafter
compete with the Company on the terms and conditions hereinafter provided;
WHEREAS, the Company desires to engage Weisman as a consultant, and Weisman
desires to be so engaged by the Company, upon the terms and conditions
hereinafter provided; and
WHEREAS, it is contemplated that contemporaneously with the redemption of
Weisman's shares of capital stock in the Company, as provided for in the Stock
Redemption Agreement, the following related transactions will also occur: (i)
Garden State Nutritionals, Inc. ("Garden State"), an affiliate of the Company,
will purchase and redeem all of Weisman's shares of capital stock of Garden
State, (ii) the Company will purchase the business and all or substantially all
of the assets of Windmill Natural Vitamin Company, Inc., an Illinois
corporation, a majority of whose shares of capital stock are owned by Weisman,
(iii) Edward M. Frankel ("Frankel"), the majority shareholder of both Garden
State and the Company, shall purchase Weisman's entire equity interest in
Vitareal Associates, L.P., and (iv) Weisman shall purchase all of Frankel's
shares of capital stock of E. Burnham, Inc. (the transactions described in
clauses (i) through (iv) above shall hereinafter collectively be referred to as
the "Related Transactions").
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:
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<PAGE> 47
1. Consulting Duties. Weisman shall advise and consult with senior
executives, and managerial and supervisory personnel of the Company with respect
to the marketing of the Company. All consulting duties shall be performed upon
prior written notice provided by the Company, which notice shall be delivered a
reasonable time period before such duties are to be performed, such duties to be
performed either via telephone, in Chicago or at such other location as may be
agreed to by Weisman.
2. Time To Be Devoted To The Company; Term of Agreement.
(a) Weisman shall be available at such times as may reasonably be
requested by the Company and agreed to by Weisman. However, both the
Company and Weisman recognize that during the term of this Agreement,
Weisman may be engaged or employed by other persons as a consultant or in
any other capacity, and therefore will have other demands on his
professional time.
(b) The term of this Agreement shall be eight (8) years, commencing on
the date hereof.
3. Compensation; Non-Compete Fee; Certain Covenants.
(a) Weisman shall receive an aggregate fee in consideration of his
consulting services rendered hereunder equal to Six Hundred Fifteen
Thousand Dollars ($615,000), of which Two Hundred Forty Thousand Dollars
($240,000) shall be payable on the date hereof for consulting services
rendered during the immediately preceding year to the date hereof; One
Hundred Twenty-Five Thousand Dollars ($125,000) shall be payable on the
first anniversary of the date hereof; Seventy-Five Thousand Dollars
($75,000) shall be payable on each of the second and third anniversaries of
the date hereof for consulting services rendered during the immediately
preceding year to each such anniversary; and One Hundred Thousand Dollars
($100,000) shall be payable on the fourth anniversary of the date hereof
for consulting services rendered during the immediately preceding year
thereto.
(b) Weisman shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of his covenant not-to-compete, the terms and conditions of
which are set forth in paragraph 5 hereto, equal to Two Hundred Thousand
Dollars ($200,000), payable in equal installments of Fifty Thousand Dollars
($50,000) on the fifth through eighth anniversaries of the date hereof,
together with interest thereon payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the
month as the day hereof (or the last day of the month if there is no
corresponding day), at a fluctuating rate per annum equal to the prime or
equivalent rate of interest form time to time announced or published by
Chemical Bank, N.A., or if the foregoing ceases to exist or ceases to
announce or publish a prime or equivalent rate of interest, such other New
York money center bank as the Company and Weisman may agree.
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<PAGE> 48
(c) If any amount of the consulting fees which are to be paid to
Weisman pursuant to Paragraph 3(a) hereto are not paid when due and such
default is not cured within fifteen (15) days after written notice thereof
from Weisman to the Company, all amounts which are to be paid pursuant to
Paragraph 3(b) hereto, if not yet due, shall at the option of Weisman
become due and payable in full immediately without demand or notice to the
Company; and if such amount is then due or, at the option of Weisman
becomes due and payable in full, thereafter any principal remaining unpaid
shall bear interest until such amount is paid in full, at a rate of
eighteen percent (18%) per annum, or, if such rate is not lawful with
respect to the Company, then at the highest rate allowed by law.
(d) Weisman 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.
(e) Upon prior written request from Weisman with respect to each
fiscal year, the Company hereby agrees to furnish to Weisman, within 120
days after the close of such fiscal year, the unaudited financial
statements regularly prepared by the Company's accountants.
4. Confidentiality. All memoranda, notes, records or other documents made
or compiled by Weisman 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.
Weisman 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. For purposes of this
paragraph 4, the term "proprietary or confidential information" shall mean all
information which is known only to Weisman or to Weisman 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, marketing strategies, strategic partners
or potential strategic partners, pricing and credit techniques, research and
development activities, books and records and private processes, as they may
exist from time to time, which Weisman 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 Weisman, or is not in the public domain. In the event of
a breach or a threatened breach by Weisman of the provisions of this paragraph
4, the Company shall be entitled to an injunction restraining Weisman 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 Weisman.
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5. Restrictive Covenants.
(a) Weisman 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 five
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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
(c) In the event of a breach or threatened breach by Weisman of the
provisions of this paragraph 5, 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 3 hereof and paragraph 3 of the Stock Redemption Agreement 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.
(d) Anything herein to the contrary notwithstanding, Weisman shall no
longer be bound by any of the restrictions contained herein in the event
that (i) the Company defaults in payment of any of its obligations pursuant
to the terms hereof or the terms of the Stock Redemption Agreement (or the
promissory note executed in connection therewith), and (ii) the default
described in subparagraph 5(d)(i) is not cured within 30 days after the
Company has received written notice of such default from Weisman.
6. Death or Disability. As an inducement for Weisman to enter into this
Agreement, the Company agrees that, subject to paragraph 4, all amounts payable
to Weisman hereunder shall be paid to Weisman, or to Weisman's estate in the
event of his death, notwithstanding his disability or death, and neither Weisman
nor the estate of Weisman shall be required to repay any amount paid to Weisman
prior to Weisman's death or disability.
7. Scope of Agreement. Weisman understands and agrees that he is not
authorized to enter into any binding agreement, accept any orders for products
or otherwise bind the
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<PAGE> 50
Company to any obligation of any nature whatsoever. Weisman is an independent
contractor hereunder, not an employee of the Company, and shall have no rights
of an employee hereunder.
8. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
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
(b) If to the Weisman, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
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9. 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.
10. 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.
11. Entire Agreements. 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.
12. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
paragraph 8 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.
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<PAGE> 52
14. 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 of its fullest extent in any jurisdiction, then such restriction shall
be enforced to the maximum extent permitted by law in such jurisdiction, and
Weisman hereby consents and agrees that such scope may be judicially modified
accordingly in any such jurisdiction in any proceeding brought to enforce such
restriction.
15. 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 of provision hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
/s/ EARL WEISMAN
--------------------------------------
Earl Weisman
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<PAGE> 53
Exhibit 10.29
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this 28th day
of May, 1992, by and among WINDMILL MARKETING SERVICES, INC. (the "Purchaser"),
a New Jersey corporation with principal offices at 100 Lehigh Drive, Fairfield,
New Jersey 07006, WINDMILL NATURAL VITAMIN COMPANY, INC. (the "Seller"), an
Illinois corporation with principal offices at 4560 W. Touhy Avenue,
Lincolnwood, Illinois 60646, and EARL WEISMAN ("Weisman" or the "Shareholder"),
an individual residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of distributing vitamins and
related products to retail stores, outlets and other ventures (the "Business");
WHEREAS, the Shareholder is the holder of all of the outstanding shares of
capital stock of the Seller;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to acquire from the Seller the Business and all or substantially all of
Seller's assets used in connection with the Business upon the terms and subject
to the conditions hereinafter set forth; and
WHEREAS, the Seller desires to transfer to the Purchaser and Purchaser
desires to assume the Assumed Liabilities (as hereinafter defined) upon the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, it is contemplated that contemporaneously with the purchase of the
Business and assets described hereunder, the following related transactions will
also occur: (i) Garden State Nutritionals, Inc. ("Garden State"), an affiliate
of the Purchaser, will purchase and redeem all of Weisman's shares of capital
stock of Garden State, (ii) the Purchaser will purchase and redeem all of
Weisman's shares of capital stock of the Purchaser (iii) Edward M. Frankel
("Frankel"), the majority shareholder of both Garden State and the Purchaser,
shall purchase Weisman's entire equity interest in Vitareal Associates, L.P.,
and (iv) Weisman shall purchase all of Frankel's shares of capital stock of E.
Burnham, Inc. (the transactions described in clauses (i) through (iv) above
shall hereinafter collectively be referred to as the "Related Transactions").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which
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<PAGE> 54
are hereby acknowledged, the parties hereto, intending legally to be bound
hereby, agree as follows:
SECTION 1. PURCHASE AND SALE: ASSETS TO BE TRANSFERRED; ASSUMPTION OF CERTAIN
LIABILITIES
Subject to the terms and conditions hereinafter set forth, the Seller shall
sell, convey, transfer, assign and deliver to the Purchaser, and the Purchaser
shall purchase and accept from Seller, on the Closing Date (as defined
hereinafter), all of Seller's right, title and interest in the Purchased Assets
(as hereinafter defined) existing on the Closing Date, wherever located.
"Purchased Assets" shall mean all of the Seller's assets, facilities, rights and
properties set forth in this Section 1 or in the Schedules attached hereto, but
shall not include any of the excluded assets set forth in Schedule 1 hereto (the
"Excluded Assets"). The Purchaser shall not assume or acquire any liabilities of
the Seller (including with respect to any employee plans), whether or not
relating to the Business, other than the Assumed Liabilities (as set forth in
Schedule 4.1 hereto).
1.1 Equipment and Supplies. Schedule 1.1 hereto sets forth a true and
complete list of all tangible personal property, equipment and supplies
(including, but not limited to, equipment, computers and all maintenance and
other operating supplies, including small tools and spare parts and other
expendibles or non-inventoried items which may not have been treated as assets
for accounting purposes in past years) owned or leased by the Seller and used or
useful in the operation of the Business.
1.2 Books and Records. Schedule 1.2 hereto sets forth a true and complete
list of all files, books, records, invoices, accounts and surveys used or useful
in connection with the ownership of the Purchased Assets and/or operation of the
Business.
1.3 Intangibles. Schedule 1.3 hereto sets forth a true and complete list
of all of the Seller's right, title and interest in and to (i) all contracts,
including all service contracts, employment contracts, contracts with suppliers
and distributors, and insurance policies, (ii) all trademarks, tradenames,
servicemarks, copyrights, patents and applications therefor, (iii) all permits,
leases, subleases, licenses, franchises and privileges; and (iv) all other
intangible assets owned by the Seller and/or used or useful in connection with
the operation of the Business, or held for the benefit of the Seller.
1.4 Inventories. Schedule 1.4 hereto sets forth a true and complete list
of all inventory items held by the Seller on the Closing Date, together with a
reasonable estimate of (i) the value of such inventory items, valued at cost as
of the Closing Date, and (ii) the age of such inventory items.
1.5 Accounts Receivable. Schedule 1.5 hereto sets forth a true and
complete list of all the Seller's receivables for products sold or services
rendered which are not
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<PAGE> 55
collected as of the Closing Date, together with a reasonable estimate of the age
of such receivables.
1.6 Prepaid Items. Schedule 1.6 hereto sets forth a true and complete list
of all of the Seller's prepaid items as of the Closing Date.
1.7 All Assets Scheduled. The assets identified in Schedules 1.1, 1.2,
1.3, 1.4, 1.5, 1.6 and 1.8 comprise all of the assets of Seller necessary in
order to conduct the Seller's Business as reflected in the financial statements
dated as of March 31, 1992, subject to those items replaced in the ordinary
course of business.
1.8 Cash. All checks and cash received on or before the Closing Date in
payment of the accounts receivable described in Schedule 1.5 hereto.
SECTION 2. DEFINITIONS.
Unless otherwise defined herein, all accounting terms shall have the
meanings ascribed to them under Generally Accepted Accounting Principles
("GAAP").
SECTION 3. CLOSING DATE.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032, at 10:00 a.m., Central
Daylight Time, on Thursday, May 28, 1992 or at such other time and place as may
be mutually agreed upon in writing by the Seller and the Purchaser (the "Closing
Date").
SECTION 4. CONSIDERATION AND PAYMENT; FUTURE TRADE PAYABLES; COLLECTIONS FROM
ACCOUNTS RECEIVABLE.
4.1 Purchase Price; Assumption of Certain Liabilities. On the Closing
Date, Purchaser shall (i) assume the Seller's liabilities described in Schedule
4.1 hereto (the "Assumed Liabilities"), and (ii) provide the Seller with a check
payable to the Seller in the amount of Eighty-Two Thousand Eight Hundred Sixty
and 89/100 Dollars ($82,860.89) (the "Cash Purchase Price"). The Assumed
Liabilities and the Cash Purchase Price shall constitute payment in full of the
purchase price (the "Purchase Price") hereunder.
4.2 Allocation of Purchase Price. Purchaser and Seller shall use their
best efforts to agree upon an allocation of the Purchase Price among the
different items of the Purchased Assets and shall (i) attach hereto as Schedule
4.2 an agreed upon allocation which shall be used in connection with their
preparation of Internal Revenue Form 8594, and (ii)
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<PAGE> 56
cooperate on the timely filing of Internal Revenue Form 8594, which shall be
prepared in conformity with the purchase price allocation attached as Schedule
4.2 hereto.
4.3 Future Trade Payables. Purchaser and Seller agree that (i) the Seller
shall promptly pay all trade payables which have not expressly been assumed
pursuant to Paragraph 4.1 hereto, (ii) should the Purchaser determine in its
sole discretion that the trade payables described in (i) above have not been
paid promptly by the Seller, Purchaser may pay such trade payables directly to
the vendors or creditors in question (each a "Trade Payable Advance"), and (iii)
Seller shall immediately reimburse the Purchaser the full amount of all Trade
Payable Advances. All Trade Payable Advances shall bear interest at a
fluctuating rate per annum equal to the prime or equivalent rate of interest
announced or published from time to time by Chemical Bank, N.A., or if the
foregoing ceases to exist or to announce or publish such rates, at a New York
money center bank as the parties hereto may agree. The Purchaser may offset all
Trade Payable Advances together with interest accrued thereon against any
amounts owed by it under the Related Transactions to either the Seller or
Weisman. Notwithstanding the foregoing, it is hereby agreed that: (A) Purchaser
shall not make any Trade Payable Advances unless Seller has failed to make
payments with respect to the trade payables in question within thirty (30) days
after having received written request from Purchaser that such payments be made,
and (B) the aggregate Trade Payable Advances permitted to be made in accordance
herewith by Purchaser shall not exceed $25,000.
4.4 Collections from Accounts Receivable. The Accounts Receivable
described in Section 1.5 hereto, other than those Accounts Receivable acquired
from Windmill Vitamin of Southwest, Inc. ("Windmill Southwest") pursuant to that
certain Agreement (the "Windmill Southwest Agreement") dated as of May 15, 1992,
by and among Windmill Southwest, the Seller, Weisman and Daniel Langerman, shall
hereinafter be referred to as the "Windmill Vitamin Receivables." To the extent
the Purchaser collects (whether in cash or returned merchandise) more than an
aggregate amount equal to $118,761.20 from Windmill Vitamin Receivables, such
excess amount shall be paid to the Seller reasonably promptly. Collections from
the Accounts Receivable acquired pursuant to the Windmill Southwest Agreement
shall not be considered for purposes of this paragraph.
SECTION 5. DELIVERY.
At the Closing, or on such date thereafter as the parties shall mutually
agree upon, the Seller shall deliver to the Purchaser the Purchased Assets and
such evidence of title to the Purchased Assets and of compliance with the terms
and conditions of this Agreement as may be reasonably required by counsel to the
Company in order that good and marketable title to the Purchased Assets shall
pass from the Seller to the Purchaser.
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<PAGE> 57
SECTION 6. THE SELLER'S AND SHAREHOLDER'S REPRESENTATIONS AND WARRANTIES
The Seller and the Shareholder hereby jointly and severally represent and
warrant as follows:
6.1 Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and is duly qualified to transact business as a foreign corporation in
every jurisdiction where the character of the properties owned or leased by it,
or the conduct of its business, makes such qualification necessary. Copies of
the Articles of Incorporation and By-laws of the Seller, with all amendments
thereto the date hereof, have been furnished to Purchaser or its
representatives, and such copies are accurate and complete as of the date
hereof.
6.2 Authority Relative to this Agreement: No Conflicts. The Seller has the
corporate power and authority and all licenses and permits required by
governmental authorities to own and operate its properties and to carry on its
business as now being conducted. The Seller has the corporate power to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by the Seller has been, or when
executed, will be, duly and validly authorized by all necessary corporate action
on the part of the Seller, including the due authorization of the Board of
Directors and shareholders of the Seller, and no other corporate proceedings on
the part of the Seller are necessary to authorize such execution, delivery and
performance. This Agreement is a valid and legally binding agreement of the
Seller and the Shareholder, enforceable in accordance with its terms, except to
the extent that enforcement thereof may be limited by laws affecting creditors'
rights generally. The Seller's and the Shareholder's execution, delivery and
performance of this Agreement does not and/or will not violate, breach or
constitute a default under (i) the provisions of the Certificate of
Incorporation or By-Laws of the Seller, as amended, (ii) any contracts or other
instrument to which the Seller or the Shareholder is a party or by which the
Purchased Assets may be bound, or (iii) the provisions of any order, decree or
judgment of any court, government or governmental agency or instrumentality
having applicability to the Seller or the Shareholder or by which the Purchased
Assets may be bound.
6.3 Personal Property. The Purchased Assets to be transferred hereunder
constitute substantially all of the properties, assets, rights, contracts,
leases, licenses and personal property necessary in order to conduct the
Seller's Business as reflected in the Seller's Financial Statements dated as of
March 31, 1992, subject to those items replaced in the ordinary course of
business. The Seller has good and marketable title to all the Purchased Assets
constituting personal property described in Section 1 hereof and reflected in
the schedules referred to in such section, free and clear of any adverse claims,
conditional bills of sale, chattel mortgages, security agreements, financing
statements or other security or equity interest of any kind.
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6.4 Contracts and Other Intangibles. The contracts licenses, patents,
patent rights, patent applications; trademarks, trademark applications, trade
names, servicemarks, servicemark applications, copyrights, or other intangibles
listed in Schedule 1.3 are valid and enforceable and not the subject of any
default or termination notice by any party thereto (unless so specified in
Schedule 1.3); and the Seller does not know of any existing state of facts which
would constitute an event of default or give rise to termination rights by any
of the parties thereto. The Seller has received no notice from any party to any
such contract with respect to such party's unwillingness or inability to perform
thereunder. Seller has not granted any rights in, nor encumbered in any way the
intangibles described herein, and has no knowledge of any claim to the effect
that the present or past operations of the Seller with regard to the intangibles
infringe or conflict with the asserted rights of others.
6.5 Delivery and Initialling of Documents. Copies of all contracts and
Intangibles listed in Schedule 1.3 hereto have been delivered by the Seller to
the Purchaser. Such copies are exact copies of the originals of said documents
and are complete; the underlying instruments have not been assigned or amended
(unless so specified in Schedule 1.3) and have been so initialled on behalf of
the Seller and the Purchaser.
6.6 Accuracy of Representations and Warranties. To the best of the
Seller's and the Shareholder's knowledge, none of the Seller's or Shareholder's
representations, warranties or statements contained in this Agreement, or in the
exhibits or schedules hereto, contain any untrue statement of a material fact or
omits to state any material fact necessary in order to make any such
representations, warranties or statements not misleading. All information
relating to the Seller and the Purchased Assets which is known to the Seller and
which may be material to a purchaser for value of all of the assets, businesses
and operations of the Seller has been disclosed to Purchaser and any such
information arising on or before the Closing Date forthwith will be disclosed in
writing to Purchaser. "Material" for purposes of this Section shall mean items
having a value of greater than $1,000 each and $5,000 in the aggregate.
6.7 Compliance with Laws. The Seller has complied with all applicable
statutes and regulations of the United States of the State of Illinois, and all
municipalities, and agencies thereof, with respect to the conduct of its
operations, and has not received any notice or notices of violations of any such
statutes or regulations which have not been cured, which violations could have a
material adverse effect on the business, financial condition or prospects of
Seller on the Purchased Assets.
6.8 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of the Seller, threatened against or affecting the Seller, the
Purchased Assets, or the Business, at law or in equity, before any court,
federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and, so far as the
Seller knows, no basis exists for any such action, suit or proceeding, other
than as disclosed in Schedule 6.8. The Seller will advise the Purchaser promptly
in writing of the commencement, threat or knowledge of any litigation, including
administrative proceedings,
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<PAGE> 59
known to the Seller and to which it is or may be made a party or which
materially affects the Seller, the Purchased Assets or the Business. The Seller
is not operating under, subject to or in default with respect to any order,
writ, injunction or decree of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign which could have a material adverse impact on the Purchased
Assets or the Business. Neither the Shareholder, nor the Seller, nor any of the
Seller's officers, know of any violation by the Seller of any antitrust or
environmental laws, nor are aware of any claim of violation of any antitrust or
environmental laws by the Seller which could have a material adverse impact on
the Purchased Assets or the Business, and, so far as is known to the
Shareholder, the Seller, and the Seller's respective officers, no basis for any
such claim exists.
6.9 Consents and Approvals. There are no consents, waivers, authorizations
or approvals necessary of any governmental or regulatory authority, domestic or
foreign, or of any other person, firm or corporation, and each declaration to or
filing or registration with any such governmental or regulatory authority, that
is required in connection with the execution and delivery of this Agreement by
the Seller and the Shareholder and the performance by the Seller and the
Shareholder of their respective obligations hereunder, have been made.
6.10. Tax Matters.
A. All returns, including estimated tax returns, required to be filed
on or prior to the Closing Date by the Seller with respect to any Federal,
state, local, foreign and other income, franchise, capital stock,
employees' income withholding, nonresident alien withholding, social
security, unemployment, disability, real property, personal property,
sales, use, transfer and other taxes, including any interest, penalties, or
additions to tax in respect of the foregoing (all the foregoing
collectively referred to as "Taxes"), which, if unpaid, might result in a
lien upon any of the Purchased Assets, have been duly filed and are true,
correct and complete;
B. All returns, including estimated tax returns, required to be filed
after the Closing Date by the Seller with respect to Taxes which, if
unpaid, might result in a lien on any of the Purchased Assets will be duly
filed and will be true, correct and complete; and
C. No deficiency or adjustment in respect of any Taxes which were
assessed against the Seller and which might result in a lien on the
Purchased Assets, remains unpaid.
6.11 Financial Statements. The Seller has delivered to the Purchaser
copies of the following financial statements which, to the Seller's knowledge,
are true and correct and have been prepared in accordance with GAAP:
Profit and Loss Statement for the period from inception through March
31, 1992.
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6.12 Events since March 31, 1992. Since March 31, 1992, there has not
been:
(i) any materially adverse change in the financial condition, assets,
liabilities or business of the Seller (other than changes in the ordinary
course of business), except that Purchaser has been informed by Seller that
Seller has been operating at a loss and continues to do so;
(ii) any sale or transfer of any of the assets of the Seller, except
in the ordinary course of business;
(iii) any mortgage, pledge or other lien or encumbrance created by
Seller on any of the Purchased Assets; or
(iv) any transaction entered into relating to the Seller other than in
the ordinary course of business, except this Agreement and the transactions
contemplated in subdivision (ii) hereof.
6.13 Liabilities. Except only as to those liabilities expressly assumed by
the Purchaser in accordance with Section 4.1 hereof, the Seller covenants to pay
or cause to be paid all liabilities incurred by the Seller or which may affect
the Business or the Purchased Assets in the ordinary course as and when they
come due.
6.14 Insurance. All policies of insurance covering the equipment conveyed
hereunder or providing for business interruption, personal and product liability
coverage, for the Business, are described in Schedule 6.14, and are outstanding
and in full force and effect. Such insurance is in amounts deemed by the Seller
to be sufficient with respect to the Seller's assets, properties, business,
operations, products and services as the same are presently owned or conducted
by the Business. There are no claims, actions, suits or proceedings arising out
of or based upon any of such policies of insurance, and, so far as is known to
the Seller or its officers, no basis for any such claim, action, suit or
proceeding exists.
6.15 Sales and Use Taxes. The Purchaser shall be responsible for all sales
or use taxes imposed in connection with the sale by Seller of the Purchased
Assets and the acquisition thereof by Purchaser. The Purchaser will indemnify
and hold the Seller harmless therefrom.
6.16 Customers. The Seller represents that its books and records contain
the names and addresses of all of its customers and business prospects on the
Closing Date.
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6.17 Pension Plans: Accrued Salaries and Benefits.
A. For purposes of this Section, "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended. Neither the Seller nor
any of its directors, officers, shareholders, employees or any other
"fiduciary," as such term is defined in Section 3 of ERISA (i) has
committed any breach of fiduciary responsibility imposed by ERISA or any
other applicable law which after the Closing Date would subject the
Purchaser or any of its directors, officers, shareholders or employees to
liability under ERISA or any other applicable law, or (ii) has engaged in
any "prohibited transaction," as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended, or incurred or
suffered to exist any "accumulated funding deficiency," as defined in
Section 302 of ERISA.
B. The Seller shall cause all unpaid accrued salary and deferred
compensation and other benefits accrued (including, without limitation,
unused vacation benefits, whether or not currently vested) for the benefit
of those employees, consultants or representatives associated with the
Business to be paid in full as due.
6.18 Environmental Matters. The Seller has obtained and is in
compliance with all permits, licenses and other authorizations which are
required with respect to its assets, properties and operations under all
applicable laws, regulations and other requirements of governmental or
regulatory authorities relating to pollution or protection of the
environment ("Environmental Laws"). None of such permits, licenses and
authorizations will in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. None of the
Seller's properties, whether leased or owned (collectively, the
"Premises"), have been subject to any of the following: (a) the presence of
any Hazardous Substance (as herein defined) on the Premises; (b) any
spills, releases, discharges, or disposal of Hazardous Substances that have
occurred or are occurring on or onto the Premises; (c) any spills or
disposal of Hazardous Substances that have occurred or are occurring off
the Premises as a result of any construction on or operation and use of the
Premises; (d) the presence of any equipment containing polychlorinated
biphenyl ("PCB"); or (e) the presence of any asbestos in use or on the
Premises. In connection with the construction on or operation and use of
the Premises, the Seller and the Shareholder represent that, to the best of
their knowledge, there has been no failure to comply by the Seller and its
officers and directors with all applicable local, state, and federal
Environmental Laws relating to the generation, recycling, reuse, sale,
storage, handling, transport, and disposal of any Hazardous Substances. As
used in this Section 6.18, "Hazardous Substances" shall mean: Asbestos and
any substance or material defined or designated as hazardous or toxic
waste, hazardous or toxic material, a hazardous or toxic substance, or
other similar term by any federal, state or local Environmental Law
presently in effect or that may be promulgated in the future as such Laws
may be amended from time to time.
SECTION 7. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants as follows:
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7.1 Organization and Good Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has full power to carry on its business and to enter into this
Agreement.
7.2 Authority Relative to the Agreement. The Purchaser has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution, delivery and performance of this Agreement by the Purchaser has
been, or when executed, will be, duly and validly authorized by all necessary
corporate action on the part of the Purchaser, and no other corporate
proceedings on the part of the Purchaser are necessary to authorize such
execution, delivery and performance. This Agreement when duly executed by the
Purchaser, is a valid and legally binding agreement of the Purchaser enforceable
in accordance with its terms, except to the extent that enforcement thereof may
be limited by laws affecting creditors' rights generally. The Purchaser's
execution, delivery and performance of this Agreement does not and/or will not
violate, breach or constitute a default under (i) the provisions of the
Purchaser's Certificate of Incorporation or By-Laws, (ii) the provisions of any
agreement or other instrument to which the Purchaser is a party or by which it
or its properties may be bound, or (iii) the provisions of any order, decree or
judgment of any court, government or governmental agency or instrumentality
having applicability to the Purchaser or by which it or its properties may be
bound.
SECTION 8. COVENANTS OF THE SELLER AND THE SHAREHOLDER
8.1 Satisfaction of Conditions. The Seller and the Shareholder shall use
their best efforts to obtain the satisfaction of the conditions specified in
Section 6 hereof. In addition, the Seller and the Shareholder expressly
authorize the Purchaser to apply in advance of the Closing Date for such
licenses and permits, if any, as the Purchaser deems necessary or appropriate
for the operation of the Seller's business from and after the Closing Date.
8.2 Collection of Accounts. The Seller and the Shareholder will cooperate
with the Purchaser, at the request of the Purchaser, on and after the Closing
Date in endeavoring to effect the collection of all receivables and other items
owing to the Seller, in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or disputes
relating to the adjustment of federal, state, country or local taxes for which
the Seller may be liable for all periods prior to the Closing Date and in
connection with any other actions, proceedings, arrangements or disputes
involving the Seller based upon contacts, arrangements or acts of the Seller
which were in effect or occurred on or prior to the Closing Date.
8.3 Corporate Name. At the Closing Date, the Seller and the Shareholder
will execute such documents and certificates and take such steps as are
necessary for the Purchaser to obtain the legal right to and use of the Seller's
corporate name. From the Closing Date and beyond, neither the Seller nor the
Shareholder, nor any of their respective affiliates shall use,
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in any manner whatsoever, directly or indirectly, the name "Windmill" or any
words similar thereto except pursuant to a license or other agreement issued by
the Purchaser.
8.4 Loan Out of Employee Services. During the period beginning on the
Closing Date and ending on July 31, 1992, the Seller and the Shareholder, at the
Purchaser's request, shall make available to the Purchaser those individuals
currently employed by the Seller to perform the same or similar services on
behalf of the Purchaser as such individuals currently perform for the Seller,
and the Purchaser covenants that it will reimburse the Seller for all reasonable
costs associated therewith, including the cost of salaries of each of the
individuals at their current salary levels. Both the Seller and Purchaser agree
to take all necessary measures to ensure that the individuals discussed herein
shall at no time become employees of the Purchaser, but instead shall at all
times remain employees of the Seller and be considered independent contractors
of the Purchaser.
8.5 Right of Offset. Seller and Shareholder hereby agree that, with
respect to the Windmill Vitamin Receivables referred to in Paragraph 4.4 hereto,
to the extent the Purchaser is unable to collect an aggregate amount which is
equal to or greater than $118,761.20 (the "Base Amount") by the first
anniversary of the Closing Date, the Purchaser shall be permitted to offset from
the amounts either it, Edward M. Frankel, or any other of its affiliates owe to
the Seller or the Shareholder hereunder or in connection with the Related
Transactions, an amount equal to the difference between the aggregate amount it
collected and the Base Amount. Any collections received from Windmill Vitamin
Receivables subsequent to the right of offset being exercised by the Purchaser
pursuant to this paragraph, shall be paid reasonably promptly to the Seller.
SECTION 9. COVENANTS OF THE PURCHASER
9.1 Release of the Seller. The Purchaser will cooperate with the Seller to
obtain the release of the Seller from all liabilities occurring after the
Closing Date under the contracts, leases and other agreements or instruments
covered by Schedule 1.3 hereto.
9.2 Applications. The Purchaser will join with the Seller upon its request
in making any and all requests or applications necessary or convenient to obtain
the consents and approvals of third parties to the assignment of those
instruments referred to in Schedule 1.3 hereto which cannot be effectively
transferred without the consents or approvals of such third persons, provided,
that the Purchaser shall not be obligated hereby to pay money or other
consideration to any such third party to obtain any such consents or approvals.
The Purchaser will diligently prosecute each such application made or joined in
by it pursuant to this Agreement, and will use every reasonable effort to obtain
final action thereon prior to the Closing Date.
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SECTION 10. CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligation of Purchaser to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, at or before the Closing Date, of
the following conditions, any one or more of which may be waived by it in its
sole discretion;
10.1 Representations and Warranties of the Seller and Shareholder. All
representations and warranties made by the Seller and the Shareholder in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as if again made by the Seller and Shareholders on and as of such
date, and the Purchaser shall have received a certificate dated the Closing Date
and signed by the President and by the chief financial officer of the Seller and
by the Shareholder to that effect.
10.2 Performance of the Seller's and Shareholder's Obligations. The Seller
and the Shareholder shall have performed in all material respects all
obligations required under this Agreement to be performed by them on or before
the Closing Date.
10.3 Consents and Approvals. All consents, waivers, authorizations and
approvals of any governmental or regulatory authority, domestic or foreign, and
of any other person, firm or corporation, required in connection with the
execution, delivery and performance of this Agreement, shall have been duly
obtained and shall be in full force and effect on the Closing Date.
10.4 No Violation of Orders. No preliminary or permanent injunction or
other order issued by any court or governmental or regulatory authority,
domestic or foreign, nor any statute, rule, regulation, decree or executive
order promulgated or enacted by any government or governmental or regulatory
authority, which declares this Agreement invalid in any respect or prevents the
consummation of the transactions contemplated hereby, or which materially and
adverse affects the assets, properties, operations, prospects, net income or
financial condition of the Companies shall be in effect.
10.5 Other Closing Documents. Purchaser shall have received such other
certificates, instruments and documents in confirmation of the representations
and warranties of the Seller and the Shareholder or in furtherance of the
transactions contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.
10.6 Legal Matters. All certificates, instruments and other documents
required to be executed or delivered by or on behalf of any of the shareholders
or the Seller under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of any of the Shareholders or
the Seller in furtherance of the transactions contemplated hereby (including
shareholders consent to the transaction), shall be reasonably satisfactory in
form and substance to counsel for the Purchaser.
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10.7 U.C.C. Searches. On or prior to the Closing Date, Purchaser shall
have received from the Seller Uniform Commercial Code Search Forms, with respect
to all of the Purchased Assets and properties of the Seller, the result of which
will be in accordance with the representations and warranties contained in this
Agreement and satisfactory to Purchaser's counsel.
10.8 Windmill Southwest. On or prior to the Closing Date, the Seller shall
have purchased certain account receivables of Windmill Vitamins of Southwest,
Inc., a Texas corporation, on terms and conditions satisfactory to the
Purchaser.
10.9. Related Transactions. All of the Related Transactions shall have
been consummated and closed.
SECTION 11. TAXES, UTILITIES, ASSESSMENTS AND OTHER ADJUSTMENTS
11.1 General Taxes.
A. The Seller shall be liable for and shall pay all General Taxes (as
hereinafter defined) levied and assessed against the Purchased Assets for
periods prior to the Closing Date. The Purchaser shall be liable for and
shall pay all General Taxes levied and assessed against the Purchased
Assets for periods from the Closing Date onward.
B. The Seller shall pay all installments of special taxes or special
assessments which were levied or assessed against the Purchased Assets
prior to the Closing Date, whether payable prior to the Closing Date or
thereafter, and the Purchaser shall pay all special taxes or special
assessments levied or assessed against the Purchased Assets on or after the
Closing Date.
C. As used in this Section 11, the term "General Taxes" shall mean all
taxes imposed by any government including, but not limited to, ad valorem
and severance taxes or other taxes on real or personal property, and
highway vehicle use taxes and fees, but the term "General Taxes" shall not
include sales and use taxes, real property transfer taxes, or any franchise
taxes, income taxes or other taxes based on income.
11.2 Sales, Use, Transfer and Other Taxes. The following taxes will be
paid as indicated:
A. Sales and use taxes imposed on the purchase, sale, use or transfer
of any of the Purchased Assets by the Seller prior to the Closing Date
shall be paid by the Seller. Any such taxes imposed on any purchase, sale,
use or transfer of any of the Purchased Assets by the Purchaser after the
Closing Date shall be paid by the Purchaser.
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B. Franchise taxes, income taxes or any other taxes based on net
income earned from the Purchased Assets on or prior to the Closing Date,
together with expenses incidental to the determination and payment thereof,
shall be paid by the Seller. Any such taxes based on net income earned from
the Purchased Assets after the Closing Date, together with expenses
incidental to the determination and payment thereof, shall be paid by the
Purchaser.
SECTION 12. RISK OF LOSS AND CONDEMNATION
12.1 Risk of Loss After the Closing. The Purchaser shall bear all risk of
loss of or damage to the Purchased Assets, after the Closing.
12.2 Risk of Loss Prior to the Closing. The Seller shall bear all risk of
loss of or damage to the Purchased Assets, until consummation of the Closing.
SECTION 13. INDEMNIFICATION: BULK SALES COMPLIANCE
13.1 The Seller's and Shareholder's Indemnity. Except as otherwise
provided herein, the Seller and the Shareholder, jointly and severally, shall
indemnify and hold harmless the Purchaser against and in respect of (i) any and
all liabilities and obligations of the Seller arising out of any transaction
entered into by the Seller or other facts or circumstances arising or existing
prior to the Closing Date and not expressly assumed by the Purchaser pursuant to
Section 4, (ii) any and all losses, damages or deficiencies resulting from any
misrepresentations, breach of warranty or non-fulfillment of any covenant or
agreement on the part of the Seller and/or the Shareholder under this Agreement
and (iii) any and all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including reasonable attorneys' fees) incident to
the foregoing.
13.2 The Purchaser's Indemnity. Except as otherwise provided herein, the
Purchaser shall indemnify and hold harmless the Seller against and in respect of
any and all liabilities and obligations of: (i) the Purchaser arising out of any
transaction entered into by the Purchaser after the Closing Date, (ii) any and
all loss, damage or deficiency resulting from any misrepresentations, breach of
warranty or non-fulfillment of any covenant or agreement on the part of the
Purchaser under this Agreement, and (iii) any and all actions, suits,
proceedings, demands, assessments, judgments, costs and expenses (including
reasonable attorneys' fees) incident to the foregoing.
13.3 Bulk Sales Compliance. The Purchaser hereby waives compliance by the
Seller with the provisions of any so-called bulk transfer laws of any
jurisdiction in connection with the sale of the Purchased Assets to the
Purchaser. The Seller and Shareholder shall jointly and severally indemnify and
hold harmless the Purchaser against any and all liabilities which
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may be asserted by third parties against the Purchaser as a result of the
Seller's noncompliance with any such bulk transfer laws.
SECTION 14. FURTHER ASSURANCES BY THE SELLER
The Seller's Further Assurances. As used in this Section, "Further
Assurances" shall mean any deeds, assignments, powers of attorney or other
documents or instruments which may be reasonably required to transfer ownership
of the Business and the Purchased Assets to the Purchaser, to confirm such
ownership or to facilitate effective recordation thereof, or to put the
Purchaser in actual possession and operating control of the Purchased Assets. As
soon as practicable after any request for Further Assurances made by the
Purchaser at or after the Closing Date and subject to the following sentence,
the Seller shall, if authorized by law to do so, either execute such Further
Assurances and deliver them to the Purchaser or cause them to be executed and
delivered to the Purchaser (i) without any charge to the Purchaser, and (ii) in
proper form for any required recording, filing or registration. This Section 14
shall not obligate the Seller to provide or pay for documentary stamps or to pay
transfer or sales taxes on recording or similar charges not otherwise provided
for in this Agreement.
SECTION 15. MISCELLANEOUS
15.1 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and shall become
effective when one or more counterparts have been signed by each of the parties.
15.2 Survival of Representations and Warranties. The representations and
warranties made in this Agreement and in any certificate, exhibit or document
delivered in connection therewith shall survive the Closing Date.
15.3 Brokerage and Other Expenses. Each of the parties hereto represents
and warrants to the others that this Agreement is the result of direct
negotiations between the parties hereto and that such party is not paying and is
not obligated to pay any commission, broker's fee or finder's fee in connection
with the transaction contemplated hereby. Except as otherwise provided herein,
each of the parties hereto shall pay its or their respective expenses,
including, without limitation, attorneys' fees, in connection herewith and with
the transactions contemplated hereby, and none of the parties hereto shall be
liable for such expenses of any other party hereto.
15.4 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 York. The parties to this Agreement, acting for themselves and for
their respective successors and assigns, without regard to domicile, citizenship
or residence, hereby expressly and
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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 Illinois located
in Cook County, and/or the United States District Court for the same location,
in respect of any matter involving money damages and arising under this
Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Subsection 15.5 hereof.
15.5 Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or served
if in writing and delivered personally or sent by telefacsimile, certified mail,
postage prepaid, or by telegraph, charges prepaid.
A. If to the Purchaser, addressed to the Purchaser at:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
Telecopier: (201) 575-6782
Attn: Mr. Edward M. Frankel, President
with a copy to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Telecopier: (212) 735-8708
Attn: Stephen A. Cohen, Esq.
and;
B. If to the Seller, addressed to the Seller at:
Windmill Natural Vitamin Company, Inc.
4560 W. Touhy Avenue
Lincolnwood, Illinois 60646
Telecopier: (708) 498-8978
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Attn: Earl Weisman, President
and;
C. If to the Shareholder, addressed to the Shareholder at:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
with a copy to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
or such address as shall be furnished in writing by either party to the other
party.
15.6 Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement, provided, however, that the Purchaser may assign or transfer
this Agreement, or any interest therein, to any person or entity controlled by,
controlling, or under common control with the Purchaser, provided that no such
assignment shall relieve Purchaser of any liabilities to Seller hereunder.
15.7 Modification. This Agreement may not be amended, modified, or
supplemented except by a written instrument executed by duly authorized officers
of the Seller and the Purchaser.
15.8 Waiver. Each party may, at its option, waive in writing any and all
of the conditions herein contained to which its obligations hereunder are
subject. Except by such a writing, no action or omission of a party shall be
construed as a waiver of any condition or right.
15.9 Severability. If any provision of this Agreement shall for any reason
be determined by a court of competent jurisdiction to be so broad as to be
invalid or unenforceable, such provision shall be automatically reformed and
construed so as to be valid, operative, and enforceable to the maximum extent
permitted by law or equity while most nearly preserving its original intent. The
invalidity of any part of this Agreement shall not render invalid the remainder
of this Agreement.
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15.10 Entire Agreement. This instrument contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and supersedes all previous written or oral negotiations, commitments and
writings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
---------------------------------------
Edward M. Frankel
President
WINDMILL NATURAL VITAMIN COMPANY, INC.
By: /s/ EARL WEISMAN
---------------------------------------
Earl Weisman
President
/s/ EARL WEISMAN
------------------------------------------
Earl Weisman
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Exhibit 10.31
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (the "Agreement") made as of this 28th day of
May, 1992 by and between WINDMILL MARKETING SERVICES, INC. (the "Company"), a
New Jersey corporation having its principal office and place of business at 100
Lehigh Drive, Fairfield, New Jersey 07006 and WINDMILL NATURAL VITAMIN COMPANY,
INC. ("Windmill Vitamin") having its principal office and place of business at
4560 W. Touhy Avenue, Lincolnwood, Illinois 60646.
W I T N E S S E T H:
WHEREAS, Windmill Vitamin has been in the business of soliciting orders for
vitamins and cosmetics from retail stores, outlets and other ventures for more
than five (5) years and has intimate knowledge of its business and customers, as
well as the markets in which it operates;
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of the date hereof, by and between Windmill
Vitamin and the Company, Windmill Vitamin has agreed to sell, transfer, convey,
assign and deliver, and the Company has agreed to purchase and accept, the
business and all or substantially all of Windmill Vitamin's assets provided that
Windmill Vitamin agrees not to thereafter compete with the Company on the terms
and conditions hereinafter provided.
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. Restrictive Covenants.
(a) Windmill Vitamin hereby acknowledges and recognizes the highly
competitive nature of its business and, accordingly, agrees that in
consideration of the premises contained herein and the Non-Compete Fee to
be paid hereunder, it will not, other than on behalf of the Company or any
affiliate of the Company, during the term hereof, and for a period of five
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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
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(c) In the event of a breach or threatened breach by Windmill Vitamin
of the provisions of this paragraph 1, the Company shall be entitled to an
injunction restraining it 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 reasonable 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.
(d) Anything herein to the contrary notwithstanding, Windmill Vitamin
shall no longer be bound by any of the restrictions contained herein in the
event that (i) the Company defaults in payment of any of its obligations
pursuant to the terms of this Agreement, and (ii) the default described in
paragraph 1(d)(i) is not cured within 30 days after the Company has
received written notice of such default from Windmill Vitamin.
2. Non Compete Fee.
Windmill Vitamin shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of its covenant not-to-compete, the terms and conditions of which
are set forth in paragraph 1 hereto, equal to Two Hundred Thousand Dollars
($200,000), payable in four equal installments of Fifty Thousand Dollars
($50,000) each on the fifth through eighth anniversaries of the date hereof, in
each case, together with interest thereon, payable quarterly in arrears,
commencing with the third month following the month hereof, on the same day of
the month as the day hereof (or the last day of the month if there is no
corresponding day), at a fluctuating rate per annum equal to prime or an
equivalent rate of interest from time to time announced or published by Chemical
Bank, N.A., or if the foregoing ceases to exist or ceases to publish a prime
rate of interest such other New York money center as Windmill Vitamin and the
Company may agree.
3. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
Attention: Edward M. Frankel, President
Telecopier: (201) 575-6782
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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 Windmill Vitamin, to:
Windmill Natural Vitamin Company, Inc.
4560 West Touhy Avenue
Lincolnwood, Illinois 60646
Attention: Earl Weisman, President
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
4. Modification and Waiver. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by all 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.
5. 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.
6. Entire Agreement. This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, representations, and understandings of the parties with
respect thereto.
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7. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 3 hereof.
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
9. 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
Windmill Vitamin hereby consents and agrees that such scope may be judicially
modified accordingly in any such jurisdiction in any proceeding brought to
enforce such restriction.
10. Headings. The headings hereof are inserted for convenience of
reference only and shall not be deemed to constitute a part hereof.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
WINDMILL MARKETING SERVICES, INC.
BY: /s/ EDWARD M. FRANKEL
---------------------------------------
Edward M. Frankel
President
WINDMILL NATURAL VITAMIN COMPANY, INC.
BY: /s/ EARL WEISMAN
---------------------------------------
Earl Weisman
President
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Exhibit 10.30
GUARANTEE AGREEMENT
1. EDWARD M. FRANKEL ("Guarantor") having an office at 100 Lehigh Drive,
Fairfield, New Jersey 07006 hereby unconditionally guarantees to EARL WEISMAN
("Weisman") residing at 8934 Kenton Avenue, Skokie, Illinois 60076, the due and
punctual payment in full when due of all amounts payable (the "Guaranteed
Payments") by (a) Garden State Nutritionals, Inc. ("Garden State") under the
Stock Redemption Agreement dated May 28, 1992 between Garden State, Weisman, et.
al., under the Garden State promissory note issued pursuant thereto and under
the Consulting and Non-competition Agreement dated May 28, 1992 between Garden
State and Weisman, and (b) Windmill Marketing Services, Inc. ("Windmill") under
the Stock Redemption Agreement dated May 28, 1992 between Windmill, Weisman, et.
al., under the Windmill promissory note issued pursuant thereto and under the
Consulting and Non-competition Agreement dated May 28, 1992 between Windmill and
Weisman (all of the foregoing, collectively, the "Agreements").
2. The liability of Guarantor under this Guarantee Agreement (hereinafter
referred to as the "Guarantee") is absolute, primary, direct and immediate and
not conditional or contingent upon pursuit by Weisman of any other action or
proceeding for collection, or of any other remedies it may have, against Garden
State, Windmill, any other guarantor, or any other person, except that prior to
making demand hereunder, Weisman shall have made prior demand on Garden State or
Windmill, as the case may be, with respect to the Guaranteed Payment in
question, and five (5) business days shall have elapsed from the time of such
demand, with Garden State or Windmill, as the case may be, not having made such
Guaranteed Payment.
3. Guarantor hereby expressly agrees that Weisman may, in his sole and
absolute discretion, without prior notice to, or consent of, Guarantor and
without in any way releasing, affecting or impairing the obligations and
liabilities hereunder of Guarantor:
(a) waive, in whole or in part, compliance with, or any defaults
under, or grant any other indulgences with respect to, or act or fail to
act with respect to, any instrument or document now or hereafter in effect
evidencing or relating to the Guaranteed Payments;
(b) grant extensions, continuations or renewals of, or with respect
to, the Guaranteed Payments, or the Agreements, in whole or in part, and/or
effect any release, compromise or settlement in connection therewith; or
(c) assign or otherwise transfer the Guaranteed Payments, together
with this Guarantee, free of any defense, counterclaim or setoff in favor
of Garden State, Windmill or Guarantor, such parties, however, retaining
any right of action available directly against Weisman to enforce any such
counterclaim or setoff.
4. Except as otherwise provided in paragraph 2 hereof, Guarantor hereby
expressly waives, to the fullest extent permitted by law, (i) presentment and
demand for
<PAGE> 77
payment, notice of nonpayment and dishonor, and protest and notice of protest,
of the Guaranteed Payments, (ii) notice of acceptance of this Guarantee and of
presentment, demand and protest, (iii) notice of any default hereunder or with
respect to the Guaranteed Payments or under the Agreements or, (iv) demand for
observance or performance of, or enforcement of, any term or provision of this
Guarantee, any of the Guaranteed Payments or the Agreements, and (v) all other
notices and demands required by law which Guarantor may lawfully waive.
Guarantor agrees to reimburse Weisman and his assigns, on demand, for all
expenses, collection charges, court costs and reasonable attorney's fees
incurred in endeavoring to collect or enforce the Guaranteed Payments against
Garden State or Windmill or Guarantor or any other person or entity liable
thereon, including such expenses, charges or fees incurred in proving the amount
and reasonableness thereof.
5. Any notice, demand or request (including service of process in any
action to enforce this Guarantee) which Weisman may give to Guarantor with
respect to this Guarantee shall be deemed sufficient if in writing and delivered
personally or given by prepaid telegram or by registered or certified mail to
Guarantor at the address set forth above.
6. All rights and remedies afforded to Weisman by reason of this Guarantee,
the Guaranteed Payments, the Agreements, or by law, are separate and cumulative
and the exercise of one shall not in any way limit or prejudice the exercise of
any other such right or remedy. No delay or omission by Weisman in exercising
any such right or remedy shall operate as a waiver thereof. No waiver of any of
its rights or remedies hereunder, and no modification or amendment hereof, shall
be deemed made by Weisman unless in writing and duly signed on behalf of
Weisman. Any such written waiver duly signed on behalf of Weisman shall apply
only to the particular instance specified therein and shall not impair the
further exercise of such right or remedy of Weisman, and no single or partial
exercise of any right or remedy hereunder shall preclude any other or further
exercise thereof or of any other right or remedy.
7. This Guarantee shall be binding upon Guarantor and his heirs, executors
and legal representatives.
8. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Payments or of any security therefor, or under any of the
Agreements, shall affect, impair or be a defense to this Guarantee, and this
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment, without regard to the validity, regularity or
enforceability of any of the Agreements or any collateral security therefor at
any time or from time to time held by Weisman and without regard to any defense,
offset or counterclaim which may at any time be available to Garden State or
Windmill which constitutes, or might be construed to constitute, an equitable or
legal discharge of Garden State or Windmill in any federal or state bankruptcy
or insolvency proceeding.
9. The invalidity or unenforceability of any one or more sentences,
phrases, clauses or provisions in this Guarantee shall not affect the validity
or enforceability of any other sentence, phrase, clause or provision of this
Guarantee.
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<PAGE> 78
10. THIS GUARANTY SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW
YORK AND THE RIGHTS AND LIABILITIES OF THE PARTIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE GUARANTOR,
ACTING FOR HIMSELF AND FOR HIS HEIRS, EXECUTORS AND LEGAL REPRESENTATIVES,
WITHOUT REGARD TO DOMICILE, CITIZENSHIP OR RESIDENCE, HEREBY EXPRESSLY AND
IRREVOCABLY ELECTS AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ANY
MATTERS INVOLVING MONEY DAMAGES AND ARISING UNDER OR IN CONNECTION WITH THIS
GUARANTY, AND CONSENTS AND SUBJECTS HIMSELF TO THE JURISDICTION OF, THE COURTS
OF THE STATE OF ILLINOIS LOCATED IN COOK COUNTY, AND/OR THE UNITED STATES
DISTRICT COURT FOR THE SAME LOCATION, IN RESPECT OF ANY MATTER INVOLVING MONEY
DAMAGES AND ARISING UNDER THIS GUARANTY. ALL OTHER MATTERS ARISING UNDER THIS
GUARANTY, INCLUDING THOSE INVOLVING EQUITABLE REMEDIES SOUGHT BY EITHER PARTY
HERETO, SHALL BE BROUGHT EXCLUSIVELY IN COURTS OF THE STATE OF NEW YORK LOCATED
IN NEW YORK CITY, AND/OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND THE GUARANTOR AND WEISMAN, ACTING FOR THEMSELVES AND
FOR THEIR HEIRS, EXECUTORS AND LEGAL REPRESENTATIVES, WITHOUT REGARD TO
DOMICILE, CITIZENSHIP OR RESIDENCE, HEREBY EXPRESSLY AND IRREVOCABLY ELECT SUCH
FORUM AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ALL SUCH MATTERS, AND
CONSENT AND SUBJECT THEMSELVES TO THE JURISDICTION OF SUCH COURTS. 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 PARTY AS PROVIDED IN THE AGREEMENTS.
11. This Guarantee shall remain in full force and effect until the full and
complete payment of all the Guaranteed Payments.
IN WITNESS WHEREOF, this instrument has been duly executed by the
undersigned as of the 11th day of April, 1996.
/s/ EDWARD M. FRANKEL
--------------------------------------
Edward M. Frankel
The undersigned hereby accepts the above Guarantee, in lieu of and in
substitution for all stock certificates for shares of capital stock of Garden
State and of Windmill which had been delivered as collateral under the
Agreements, and consents to the release thereof from escrow by the Escrow Agent
named therein and delivery thereof by such Escrow Agent to Garden State and
Windmill, respectively.
/s/ EARL WEISMAN
--------------------------------------
Earl Weisman
DATED: MAY 10, 1996
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<PAGE> 79
Exhibit 10.14
EMPLOYMENT AGREEMENT dated as of January 1, 1996 between EDWARD M. FRANKEL
("Executive") and VITAQUEST INTERNATIONAL INC., a Delaware corporation
("Company").
1. TERM
The term of this Agreement shall commence as of January 1, 1996 and shall
terminate on June 30, 1999, subject to earlier termination as provided herein.
2. POSITION AND DUTIES
(a) Executive shall be employed by the Company during the term as its
Chairman and President. Executive shall report directly and solely to the
Company's Board of Directors ("Board"). The Company agrees to nominate Executive
for election to the Board as a member of the management slate at each annual
meeting of stockholders during the term hereof and Executive agrees to serve on
the Board if elected.
(b) Executive agrees to perform such services, not inconsistent with his
position, as shall from time to time be assigned to him by the Company's Board,
consistent with the By-Laws of the Company.
(c) During the term of employment hereunder, except for disability, illness
and reasonable vacation periods, Executive shall devote substantially all of his
business time, attention, and energies to the position of Chairman and President
of the Company. Notwithstanding the foregoing, the expenditure by the Executive
of reasonable amounts of time in connection with outside activities, not
competitive with the Company's business, including but not limited to outside
directorships, or charitable or professional activities, shall not be considered
to be in violation of this Agreement subject, however, to the requirement that
in no event shall any such activities materially interfere with the performance
by the Executive of the services required under this Agreement. Further, it is
understood and agreed by the parties hereto that Executive may engage in passive
and personal investment activities.
3. SALARY AND BONUS
(a) Beginning January 1, 1996, Executive shall receive an annual base
salary of $500,000, which base salary shall be subject to automatic increase on
the first day of each January during the term hereof beginning January 1, 1997
by an amount equal to the greater of (i) 5% of the base salary in effect during
the preceding 12 month period, or (ii) the percentage increase in the Consumer
Price Index published by the U.S. Department of Labor for the 12 month period
then ended (the "Current CPI Period") compared with the 12 month period
immediately preceding the Current CPI Period. The base salary shall not be
reduced during the term of this Agreement.
<PAGE> 80
(b) Executive shall be entitled to receive during each year during the term
hereof other than 1996, such incentive bonus, in such amount as the Board (or a
Compensation Committee or other similar Committee designated by the Board) shall
determine in its discretion on the basis of the Company's operating results,
provided that no such determination shall be made prior to June 30, 1997.
4. REIMBURSEMENT OF EXPENSES
Executive shall be authorized to incur and shall be reimbursed by the
Company for reasonable expenses for the advancement of the Company's business,
upon presentation of reasonable documentation therefor.
5. STOCK OPTIONS AND OTHER BENEFITS
(a) Executive shall be eligible to participate in the Company's
Non-Qualified Deferred Compensation Plan, Profit Sharing Plan and 1996 Stock
Option Plan and any additional or successor incentive plan or plans.
(b) During the period of employment hereunder, Executive shall also be
entitled to receive all other benefits of employment which are, and which may be
in the future, generally available to members of the Company's management and
specifically, an allowance for use of automobiles as provided from time to time
by action of the Board of Directors, as well as, without limitation, group
health, disability, and life insurance benefits and participation in any Company
profit-sharing or pension plan, and vacation consistent with the vacation
policies of Company.
6. DISABILITY BENEFITS
"Disability" shall mean Executive's incapacity due to physical or mental
illness or cause, which results in Executive being absent from the performance
of his duties with the Company on a full-time basis for a period of nine (9)
consecutive months. The existence or cessation of a physical or mental illness
which renders Executive absent from the performance of his duties on a full-time
basis shall, if disputed by the Company or Executive, be conclusively determined
by written opinions rendered by two qualified physicians, one selected by
Executive, and one selected by the Company. During the period of absence
Executive shall be deemed to be on disability leave of absence, with his
compensation paid in full and the Board may designate an interim Chief Executive
Officer on such terms as it deems proper.
Upon the expiration of nine (9) consecutive months of such disability leave
of absence, Executive's employment may be terminated by the Company pursuant to
the provisions of Section 8(a) provided, however, that prior to the effective
date of such termination, Executive
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<PAGE> 81
shall have the right to return to full-time employment. At the Company's
request, Executive shall be required to provide the written opinions of two
qualified physicians, one selected by Executive and one selected by the Company
to verify Executive's condition of health. Executive's full regular compensation
shall be reinstated upon his return to employment and his resumption of his full
duties hereunder. If the Company refuses to permit Executive to resume full-time
employment as Chief Executive Officer the Company shall be deemed to have
terminated this agreement under Section 8(c) hereof.
7. DEATH DURING EMPLOYMENT
If Executive dies during the term of employment provided for in this
Agreement, the Company shall pay to the Executive's Estate the regular
compensation that would otherwise be payable to Executive up to the end of the
month in which his death occurs, plus, as a death benefit, compensation for a
period of twelve (12) months thereafter at the same monthly rate of base
compensation which prevailed during the month of his death.
8. TERMINATION BY THE COMPANY
The Company shall have the right to terminate this Agreement under the
following circumstances:
(a) Upon ten (10) days' written notice from Company to Executive in
the event of Disability which has incapacitated him from performing his
duties for nine (9) consecutive months as determined under Section 6,
subject to Executive's right to reinstatement as provided in Section 6.
(b) For "Cause" upon ten (10) days' written notice to Executive.
Termination by the Company of Executive's employment for "Cause" as used in
this Agreement means (1) the willful and continuing neglect by Executive of
his duties or obligations hereunder provided, however, that any such
neglect shall constitute "Cause" hereunder only if such neglect remains
uncured for a period of ten (10) days after written notice describing the
same is given to the Executive; and provided, further, that isolated,
insubstantial or nonmaterial neglect or failure shall not constitute Cause
hereunder; (2) the willful refusal by Executive to comply with the lawful
instructions or directions of the party to whom Executive reports
hereunder, provided, however, that any such refusal shall constitute
"Cause" hereunder only if such instructions or directions are in respect of
matters which may be properly required of Executive hereunder and only if
such refusal continues for a period of more than ten (10) days after
written notice describing same is given to the Executive; (3) Executive's
conviction (which, through lapse of time or otherwise, is not subject to
appeal) of any felony under the laws of any country or political
subdivision thereof, involving theft, embezzlement or moral turpitude; (4)
Executive's performance of any act which would constitute a crime or
offense involving money or property of the Company or any of its
subsidiaries, or would constitute a felony in the jurisdiction in
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<PAGE> 82
which such act occurred, regardless of whether or not the Executive is
prosecuted; (5) any attempt by Executive improperly to secure any personal
profit in connection with the business of the Company or any of its
subsidiaries, (6) chronic alcoholism or drug addiction; or (7) any breach
by Executive of the terms of Sections 12 or 13 of this Agreement; provided
such breach continues uncured for ten (10) days after written notice of
such breach is given by the Company to Executive.
(c) Upon ninety (90) days' written notice to Executive where the
Board, acting by a majority, elects "Without Cause" to terminate Executive
for any reason, other than Disability (Section 8(a)) or for Cause (Section
8(b)).
9. TERMINATION BY EXECUTIVE
Executive shall have the right to terminate his employment under this
Agreement "With Good Reason" upon three (3) days' written notice to the Company
given within sixty (60) days following the date on which Executive becomes aware
of any of the following events:
(a) Executive is not elected or retained as Chairman and President and
a director of Company;
(b) any assignment to Executive of any duties other than those
reasonably contemplated by, or any limitation of the power or prerogatives
of Executive in any respect not reasonably contemplated by Section 2;
(c) any removal of Executive from responsibilities substantially
similar to those described or contemplated in Section 2;
(d) any reduction in, or limitation upon, the compensation,
reimbursable expenses or other benefits provided for in this Agreement,
other than by valid public law or regulation; or
(e) any assignment to Executive of duties that would require him to
relocate or transfer his current principal place or residence or would make
the continuance of such current principal place of residence unreasonably
difficult or inconvenient for him.
10. CONSEQUENCES OF TERMINATION
(a) Except as provided in Section 10(b), as used in this Agreement "Date of
Termination" shall mean the date specified in the written notice of termination
given by the Company pursuant to Section 8 or by the Executive pursuant to
Section 9. If termination occurs pursuant to Executive's death as provided in
Section 7, the date of Executive's death shall be the Date of Termination.
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(b) If, within sixty (60) days after any notice of termination is given,
the party receiving such notice of termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date as finally determined by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected). Any party giving notice of a dispute shall pursue
the resolution of such dispute. During the period until the dispute is finally
resolved in accordance with this Section 10(b), the Company will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, his salary) and continue
Executive as a participant in all compensation, employee benefit and insurance
plans, programs, arrangements and perquisites in which Executive was
participating or to which Executive was entitled when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Section 10(b). Amounts paid under this Section 10(b) shall be repaid to
Company or be offset against or reduce any other amounts due Executive under
this Agreement, as appropriate, only upon the final resolution of the dispute.
(c) If this Agreement is terminated by Executive With Good Reason or by the
Company Without Cause, or if the Company shall terminate Executive's employment
under this Agreement in any way that is a breach of this Agreement by Company,
the following shall apply:
(i) Executive shall continue to receive Executive's base salary under
Section 3(a) for the remainder of the term of this Agreement. The Company
may at its option upon such Date of Termination immediately pay to
Executive in a lump sum the full amount to which he is entitled under this
paragraph, but appropriately discounted for the period over which such
compensation would otherwise be paid by a factor measured by the prevailing
interest rate on ninety (90) day U.S. Treasury Bills at the date of such
lump sum payment.
(ii) Executive shall be entitled to receive the bonus that would have
been paid to Executive under Section 3(b) hereof for the remainder of the
term of this Agreement in an amount equal to not less than the greatest
amount of bonus paid to Executive during the term of this Agreement prior
to such termination. Such bonus shall be paid to Executive (or his estate)
at the same time as such bonus would have been paid to Executive if this
Agreement had not been terminated. If such termination occurs in the last
year of the employment term, the bonus payable for the year following the
year in which the Date Of Termination occurs shall be calculated and paid
as if this Agreement had not been terminated.
(iii) In addition to all other amounts payable to Executive under this
Section 10, Executive shall be entitled to receive, not later than the
fifteenth day following the Date of Termination, all benefits payable to
him under any of the Company's tax-qualified employee benefit plans and any
other plan, program or arrangement relating to deferred compensation,
retirement or other benefits including, without limitation, any
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<PAGE> 84
profit sharing, 401k, employee stock ownership plan, or any plan
established as a supplement to any of the aforementioned plans.
(iv) The Company shall also pay to Executive, not later than the
fifteenth day following the Date of Termination, an amount equal to all
unvested Company contributions credited to Executive's account under any
tax-qualified employee benefit plan maintained by Company as of the Date of
Termination.
(v) The Company shall also pay to Executive all legal fees and
expenses incurred by Executive in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(vi) The Company shall also pay to Executive, not later than the
fifteenth (15th) day following the Date of Termination, a pro rata amount
of his base salary under Section 3 hereof, in effect on the Date of
Termination, for each day of vacation or sick leave which has accrued as of
the Date of Termination, but which is unpaid as of such date, to which
Executive is entitled under the Company's vacation and sick leave policies.
(d) If this Agreement is terminated due to Disability, Executive or his
estate shall be entitled to receive 100% of his base salary for the remainder of
the term of this Agreement and such bonus as the Board may determine. The
Company may purchase insurance to cover all or any part of its obligations set
forth in the preceding sentence, and Executive agrees to take a physical
examination to facilitate the obtaining of such insurance.
(e) If this Agreement is terminated for Cause, the Company shall be
obligated to pay Executive only such severance compensation as the Board by
majority vote deems appropriate, or none at all, and except for the provisions
of Sections 12 and 13, which shall remain in effect in accordance with their
terms, this Agreement shall be null and void upon the "Date of Termination".
11. OTHER BENEFITS FOLLOWING TERMINATION
(a) If Executive's employment is terminated by the Company due to
Disability or Without Cause, or by Executive With Good Reason, or if the Company
shall terminate Executive's employment under this Agreement in any way that is a
breach of this Agreement by the Company, in addition to the benefits described
in Section 10, Executive shall also be entitled to the following benefits upon
such termination:
(i) The Company shall provide for the balance of the term and for a
period of one (1) year thereafter, health and welfare benefits at least
comparable to those benefits in effect on the Date of Termination,
including but not limited to medical, dental, disability, dependent care,
and life insurance coverage. At the Company's
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election, health benefits may be provided by reimbursing Executive for the
cost of converting a group policy to individual coverage, or for the cost
of extended COBRA coverage. The Company shall also pay to Executive an
amount calculated to pay any income taxes due as a result of the payment by
the Company on Executive's behalf for such health benefits. Such tax
payment shall be calculated to place Executive in the same after-tax
position as if no such income taxes had been imposed.
(ii) The Company shall allow Executive the continued use of a Company
automobile on the same terms which existed prior to the Date of
Termination, for the balance of the term and for one (1) year thereafter.
(iii) The Company shall provide Executive with an office and
secretarial services equivalent to those provided to Executive at the Date
of Termination for the balance of the term and for one (1) year thereafter.
(b) For at least six (6) years following the Date of Termination, and
regardless of the reason for such termination, including any termination for
Cause, Executive shall continue to be indemnified under the Company's
Certificate of Incorporation and Bylaws at least to the same extent as prior to
the Date of Termination and Executive shall be covered by the directors' and
officers' liability insurance, the fiduciary liability insurance and the
professional liability insurance policies that are the same as, or provide
coverage at least equivalent to, those which the Company carried prior to the
Date of Termination.
12. CONFIDENTIAL INFORMATION
"Confidential Information" shall mean all information by Executive or
obtained by Executive from or disclosed to Executive by the Company which
relates to the Company's past, present, and future research, development and
business activities, trade secrets, including in particular all matters of
technical nature, such as "know-how", formulae, secret processes or machines,
inventions and research project, and matters of a business nature, such as
information about costs, profit, markets, sales, lists of customers, and any
other information of a similar nature, also including plans for further
development. Except as authorized by the Company in writing, Executive shall
hold all Confidential Information in trust and confidence for the Company, and
shall not disclose any of same to anyone outside of the Company, either during
or after employment with the Company. The foregoing shall not apply to any
Confidential Information which (i) is now or hereafter becomes, through no act
or failure to act on Executive's part, generally known or publicly available,
(ii) is hereafter furnished to Executive by a third party as a matter of right
and without restriction on disclosure, or (iii) is furnished to others by the
Company without restriction on disclosure. Executive further agrees to deliver
promptly to the Company on termination of employment with the Company, or at any
time it may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, and any other documents containing any Confidential
Information, including all copies of such materials which Executive may then
possess or have under his control. The rights and obligations set
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forth in this Section shall survive according to the terms hereof and continue
after any expiration or termination of this Agreement or the employment
specified herein. In the event of a breach or threatened breach by Executive of
the provisions of this Section, the Company shall be entitled to an injunction
restraining Executive from disclosing, in whole or in part, any of such
Confidential Information, or from rendering any services to any person, firm,
corporation, association, or other entity to whom such Confidential Information,
in whole or in part, has been disclosed or is threatened to be disclosed.
13. RESTRICTIVE COVENANT
During the term of this Agreement Executive will not, and, in the event of
a termination of employment hereunder for any reason, other than (i) termination
by Executive With Good Reason, or (ii) termination by the Company Without Cause,
or (iii) termination by the Company in any way that is a breach of this
Agreement, Executive will not during the 12 month period following such
termination, without the prior written consent of the Company, directly or
indirectly, (x) engage for his own account in any business or own, manage,
operate, control, be employed as a employee or consultant, buy, participate in,
or be connected in any manner with the ownership, management, operation or
control of any firm, corporation, association, or other business entity which is
in competition with the business of the Company, provided that Executive may
invest in a business competitive with Company to an extent not to exceed five
percent (5%) of the total outstanding shares at the time of such investment in
each one or more companies whose securities are listed on a national securities
exchange or quoted daily in the "over-the-counter" market listing of the Wall
Street Journal, or (y) solicit purchase orders for vitamins or any other related
products or services from, or market or sell 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 Executive's employment, or (z) contact 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 Executive's employment, in each case, with the intention of entering into
a joint venture or other similar business relationship. This covenant on the
part of Executive shall be construed as an agreement independent of any other
provisions of this Agreement and shall survive the termination of this
Agreement, and the existence of any claims or cause of action by Executive
against Company, whether predicated on this agreement or otherwise, shall not
constitute a defense in the enforcement by Executive of this covenant.
14. INDEMNIFICATION
In the event Executive is made, or threatened to be made, a party to any
legal action or proceeding, whether civil or criminal, by reason of the fact
that Executive is or was a director or officer of the Company or serves or
served any other corporation fifty percent (50%) or more owned or controlled by
the Company in any capacity at the Company's request, Executive shall
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be indemnified by the Company, and the Company shall pay Executive's related
expenses when and as incurred, all to the fullest extent permitted by law.
15. REMEDIES
The Company recognizes that because of Executive's special talents, stature
and opportunities in the vitamin and nutritional supplement industry, in the
event of termination by the Company hereunder (except for Cause) or in the event
of termination by Executive With Good Reason, before the end of the agreed term,
the Company acknowledges and agrees that the provisions of this Agreement
regarding further payment of base salary, bonuses, and other post-termination
provisions contained herein constitute fair and reasonable provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts Executive might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement and Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise.
16. BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of Executive,
his heirs, distributee and assigns, and the Company, its successors and assigns.
Executive may not, without the express written permission of the Company, assign
or pledge any rights or obligation hereunder to any person, firm or corporation.
If Executive should die while any amount would still be payable to Executive if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with this Agreement to Executive's estate.
17. ASSIGNMENT AND OTHER RIGHTS
(a) The Company will require any successor (whether direct or indirect, by
operation of law, by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled under Sections
10 and 11 hereof, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) It is the intention of the parties that the rights and benefits of
Executive under this Agreement shall be in addition to, and not in lieu of, any
right or benefits which Executive may have or be entitled to receive pursuant to
any other arrangement or agreement between Company and Executive. Nothing
contained in this Agreement shall affect any rights Executive may have or any
benefits Executive may be entitled to receive under any other agreements, plans,
programs or otherwise.
18. WAIVER
No term or condition of this Agreement shall be deemed to have been waived,
nor shall there by any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
19. NOTICE
For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to Executive at 87
Brookside Terrace, North Caldwell, New Jersey 07006 in the case of Executive,
and in the case of Company, to the attention of the Chairman of the Compensation
Committee of the Board of Directors with copies to the Chief Financial Officer
and the Secretary of Company at the principal executive offices of Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
20. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware.
21. SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid, such
invalidity shall not affect any other provision of this Agreement not held so
invalid, and each such other provision shall to the full extent consistent with
law continue in full force and effect. If any provision of this Agreement shall
be held invalid in party, such invalidity shall in no way affect the rest of
such provision not held so invalid, and the rest of such provision, together
with all
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other provision of this Agreement, shall to the full extent consistent with law
continue in full force and effect. If this Agreement is held invalid or cannot
be enforced, then to the full extent permitted by law, any prior agreement
between the Company (or any predecessor thereof) and Executive shall be deemed
reinstated as if this Agreement has not been executed.
22. ARBITRATION
(a) Any disagreement, dispute, controversy or claim arising out of or in
any way related to this Agreement or the subject matter thereof or the
interpretation hereof or any arrangements relating hereto or contemplated herein
or the breach, termination or invalidity hereof shall be settled exclusively and
finally by arbitration.
(b) The arbitration shall be conducted in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA"). The arbitral tribunal shall consist of one arbitrator.
(c) The Company shall pay all of the fees, if any, and expenses of such
arbitration, and shall also pay all of Executive's expenses, including
attorneys' fees, incurred in connection with the arbitration regardless of the
final outcome of such arbitration.
(d) The arbitration shall be conducted in New York City or in any other
city in the United States of America as the parties to the dispute may designate
by mutual written consent.
(e) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to review of
such award by any court or tribunal. The parties hereto agree that the arbitral
award may be enforced against the parties to the arbitration proceeding or their
assets wherever the award may be entered in any court having jurisdiction
thereof.
23. ENTIRE AGREEMENT
As of January 1, 1996, all previous agreements relating to the employment
of Executive, however styled, are hereby superseded to the extent inconsistent
herewith, and excepting Executive's present participation in the Company stock
option and/or other benefit plans or programs and the agreements thereunder,
which are hereby reaffirmed in all respects by both parties thereto, this
Agreement embodies all agreements, contracts, and understandings by and between
the parties hereto. This Agreement may not be changed orally, but only by an
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agreement in writing signed by the party against whom enforcement of any Waiver,
change, modification, extension, or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the date above stated.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
/s/ KEITH I. FRANKEL
--------------------------------------
Keith I. Frankel
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Exhibit 10.15
EMPLOYMENT AGREEMENT dated as of January 1, 1996 between KEITH I.
FRANKEL ("Executive") and VITAQUEST INTERNATIONAL INC., a Delaware corporation
("Company").
1. TERM
The term of this Agreement shall commence as of January 1,
1996 and shall terminate on June 30, 1999, subject to earlier termination as
provided herein.
2. POSITION AND DUTIES
(a) Executive shall be employed by the Company during the term as
its Chief Executive Officer. Executive shall report directly and solely to the
Company's President. The Company agrees to nominate Executive for election to
the Board of Directors (the "Board") as a member of the management slate at
each annual meeting of stockholders during the term hereof and Executive agrees
to serve on the Board if elected.
(b) Executive agrees to perform such services, not inconsistent
with his position, as shall from time to time be assigned to him by the
President, consistent with the By-Laws of the Company.
(c) During the term of employment hereunder, except for
disability, illness and reasonable vacation periods, Executive shall devote
substantially all of his business time, attention, and energies to the position
of Chief Executive Officer of the Company. Notwithstanding the foregoing, the
expenditure by the Executive of reasonable amounts of time in connection with
outside activities, not competitive with the Company's business, including but
not limited to outside directorships, or charitable or professional activities,
shall not be considered to be in violation of this Agreement subject, however,
to the requirement that in no event shall any such activities materially
interfere with the performance by the Executive of the services required under
this Agreement. Further, it is understood and agreed by the parties hereto
that Executive may engage in passive and personal investment activities.
3. SALARY AND BONUS
(a) Beginning January 1, 1996, Executive shall receive an annual
base salary of $500,000, which base salary shall be subject to automatic
increase on the first day of each January during the term hereof beginning
January 1, 1997 by an amount equal to the greater of (i) 5% of the base salary
in effect during the preceding 12 month period, or (ii) the percentage increase
in the Consumer Price Index published by the U.S. Department of Labor for the
12 month period then ended (the "Current CPI Period") compared with the 12
month period immediately preceding the Current CPI Period. The base salary
shall not be reduced during the term of this Agreement.
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(b) Executive shall be entitled to receive during each year during
the term hereof other than 1996, such incentive bonus, in such amount as the
Board (or a Compensation Committee or other similar Committee designated by the
Board) shall determine in its discretion on the basis of the Company's
operating results, provided that no such determination shall be made prior to
June 30 1997.
4. REIMBURSEMENT OF EXPENSES
Executive shall be authorized to incur and shall be reimbursed by the
Company for reasonable expenses for the advancement of the Company's business,
upon presentation of reasonable documentation therefor.
5. STOCK OPTIONS AND OTHER BENEFITS
(a) Executive shall be eligible to participate in the Company's
Non-Qualified Deferred Compensation Plan, Profit Sharing Plan and 1996 Stock
Option Plan and any additional or successor incentive plan or plans.
(b) During the period of employment hereunder, Executive shall
also be entitled to receive all other benefits of employment which are, and
which may be in the future, generally available to members of the Company's
management and specifically, an allowance for use of automobiles as provided
from time to time by action of the Board of Directors, as well as, without
limitation, group health, disability, and life insurance benefits and
participation in any Company profit-sharing or pension plan, and vacation
consistent with the vacation policies of Company.
6. DISABILITY BENEFITS
"Disability" shall mean Executive's incapacity due to physical or
mental illness or cause, which results in Executive being absent from the
performance of his duties with the Company on a full-time basis for a period of
nine (9) consecutive months. The existence or cessation of a physical or
mental illness which renders Executive absent from the performance of his
duties on a full-time basis shall, if disputed by the Company or Executive, be
conclusively determined by written opinions rendered by two qualified
physicians, one selected by Executive, and one selected by the Company. During
the period of absence Executive shall be deemed to be on disability leave of
absence, with his compensation paid in full and the Board may designate an
interim Chief Executive Officer on such terms as it deems proper.
Upon the expiration of nine (9) consecutive months of such disability
leave of absence, Executive's employment may be terminated by the Company
pursuant to the provisions of Section 8(a) provided, however, that prior to the
effective date of such termination, Executive
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shall have the right to return to full-time employment. At the Company's
request, Executive shall be required to provide the written opinions of two
qualified physicians, one selected by Executive and one selected by the Company
to verify Executive's condition of health. Executive's full regular
compensation shall be reinstated upon his return to employment and his
resumption of his full duties hereunder. If the Company refuses to permit
Executive to resume full-time employment as Chief Executive Officer the Company
shall be deemed to have terminated this agreement under Section 8(c) hereof.
7. DEATH DURING EMPLOYMENT
If Executive dies during the term of employment provided for in this
Agreement, the Company shall pay to the Executive's Estate the regular
compensation that would otherwise be payable to Executive up to the end of the
month in which his death occurs, plus, as a death benefit, compensation for a
period of twelve (12) months thereafter at the same monthly rate of base
compensation which prevailed during the month of his death.
8. TERMINATION BY THE COMPANY
The Company shall have the right to terminate this Agreement under the
following circumstances:
(a) Upon ten (10) days' written notice from Company to Executive
in the event of Disability which has incapacitated him from performing his
duties for nine (9) consecutive months as determined under Section 6, subject
to Executive's right to reinstatement as provided in Section 6.
(b) For "Cause" upon ten (10) days' written notice to Executive.
Termination by the Company of Executive's employment for "Cause" as used in
this Agreement means (1) the willful and continuing neglect by Executive of his
duties or obligations hereunder provided, however, that any such neglect shall
constitute "Cause" hereunder only if such neglect remains uncured for a period
of ten (10) days after written notice describing the same is given to the
Executive; and provided, further, that isolated, insubstantial or nonmaterial
neglect or failure shall not constitute Cause hereunder; (2) the willful
refusal by Executive to comply with the lawful instructions or directions of
the party to whom Executive reports hereunder, provided, however, that any such
refusal shall constitute "Cause" hereunder only if such instructions or
directions are in respect of matters which may be properly required of
Executive hereunder and only if such refusal continues for a period of more
than ten (10) days after written notice describing same is given to the
Executive; (3) Executive's conviction (which, through lapse of time or
otherwise, is not subject to appeal) of any felony under the laws of any
country or political subdivision thereof, involving theft, embezzlement or
moral turpitude; (4) Executive's performance of any act which would constitute
a crime or offense involving money or property of the Company or any of its
subsidiaries, or would constitute a felony in the jurisdiction in
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which such act occurred, regardless of whether or not the Executive is
prosecuted; (5) any attempt by Executive improperly to secure any personal
profit in connection with the business of the Company or any of its
subsidiaries, (6) chronic alcoholism or drug addiction; or (7) any breach by
Executive of the terms of Sections 12 or 13 of this Agreement; provided such
breach continues uncured for ten (10) days after written notice of such breach
is given by the Company to Executive.
(c) Upon ninety (90) days written notice to Executive where the
Board, acting by a majority, elects "Without Cause" to terminate Executive for
any reason, other than Disability (Section 8(a)) or for Cause (Section 8(b)).
9. TERMINATION BY EXECUTIVE
Executive shall have the right to terminate his employment under this
Agreement "With Good Reason" upon three (3) days' written notice to the Company
given within sixty (60) days following the date on which Executive become aware
of any of the following events:
(a) Executive is not elected or retained as Chairman and President
and a director of Company;
(b) any assignment to Executive of any duties other than those
reasonably contemplated by, or any limitation of the power or prerogatives of
Executive in any respect not reasonably contemplated by Section 2;
(c) any removal of Executive from responsibilities substantially
similar to those described or contemplated in Section 2;
(d) any reduction in, or limitation upon, the compensation,
reimbursable expenses or other benefits provided for in this Agreement, other
than by valid public law or regulation; or
(e) any assignment to Executive of duties that would require him
to relocate or transfer his current principal place or residence or would make
the continuance of such current principal place of residence unreasonably
difficult or inconvenient for him.
10. CONSEQUENCES OF TERMINATION
(a) Except as provided in Section 10(b), as used in this Agreement
"Date of Termination" shall mean the date specified in the written notice of
termination given by the Company pursuant to Section 8 or by the Executive
pursuant to Section 9. If termination occurs pursuant to Executive's death as
provided in Section 7, the date of Executive's death shall be the Date of
Termination.
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(b) If, within sixty (60) days after any notice of termination is
given, the party receiving such notice of termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date as finally determined by mutual written agreement of the parties,
by a binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected). Any party giving notice of a dispute
shall pursue the resolution of such dispute. During the period until the
dispute is finally resolved in accordance with this Section 10(b), the Company
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, his
salary) and continue Executive as a participant in all compensation, employee
benefit and insurance plans, programs, arrangements and perquisites in which
Executive was participating or to which Executive was entitled when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Section 10(b). Amounts paid under this Section 10(b)
shall be repaid to Company or be offset against or reduce any other amounts due
Executive under this Agreement, as appropriate, only upon the final resolution
of the dispute.
(c) If this Agreement is terminated by Executive With Good Reason
or by the Company Without Cause, or if the Company shall terminate Executive's
employment under this Agreement in any way that is a breach of this Agreement
by Company, the following shall apply:
(i) Executive shall continue to receive Executive's base
salary under Section 3(a) for the remainder of the term of this
Agreement. The Company may at its option upon such Date of
Termination immediately pay to Executive in a lump sum the full amount
to which he is entitled under this paragraph, but appropriately
discounted for the period over which such compensation would otherwise
be paid by a factor measured by the prevailing interest rate on ninety
(90) day U.S. Treasury Bills at the date of such lump sum payment.
(ii) Executive shall be entitled to receive the bonus that
would have been paid to Executive under Section 3(b) hereof for the
remainder of the term of this Agreement in an amount equal to not less
than the greatest amount of bonus paid to Executive during the term of
this Agreement prior to such termination. Such bonus shall be paid to
Executive (or his estate) at the same time as such bonus would have
been paid to Executive if this Agreement had not been terminated. If
such termination occurs in the last year of the employment term, the
bonus payable for the year following the year in which the Date Of
Termination occurs shall be calculated and paid as if this Agreement
had not been terminated.
(iii) In addition to all other amounts payable to Executive
under this Section 10, Executive shall be entitled to receive, not
later than the fifteenth day following the Date of Termination, all
benefits payable to him under any of the Company's tax-qualified
employee benefit plans and any other plan, program or arrangement
relating to deferred compensation, retirement or other benefits
including, without limitation, any
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profit sharing, 401k, employee stock ownership plan, or any plan
established as a supplement to any of the aforementioned plans.
(iv) The Company shall also pay to Executive, not later
than the fifteenth day following the Date of Termination, an amount
equal to all unvested Company contributions credited to Executive's
account under any tax-qualified employee benefit plan maintained by
Company as of the Date of Termination.
(v) The Company shall also pay to Executive all legal
fees and expenses incurred by Executive in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement.
(vi) The Company shall also pay to Executive, not later
than the fifteenth (15th) day following the Date of Termination, a pro
rata amount of his base salary under Section 3 hereof, in effect on
the Date of Termination, for each day of vacation or sick leave which
has accrued as of the Date of Termination, but which is unpaid as of
such date, to which Executive is entitled under the Company's vacation
and sick leave policies.
(d) If this Agreement is terminated due to Disability, Executive
or his estate shall be entitled to receive 100% of his base salary for the
remainder of the term of this Agreement and such bonus as the Board may
determine. The Company may purchase insurance to cover all or any part of its
obligations set forth in the preceding sentence, and Executive agrees to take a
physical examination to facilitate the obtaining of such insurance.
(e) If this Agreement is terminated for Cause, the Company shall
be obligated to pay Executive only such severance compensation as the Board by
majority vote deems appropriate, or none at all, and except for the provisions
of Sections 12 and 13, which shall remain in effect in accordance with their
terms, this Agreement shall be null and void upon the "Date of Termination".
11. OTHER BENEFITS FOLLOWING TERMINATION
(a) If Executive's employment is terminated by the Company due to
Disability or Without Cause, or by Executive With Good Reason, or if the
Company shall terminate Executive's employment under this Agreement in any way
that is a breach of this Agreement by the Company, in addition to the benefits
described in Section 10, Executive shall also be entitled to the following
benefits upon such termination:
(i) The Company shall provide for the balance of the term
and for a period of one (1) year thereafter, health and welfare
benefits at least comparable to those benefits in effect on the Date
of Termination, including but not limited to medical, dental,
disability, dependent care, and life insurance coverage. At the
Company's
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election, health benefits may be provided by reimbursing Executive for
the cost of converting a group policy to individual coverage, or for
the cost of extended COBRA coverage. The Company shall also pay to
Executive an amount calculated to pay any income taxes due as a result
of the payment by the Company on Executive's behalf for such health
benefits. Such tax payment shall be calculated to place Executive in
the same after-tax position as if no such income taxes had been
imposed.
(ii) The Company shall allow Executive the continued use
of a Company automobile on the same terms which existed prior to the
Date of Termination, for the balance of the term and for one (1) year
thereafter.
(iii) The Company shall provide Executive with an office
and secretarial services equivalent to those provided to Executive at
the Date of Termination for the balance of the term and for one (1)
year thereafter.
(b) For at least six (6) years following the Date of Termination,
and regardless of the reason for such termination, including any termination
for Cause, Executive shall continue to be indemnified under the Company's
Certificate of Incorporation and Bylaws at least to the same extent as prior to
the Date of Termination and Executive shall be covered by the directors' and
officers' liability insurance, the fiduciary liability insurance and the
professional liability insurance policies that are the same as, or provide
coverage at least equivalent to, those which the Company carried prior to the
Date of Termination.
12. CONFIDENTIAL INFORMATION
"Confidential Information" shall mean all information generated by
Executive or obtained by Executive from or disclosed to Executive by the
Company which relates to the Company's past, present, and future research,
development and business activities, trade secrets, including in particular all
matters of technical nature, such as "know-how", formulae, secret processes or
machines, inventions and research project, and matters of a business nature,
such as information about costs, profit, markets, sales, lists of customers,
and any other information of a similar nature, also including plans for further
development. Except as authorized by the Company in writing, Executive shall
hold all Confidential Information in trust and confidence for the Company, and
shall not disclose any of same to anyone outside of the Company, either during
or after employment with the Company. The foregoing shall not apply to any
Confidential Information which (i) is now or hereafter becomes, through no act
or failure to act on Executive's part, generally known or publicly available,
(ii) is hereafter furnished to Executive by a third party as a matter of right
and without restriction on disclosure, or (iii) is furnished to others by the
Company without restriction on disclosure. Executive further agrees to deliver
promptly to the Company on termination of employment with the Company, or at
any time it may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, and any other documents containing any Confidential
Information, including all copies of such materials which Executive may then
possess or have under his control. The rights and obligations set
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forth in this Section shall survive according to the terms hereof and continue
after any expiration or termination of this Agreement or the employment
specified herein. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Company shall be entitled to an
injunction restraining Executive from disclosing, in whole or in part, any of
such Confidential Information, or from rendering any services to any person,
firm, corporation, association, or other entity to whom such Confidential
Information, in whole or in part, has been disclosed or is threatened to be
disclosed.
13. RESTRICTIVE COVENANT
During the term of this Agreement Executive will not, and, in the
event of a termination of employment hereunder for any reason, other than (i)
termination by Executive With Good Reason, or (ii) termination by the Company
Without Cause, or (iii) termination by the Company in any way that is a breach
of this Agreement, Executive will not during the 12 month period following such
termination, without the prior written consent of the Company, directly or
indirectly, (x) engage for his own account in any business or own, manage,
operate, control, be employed as an employee or consultant, buy, participate
in, or be connected in any manner with the ownership, management, operation or
control of any firm, corporation, association, or other business entity which
is in competition with the business of the Company, provided that Executive may
invest in a business competitive with Company to an extent not to exceed five
percent (5%) of the total outstanding shares at the time of such investment in
each one or more companies whose securities are listed on a national securities
exchange or quoted daily in the "over-the-counter" market listing of the Wall
Street Journal, or (y) solicit purchase orders for vitamins or any other
related products or services from, or market or sell 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 Executive's employment, or (z) contact 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 Executive's employment, in each case, with the intention of entering
into a joint venture or other similar business relationship. This covenant on
the part of Executive shall be construed as an agreement independent of any
other provisions of this Agreement and shall survive the termination of this
Agreement, and the existence of any claims or cause of action by Executive
against Company, whether predicated on this agreement or otherwise, shall not
constitute a defense in the enforcement by Executive of this covenant.
14. INDEMNIFICATION
In the event Executive is made, or threatened to be made, a party to
any legal action or proceeding, whether civil or criminal, by reason of the
fact that Executive is or was a director or officer of the Company or serves or
served any other corporation fifty percent (50%) or more owned or controlled by
the Company in any capacity at the Company's request, Executive shall
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be indemnified by the Company, and the Company shall pay Executive's related
expenses when and as incurred, all to the fullest extent permitted by law.
15. REMEDIES
The Company recognizes that because of Executive's special talents,
stature and opportunities in the vitamin and nutritional supplement industry,
in the event of termination by the Company hereunder (except for Cause) or in
the event of termination by Executive With Good Reason, before the end of the
agreed term, the Company acknowledges and agrees that the provisions of this
Agreement regarding further payment of base salary, bonuses, and other
post-termination provisions contained herein constitute fair and reasonable
provisions for the consequences of such termination, do not constitute a
penalty, and such payments and benefits shall not be limited or reduced by
amounts Executive might earn or be able to earn from any other employment or
ventures during the remainder of the agreed term of this Agreement and
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise.
16. BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of
Executive, his heirs, distributee and assigns, and the Company, its successors
and assigns. Executive may not, without the express written permission of the
Company, assign or pledge any rights or obligation hereunder to any person,
firm or corporation. If Executive should die while any amount would still be
payable to Executive if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with this Agreement to
Executive's estate.
17. ASSIGNMENT AND OTHER RIGHTS
(a) The Company will require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or otherwise
to all or substantially all of the business and/or assets of the Company) to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to compensation from the
Company in the same amount and on the same terms as Executive would be entitled
under Sections 10 and 11 hereof, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be the
Date of Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) It is the intention of the parties that the rights and
benefits of Executive under this Agreement shall be in addition to, and not in
lieu of, any right or benefits which Executive may have or be entitled to
receive pursuant to any other arrangement or agreement between Company and
Executive. Nothing contained in this Agreement shall affect any rights
Executive may have or any benefits Executive may be entitled to receive under
any other agreements, plans, programs or otherwise.
18. WAIVER
No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
19. NOTICE
For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
Executive at 87 Brookside Terrace, North Caldwell, New Jersey 07006 in the case
of Executive, and in the case of Company, to the attention of the Chairman of
the Compensation Committee of the Board of Directors with copies to the Chief
Financial Officer and the Secretary of Company at the principal executive
offices of Company, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
20. GOVERNING LAW
This Agreement shall the governed and construed in accordance with the
laws of the State of Delaware.
21. SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall to the full extent consistent
with law continue in full force an effect. If any provision of this Agreement
shall be held invalid in part, such invalidity shall in no way affect the rent
of such provision not held so invalid, and the rest Of such provision, together
with all
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other provision of this Agreement, shall to the full extent consistent with law
continue in full force and effect. If this Agreement is held invalid or cannot
be enforced, then to the full extent permitted by law, any prior agreement
between the Company or any predecessor thereof) and Executive shall be deemed
reinstated as if this Agreement has not been executed.
22. ARBITRATION
(a) Any disagreement, dispute, controversy or claim arising out of
or in any way related to this Agreement or the subject matter thereof or the
interpretation hereof or any arrangements relating hereto or contemplated
herein or the breach, termination or invalidity hereof shall be settled
exclusively and finally by arbitration.
(b) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA"). The arbitral tribunal shall consist of
one arbitrator.
(c) The Company shall pay all of the fees, if any, and expenses of
such arbitration, and shall also pay all of Executive's expenses, including
attorneys' fees, incurred in connection with the arbitration regardless of the
final outcome of such arbitration.
(d) The arbitration shall be conducted in New York City or in any
other city in the United States of America as the parties to the dispute may
designate by mutual written consent.
(e) Any decision or award of the arbitral tribunal hall be final
and binding upon tho parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to review
of such award by any court or tribunal. The parties hereto agree that the
arbitral award may be enforced against the parties to the arbitration
proceeding or their assets wherever the award may be entered in any court
having jurisdiction thereof.
23. ENTIRE AGREEMENT
As of January 1, 1996, all previous agreements relating to the
employment of Executive, however styled, are hereby superseded to the extent
inconsistent herewith, and excepting Executive's present participation in the
Company stock option and/or other benefit plans or programs and the agreements
thereunder, which are hereby reaffirmed in all respects by both parties
thereto, this Agreement embodies all agreements, contracts, and understandings
by and between the parties hereto. This Agreement may not be changed orally,
but only by an
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agreement in writing signed by the party against whom enforcement of any
Waiver, change, modification, extension, or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the date above stated.
VITAQUEST INTERNATIONAL INC.
By:
- --------------------------- ------------------------------
KEITH I FRANKEL Edward M. Frankel
President
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Exhibit 5.1
735-8600
June 18, 1996
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Gentlemen:
We furnish this opinion to be filed as Exhibit 5.1 to the Registration
Statement on Form S-1 (the "Registration Statement") of Vitaquest International
Inc. (the "Company"), Registration No. 333-3605. The Registration Statement
relates to the proposed public offering by the Company and certain selling
stockholders of 7,200,000 shares of Common Stock (8,280,000 shares of Common
Stock if the over-allotment option described in the Registration Statement is
exercised), as more particularly described in the Registration Statement.
We are familiar with the proceedings taken by the Company in connection
with the Registration Statement and the proposed public offering.
On the basis of the foregoing and such other investigations as we have
deemed necessary in connection with this opinion, and, assuming that the
Registration Statement becomes and remains effective and that applicable state
securities laws are complied with, we are of the opinion that the shares of
Common Stock to which the Registration Statement relates will, when issued and
sold in the manner contemplated in the Registration Statement, be legally
issued, fully paid and nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We further consent to the reference to our firm under
the caption "Legal Matters" in the Prospectus which is part of the Registration
Statement.
Very truly yours,
Morrison Cohen Singer & Weinstein, LLP
<PAGE> 104
PROMISSORY NOTE
U.S.$257,500.00 June 14, 1996
FOR VALUE RECEIVED, the undersigned, VITAQUEST INTERNATIONAL INC., a
Delaware corporation with offices at 100 Lehigh Drive, Fairfield, New Jersey
07004 (the "Maker"), hereby promises to pay to the order of THE EDWARD M.
FRANKEL GRAT U/A DATED MAY 10, 1996 (the "Payee"), at 100 Lehigh Drive,
Fairfield, New Jersey 07004 or at such other place as the Payee may specify, the
principal sum of the lesser of (x) Two Hundred Fifty Seven Thousand Five Hundred
Dollars ($257,500.00), or (y) such amount as is equal to the product of (i)
5.15%, multiplied by (ii) the amount of Maker's undistributed earnings (as
determined by the Company's independent certified public accountants) for the
period April 1, 1996 to the date on which Maker ceases to be an S corporation
for Federal and State income tax purposes (the "Termination Date"), together
with interest thereon at the rate of eight and one-half (8.5%) per annum from
the Termination Date, in lawful money of the United States, payable in
thirty-six(36) equal monthly installments on the 1st day of each month beginning
on the 1st day of the 1st month following the month in which the amount of such
undistributed earnings is so determined.
In the event that any installment of this Note is not paid when due and
such non-payment is not cured within ten (10) days after notice thereof is given
to Maker at Maker's above address, then, and in such event, the holder of this
Note may by delivery of written notice of acceleration to the Maker declare the
entire unpaid principal balance of this Note to be due and payable, whereupon,
the same shall become and be immediately due and payable.
All notices, requests, demands and other communications which are required
or permitted to be given under this Note shall be in writing and shall be deemed
to have been duly given upon the delivery or mailing thereof, as the case may
be, if delivered personally or sent by overnight commercial mail service or by
registered or certified mail, return receipt requested, postage prepaid.
The Maker agrees to pay all costs of enforcement and collection of this
Note, including but not limited to, reasonable attorneys' fees, disbursements
and court costs.
The Maker hereby waives presentment, demand for payment, notice of
dishonor, protest and notice of protest, and all other notices or demands in
connection with the delivery, acceptance, performance, default, endorsement or
guarantee of this Note.
The Maker shall have the right to prepay this Note in whole or in part,
without premium or penalty from time to time.
This Note shall be construed in accordance with, and any dispute arising in
connection herewith shall be governed by, the laws of the State of New York
applicable to contracts made and to be performed in said state.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT dated as of January 1, 1996 between EDWARD M. FRANKEL
("Executive") and VITAQUEST INTERNATIONAL INC., a Delaware corporation
("Company").
1. TERM
The term of this Agreement shall commence as of January 1, 1996 and shall
terminate on June 30, 1999, subject to earlier termination as provided herein.
2. POSITION AND DUTIES
(a) Executive shall be employed by the Company during the term as its
Chairman and President. Executive shall report directly and solely to the
Company's Board of Directors ("Board"). The Company agrees to nominate Executive
for election to the Board as a member of the management slate at each annual
meeting of stockholders during the term hereof and Executive agrees to serve on
the Board if elected.
(b) Executive agrees to perform such services, not inconsistent with his
position, as shall from time to time be assigned to him by the Company's Board,
consistent with the By-Laws of the Company.
(c) During the term of employment hereunder, except for disability, illness
and reasonable vacation periods, Executive shall devote substantially all of his
business time, attention, and energies to the position of Chairman and President
of the Company. Notwithstanding the foregoing, the expenditure by the Executive
of reasonable amounts of time in connection with outside activities, not
competitive with the Company's business, including but not limited to outside
directorships, or charitable or professional activities, shall not be considered
to be in violation of this Agreement subject, however, to the requirement that
in no event shall any such activities materially interfere with the performance
by the Executive of the services required under this Agreement. Further, it is
understood and agreed by the parties hereto that Executive may engage in passive
and personal investment activities.
3. SALARY AND BONUS
(a) Beginning January 1, 1996, Executive shall receive an annual base
salary of $500,000, which base salary shall be subject to automatic increase on
the first day of each January during the term hereof beginning January 1, 1997
by an amount equal to the greater of (i) 5% of the base salary in effect during
the preceding 12 month period, or (ii) the percentage increase in the Consumer
Price Index published by the U.S. Department of Labor for the 12 month period
then ended (the "Current CPI Period") compared with the 12 month period
immediately preceding the Current CPI Period. The base salary shall not be
reduced during the term of this Agreement.
<PAGE> 2
(b) Executive shall be entitled to receive during each year during the term
hereof other than 1996, such incentive bonus, in such amount as the Board (or a
Compensation Committee or other similar Committee designated by the Board) shall
determine in its discretion on the basis of the Company's operating results,
provided that no such determination shall be made prior to June 30, 1997.
4. REIMBURSEMENT OF EXPENSES
Executive shall be authorized to incur and shall be reimbursed by the
Company for reasonable expenses for the advancement of the Company's business,
upon presentation of reasonable documentation therefor.
5. STOCK OPTIONS AND OTHER BENEFITS
(a) Executive shall be eligible to participate in the Company's
Non-Qualified Deferred Compensation Plan, Profit Sharing Plan and 1996 Stock
Option Plan and any additional or successor incentive plan or plans.
(b) During the period of employment hereunder, Executive shall also be
entitled to receive all other benefits of employment which are, and which may be
in the future, generally available to members of the Company's management and
specifically, an allowance for use of automobiles as provided from time to time
by action of the Board of Directors, as well as, without limitation, group
health, disability, and life insurance benefits and participation in any Company
profit-sharing or pension plan, and vacation consistent with the vacation
policies of Company.
6. DISABILITY BENEFITS
"Disability" shall mean Executive's incapacity due to physical or mental
illness or cause, which results in Executive being absent from the performance
of his duties with the Company on a full-time basis for a period of nine (9)
consecutive months. The existence or cessation of a physical or mental illness
which renders Executive absent from the performance of his duties on a full-time
basis shall, if disputed by the Company or Executive, be conclusively determined
by written opinions rendered by two qualified physicians, one selected by
Executive, and one selected by the Company. During the period of absence
Executive shall be deemed to be on disability leave of absence, with his
compensation paid in full and the Board may designate an interim Chief Executive
Officer on such terms as it deems proper.
Upon the expiration of nine (9) consecutive months of such disability leave
of absence, Executive's employment may be terminated by the Company pursuant to
the provisions of Section 8(a) provided, however, that prior to the effective
date of such termination, Executive
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shall have the right to return to full-time employment. At the Company's
request, Executive shall be required to provide the written opinions of two
qualified physicians, one selected by Executive and one selected by the Company
to verify Executive's condition of health. Executive's full regular compensation
shall be reinstated upon his return to employment and his resumption of his full
duties hereunder. If the Company refuses to permit Executive to resume full-time
employment as Chief Executive Officer the Company shall be deemed to have
terminated this agreement under Section 8(c) hereof.
7. DEATH DURING EMPLOYMENT
If Executive dies during the term of employment provided for in this
Agreement, the Company shall pay to the Executive's Estate the regular
compensation that would otherwise be payable to Executive up to the end of the
month in which his death occurs, plus, as a death benefit, compensation for a
period of twelve (12) months thereafter at the same monthly rate of base
compensation which prevailed during the month of his death.
8. TERMINATION BY THE COMPANY
The Company shall have the right to terminate this Agreement under the
following circumstances:
(a) Upon ten (10) days' written notice from Company to Executive in
the event of Disability which has incapacitated him from performing his
duties for nine (9) consecutive months as determined under Section 6,
subject to Executive's right to reinstatement as provided in Section 6.
(b) For "Cause" upon ten (10) days' written notice to Executive.
Termination by the Company of Executive's employment for "Cause" as used in
this Agreement means (1) the willful and continuing neglect by Executive of
his duties or obligations hereunder provided, however, that any such
neglect shall constitute "Cause" hereunder only if such neglect remains
uncured for a period of ten (10) days after written notice describing the
same is given to the Executive; and provided, further, that isolated,
insubstantial or nonmaterial neglect or failure shall not constitute Cause
hereunder; (2) the willful refusal by Executive to comply with the lawful
instructions or directions of the party to whom Executive reports
hereunder, provided, however, that any such refusal shall constitute
"Cause" hereunder only if such instructions or directions are in respect of
matters which may be properly required of Executive hereunder and only if
such refusal continues for a period of more than ten (10) days after
written notice describing same is given to the Executive; (3) Executive's
conviction (which, through lapse of time or otherwise, is not subject to
appeal) of any felony under the laws of any country or political
subdivision thereof, involving theft, embezzlement or moral turpitude; (4)
Executive's performance of any act which would constitute a crime or
offense involving money or property of the Company or any of its
subsidiaries, or would constitute a felony in the jurisdiction in
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which such act occurred, regardless of whether or not the Executive is
prosecuted; (5) any attempt by Executive improperly to secure any personal
profit in connection with the business of the Company or any of its
subsidiaries, (6) chronic alcoholism or drug addiction; or (7) any breach
by Executive of the terms of Sections 12 or 13 of this Agreement; provided
such breach continues uncured for ten (10) days after written notice of
such breach is given by the Company to Executive.
(c) Upon ninety (90) days' written notice to Executive where the
Board, acting by a majority, elects "Without Cause" to terminate Executive
for any reason, other than Disability (Section 8(a)) or for Cause (Section
8(b)).
9. TERMINATION BY EXECUTIVE
Executive shall have the right to terminate his employment under this
Agreement "With Good Reason" upon three (3) days' written notice to the Company
given within sixty (60) days following the date on which Executive becomes aware
of any of the following events:
(a) Executive is not elected or retained as Chairman and President and
a director of Company;
(b) any assignment to Executive of any duties other than those
reasonably contemplated by, or any limitation of the power or prerogatives
of Executive in any respect not reasonably contemplated by Section 2;
(c) any removal of Executive from responsibilities substantially
similar to those described or contemplated in Section 2;
(d) any reduction in, or limitation upon, the compensation,
reimbursable expenses or other benefits provided for in this Agreement,
other than by valid public law or regulation; or
(e) any assignment to Executive of duties that would require him to
relocate or transfer his current principal place or residence or would make
the continuance of such current principal place of residence unreasonably
difficult or inconvenient for him.
10. CONSEQUENCES OF TERMINATION
(a) Except as provided in Section 10(b), as used in this Agreement "Date of
Termination" shall mean the date specified in the written notice of termination
given by the Company pursuant to Section 8 or by the Executive pursuant to
Section 9. If termination occurs pursuant to Executive's death as provided in
Section 7, the date of Executive's death shall be the Date of Termination.
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(b) If, within sixty (60) days after any notice of termination is given,
the party receiving such notice of termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date as finally determined by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected). Any party giving notice of a dispute shall pursue
the resolution of such dispute. During the period until the dispute is finally
resolved in accordance with this Section 10(b), the Company will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, his salary) and continue
Executive as a participant in all compensation, employee benefit and insurance
plans, programs, arrangements and perquisites in which Executive was
participating or to which Executive was entitled when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Section 10(b). Amounts paid under this Section 10(b) shall be repaid to
Company or be offset against or reduce any other amounts due Executive under
this Agreement, as appropriate, only upon the final resolution of the dispute.
(c) If this Agreement is terminated by Executive With Good Reason or by the
Company Without Cause, or if the Company shall terminate Executive's employment
under this Agreement in any way that is a breach of this Agreement by Company,
the following shall apply:
(i) Executive shall continue to receive Executive's base salary under
Section 3(a) for the remainder of the term of this Agreement. The Company
may at its option upon such Date of Termination immediately pay to
Executive in a lump sum the full amount to which he is entitled under this
paragraph, but appropriately discounted for the period over which such
compensation would otherwise be paid by a factor measured by the prevailing
interest rate on ninety (90) day U.S. Treasury Bills at the date of such
lump sum payment.
(ii) Executive shall be entitled to receive the bonus that would have
been paid to Executive under Section 3(b) hereof for the remainder of the
term of this Agreement in an amount equal to not less than the greatest
amount of bonus paid to Executive during the term of this Agreement prior
to such termination. Such bonus shall be paid to Executive (or his estate)
at the same time as such bonus would have been paid to Executive if this
Agreement had not been terminated. If such termination occurs in the last
year of the employment term, the bonus payable for the year following the
year in which the Date Of Termination occurs shall be calculated and paid
as if this Agreement had not been terminated.
(iii) In addition to all other amounts payable to Executive under this
Section 10, Executive shall be entitled to receive, not later than the
fifteenth day following the Date of Termination, all benefits payable to
him under any of the Company's tax-qualified employee benefit plans and any
other plan, program or arrangement relating to deferred compensation,
retirement or other benefits including, without limitation, any
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<PAGE> 6
profit sharing, 401k, employee stock ownership plan, or any plan
established as a supplement to any of the aforementioned plans.
(iv) The Company shall also pay to Executive, not later than the
fifteenth day following the Date of Termination, an amount equal to all
unvested Company contributions credited to Executive's account under any
tax-qualified employee benefit plan maintained by Company as of the Date of
Termination.
(v) The Company shall also pay to Executive all legal fees and
expenses incurred by Executive in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(vi) The Company shall also pay to Executive, not later than the
fifteenth (15th) day following the Date of Termination, a pro rata amount
of his base salary under Section 3 hereof, in effect on the Date of
Termination, for each day of vacation or sick leave which has accrued as of
the Date of Termination, but which is unpaid as of such date, to which
Executive is entitled under the Company's vacation and sick leave policies.
(d) If this Agreement is terminated due to Disability, Executive or his
estate shall be entitled to receive 100% of his base salary for the remainder of
the term of this Agreement and such bonus as the Board may determine. The
Company may purchase insurance to cover all or any part of its obligations set
forth in the preceding sentence, and Executive agrees to take a physical
examination to facilitate the obtaining of such insurance.
(e) If this Agreement is terminated for Cause, the Company shall be
obligated to pay Executive only such severance compensation as the Board by
majority vote deems appropriate, or none at all, and except for the provisions
of Sections 12 and 13, which shall remain in effect in accordance with their
terms, this Agreement shall be null and void upon the "Date of Termination".
11. OTHER BENEFITS FOLLOWING TERMINATION
(a) If Executive's employment is terminated by the Company due to
Disability or Without Cause, or by Executive With Good Reason, or if the Company
shall terminate Executive's employment under this Agreement in any way that is a
breach of this Agreement by the Company, in addition to the benefits described
in Section 10, Executive shall also be entitled to the following benefits upon
such termination:
(i) The Company shall provide for the balance of the term and for a
period of one (1) year thereafter, health and welfare benefits at least
comparable to those benefits in effect on the Date of Termination,
including but not limited to medical, dental, disability, dependent care,
and life insurance coverage. At the Company's
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election, health benefits may be provided by reimbursing Executive for the
cost of converting a group policy to individual coverage, or for the cost
of extended COBRA coverage. The Company shall also pay to Executive an
amount calculated to pay any income taxes due as a result of the payment by
the Company on Executive's behalf for such health benefits. Such tax
payment shall be calculated to place Executive in the same after-tax
position as if no such income taxes had been imposed.
(ii) The Company shall allow Executive the continued use of a Company
automobile on the same terms which existed prior to the Date of
Termination, for the balance of the term and for one (1) year thereafter.
(iii) The Company shall provide Executive with an office and
secretarial services equivalent to those provided to Executive at the Date
of Termination for the balance of the term and for one (1) year thereafter.
(b) For at least six (6) years following the Date of Termination, and
regardless of the reason for such termination, including any termination for
Cause, Executive shall continue to be indemnified under the Company's
Certificate of Incorporation and Bylaws at least to the same extent as prior to
the Date of Termination and Executive shall be covered by the directors' and
officers' liability insurance, the fiduciary liability insurance and the
professional liability insurance policies that are the same as, or provide
coverage at least equivalent to, those which the Company carried prior to the
Date of Termination.
12. CONFIDENTIAL INFORMATION
"Confidential Information" shall mean all information by Executive or
obtained by Executive from or disclosed to Executive by the Company which
relates to the Company's past, present, and future research, development and
business activities, trade secrets, including in particular all matters of
technical nature, such as "know-how", formulae, secret processes or machines,
inventions and research project, and matters of a business nature, such as
information about costs, profit, markets, sales, lists of customers, and any
other information of a similar nature, also including plans for further
development. Except as authorized by the Company in writing, Executive shall
hold all Confidential Information in trust and confidence for the Company, and
shall not disclose any of same to anyone outside of the Company, either during
or after employment with the Company. The foregoing shall not apply to any
Confidential Information which (i) is now or hereafter becomes, through no act
or failure to act on Executive's part, generally known or publicly available,
(ii) is hereafter furnished to Executive by a third party as a matter of right
and without restriction on disclosure, or (iii) is furnished to others by the
Company without restriction on disclosure. Executive further agrees to deliver
promptly to the Company on termination of employment with the Company, or at any
time it may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, and any other documents containing any Confidential
Information, including all copies of such materials which Executive may then
possess or have under his control. The rights and obligations set
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forth in this Section shall survive according to the terms hereof and continue
after any expiration or termination of this Agreement or the employment
specified herein. In the event of a breach or threatened breach by Executive of
the provisions of this Section, the Company shall be entitled to an injunction
restraining Executive from disclosing, in whole or in part, any of such
Confidential Information, or from rendering any services to any person, firm,
corporation, association, or other entity to whom such Confidential Information,
in whole or in part, has been disclosed or is threatened to be disclosed.
13. RESTRICTIVE COVENANT
During the term of this Agreement Executive will not, and, in the event of
a termination of employment hereunder for any reason, other than (i) termination
by Executive With Good Reason, or (ii) termination by the Company Without Cause,
or (iii) termination by the Company in any way that is a breach of this
Agreement, Executive will not during the 12 month period following such
termination, without the prior written consent of the Company, directly or
indirectly, (x) engage for his own account in any business or own, manage,
operate, control, be employed as a employee or consultant, buy, participate in,
or be connected in any manner with the ownership, management, operation or
control of any firm, corporation, association, or other business entity which is
in competition with the business of the Company, provided that Executive may
invest in a business competitive with Company to an extent not to exceed five
percent (5%) of the total outstanding shares at the time of such investment in
each one or more companies whose securities are listed on a national securities
exchange or quoted daily in the "over-the-counter" market listing of the Wall
Street Journal, or (y) solicit purchase orders for vitamins or any other related
products or services from, or market or sell 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 Executive's employment, or (z) contact 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 Executive's employment, in each case, with the intention of entering into
a joint venture or other similar business relationship. This covenant on the
part of Executive shall be construed as an agreement independent of any other
provisions of this Agreement and shall survive the termination of this
Agreement, and the existence of any claims or cause of action by Executive
against Company, whether predicated on this agreement or otherwise, shall not
constitute a defense in the enforcement by Executive of this covenant.
14. INDEMNIFICATION
In the event Executive is made, or threatened to be made, a party to any
legal action or proceeding, whether civil or criminal, by reason of the fact
that Executive is or was a director or officer of the Company or serves or
served any other corporation fifty percent (50%) or more owned or controlled by
the Company in any capacity at the Company's request, Executive shall
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be indemnified by the Company, and the Company shall pay Executive's related
expenses when and as incurred, all to the fullest extent permitted by law.
15. REMEDIES
The Company recognizes that because of Executive's special talents, stature
and opportunities in the vitamin and nutritional supplement industry, in the
event of termination by the Company hereunder (except for Cause) or in the event
of termination by Executive With Good Reason, before the end of the agreed term,
the Company acknowledges and agrees that the provisions of this Agreement
regarding further payment of base salary, bonuses, and other post-termination
provisions contained herein constitute fair and reasonable provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts Executive might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement and Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise.
16. BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of Executive,
his heirs, distributee and assigns, and the Company, its successors and assigns.
Executive may not, without the express written permission of the Company, assign
or pledge any rights or obligation hereunder to any person, firm or corporation.
If Executive should die while any amount would still be payable to Executive if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with this Agreement to Executive's estate.
17. ASSIGNMENT AND OTHER RIGHTS
(a) The Company will require any successor (whether direct or indirect, by
operation of law, by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled under Sections
10 and 11 hereof, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) It is the intention of the parties that the rights and benefits of
Executive under this Agreement shall be in addition to, and not in lieu of, any
right or benefits which Executive may have or be entitled to receive pursuant to
any other arrangement or agreement between Company and Executive. Nothing
contained in this Agreement shall affect any rights Executive may have or any
benefits Executive may be entitled to receive under any other agreements, plans,
programs or otherwise.
18. WAIVER
No term or condition of this Agreement shall be deemed to have been waived,
nor shall there by any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
19. NOTICE
For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to Executive at 87
Brookside Terrace, North Caldwell, New Jersey 07006 in the case of Executive,
and in the case of Company, to the attention of the Chairman of the Compensation
Committee of the Board of Directors with copies to the Chief Financial Officer
and the Secretary of Company at the principal executive offices of Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
20. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware.
21. SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid, such
invalidity shall not affect any other provision of this Agreement not held so
invalid, and each such other provision shall to the full extent consistent with
law continue in full force and effect. If any provision of this Agreement shall
be held invalid in party, such invalidity shall in no way affect the rest of
such provision not held so invalid, and the rest of such provision, together
with all
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other provision of this Agreement, shall to the full extent consistent with law
continue in full force and effect. If this Agreement is held invalid or cannot
be enforced, then to the full extent permitted by law, any prior agreement
between the Company (or any predecessor thereof) and Executive shall be deemed
reinstated as if this Agreement has not been executed.
22. ARBITRATION
(a) Any disagreement, dispute, controversy or claim arising out of or in
any way related to this Agreement or the subject matter thereof or the
interpretation hereof or any arrangements relating hereto or contemplated herein
or the breach, termination or invalidity hereof shall be settled exclusively and
finally by arbitration.
(b) The arbitration shall be conducted in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA"). The arbitral tribunal shall consist of one arbitrator.
(c) The Company shall pay all of the fees, if any, and expenses of such
arbitration, and shall also pay all of Executive's expenses, including
attorneys' fees, incurred in connection with the arbitration regardless of the
final outcome of such arbitration.
(d) The arbitration shall be conducted in New York City or in any other
city in the United States of America as the parties to the dispute may designate
by mutual written consent.
(e) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to review of
such award by any court or tribunal. The parties hereto agree that the arbitral
award may be enforced against the parties to the arbitration proceeding or their
assets wherever the award may be entered in any court having jurisdiction
thereof.
23. ENTIRE AGREEMENT
As of January 1, 1996, all previous agreements relating to the employment
of Executive, however styled, are hereby superseded to the extent inconsistent
herewith, and excepting Executive's present participation in the Company stock
option and/or other benefit plans or programs and the agreements thereunder,
which are hereby reaffirmed in all respects by both parties thereto, this
Agreement embodies all agreements, contracts, and understandings by and between
the parties hereto. This Agreement may not be changed orally, but only by an
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agreement in writing signed by the party against whom enforcement of any Waiver,
change, modification, extension, or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the date above stated.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
/s/ KEITH I. FRANKEL
--------------------------------------
Keith I. Frankel
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Exhibit 10.15
EMPLOYMENT AGREEMENT dated as of January 1, 1996 between KEITH I.
FRANKEL ("Executive") and VITAQUEST INTERNATIONAL INC., a Delaware corporation
("Company").
1. TERM
The term of this Agreement shall commence as of January 1,
1996 and shall terminate on June 30, 1999, subject to earlier termination as
provided herein.
2. POSITION AND DUTIES
(a) Executive shall be employed by the Company during the term as
its Chief Executive Officer. Executive shall report directly and solely to the
Company's President. The Company agrees to nominate Executive for election to
the Board of Directors (the "Board") as a member of the management slate at
each annual meeting of stockholders during the term hereof and Executive agrees
to serve on the Board if elected.
(b) Executive agrees to perform such services, not inconsistent
with his position, as shall from time to time be assigned to him by the
President, consistent with the By-Laws of the Company.
(c) During the term of employment hereunder, except for
disability, illness and reasonable vacation periods, Executive shall devote
substantially all of his business time, attention, and energies to the position
of Chief Executive Officer of the Company. Notwithstanding the foregoing, the
expenditure by the Executive of reasonable amounts of time in connection with
outside activities, not competitive with the Company's business, including but
not limited to outside directorships, or charitable or professional activities,
shall not be considered to be in violation of this Agreement subject, however,
to the requirement that in no event shall any such activities materially
interfere with the performance by the Executive of the services required under
this Agreement. Further, it is understood and agreed by the parties hereto
that Executive may engage in passive and personal investment activities.
3. SALARY AND BONUS
(a) Beginning January 1, 1996, Executive shall receive an annual
base salary of $500,000, which base salary shall be subject to automatic
increase on the first day of each January during the term hereof beginning
January 1, 1997 by an amount equal to the greater of (i) 5% of the base salary
in effect during the preceding 12 month period, or (ii) the percentage increase
in the Consumer Price Index published by the U.S. Department of Labor for the
12 month period then ended (the "Current CPI Period") compared with the 12
month period immediately preceding the Current CPI Period. The base salary
shall not be reduced during the term of this Agreement.
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(b) Executive shall be entitled to receive during each year during
the term hereof other than 1996, such incentive bonus, in such amount as the
Board (or a Compensation Committee or other similar Committee designated by the
Board) shall determine in its discretion on the basis of the Company's
operating results, provided that no such determination shall be made prior to
June 30 1997.
4. REIMBURSEMENT OF EXPENSES
Executive shall be authorized to incur and shall be reimbursed by the
Company for reasonable expenses for the advancement of the Company's business,
upon presentation of reasonable documentation therefor.
5. STOCK OPTIONS AND OTHER BENEFITS
(a) Executive shall be eligible to participate in the Company's
Non-Qualified Deferred Compensation Plan, Profit Sharing Plan and 1996 Stock
Option Plan and any additional or successor incentive plan or plans.
(b) During the period of employment hereunder, Executive shall
also be entitled to receive all other benefits of employment which are, and
which may be in the future, generally available to members of the Company's
management and specifically, an allowance for use of automobiles as provided
from time to time by action of the Board of Directors, as well as, without
limitation, group health, disability, and life insurance benefits and
participation in any Company profit-sharing or pension plan, and vacation
consistent with the vacation policies of Company.
6. DISABILITY BENEFITS
"Disability" shall mean Executive's incapacity due to physical or
mental illness or cause, which results in Executive being absent from the
performance of his duties with the Company on a full-time basis for a period of
nine (9) consecutive months. The existence or cessation of a physical or
mental illness which renders Executive absent from the performance of his
duties on a full-time basis shall, if disputed by the Company or Executive, be
conclusively determined by written opinions rendered by two qualified
physicians, one selected by Executive, and one selected by the Company. During
the period of absence Executive shall be deemed to be on disability leave of
absence, with his compensation paid in full and the Board may designate an
interim Chief Executive Officer on such terms as it deems proper.
Upon the expiration of nine (9) consecutive months of such disability
leave of absence, Executive's employment may be terminated by the Company
pursuant to the provisions of Section 8(a) provided, however, that prior to the
effective date of such termination, Executive
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shall have the right to return to full-time employment. At the Company's
request, Executive shall be required to provide the written opinions of two
qualified physicians, one selected by Executive and one selected by the Company
to verify Executive's condition of health. Executive's full regular
compensation shall be reinstated upon his return to employment and his
resumption of his full duties hereunder. If the Company refuses to permit
Executive to resume full-time employment as Chief Executive Officer the Company
shall be deemed to have terminated this agreement under Section 8(c) hereof.
7. DEATH DURING EMPLOYMENT
If Executive dies during the term of employment provided for in this
Agreement, the Company shall pay to the Executive's Estate the regular
compensation that would otherwise be payable to Executive up to the end of the
month in which his death occurs, plus, as a death benefit, compensation for a
period of twelve (12) months thereafter at the same monthly rate of base
compensation which prevailed during the month of his death.
8. TERMINATION BY THE COMPANY
The Company shall have the right to terminate this Agreement under the
following circumstances:
(a) Upon ten (10) days' written notice from Company to Executive
in the event of Disability which has incapacitated him from performing his
duties for nine (9) consecutive months as determined under Section 6, subject
to Executive's right to reinstatement as provided in Section 6.
(b) For "Cause" upon ten (10) days' written notice to Executive.
Termination by the Company of Executive's employment for "Cause" as used in
this Agreement means (1) the willful and continuing neglect by Executive of his
duties or obligations hereunder provided, however, that any such neglect shall
constitute "Cause" hereunder only if such neglect remains uncured for a period
of ten (10) days after written notice describing the same is given to the
Executive; and provided, further, that isolated, insubstantial or nonmaterial
neglect or failure shall not constitute Cause hereunder; (2) the willful
refusal by Executive to comply with the lawful instructions or directions of
the party to whom Executive reports hereunder, provided, however, that any such
refusal shall constitute "Cause" hereunder only if such instructions or
directions are in respect of matters which may be properly required of
Executive hereunder and only if such refusal continues for a period of more
than ten (10) days after written notice describing same is given to the
Executive; (3) Executive's conviction (which, through lapse of time or
otherwise, is not subject to appeal) of any felony under the laws of any
country or political subdivision thereof, involving theft, embezzlement or
moral turpitude; (4) Executive's performance of any act which would constitute
a crime or offense involving money or property of the Company or any of its
subsidiaries, or would constitute a felony in the jurisdiction in
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which such act occurred, regardless of whether or not the Executive is
prosecuted; (5) any attempt by Executive improperly to secure any personal
profit in connection with the business of the Company or any of its
subsidiaries, (6) chronic alcoholism or drug addiction; or (7) any breach by
Executive of the terms of Sections 12 or 13 of this Agreement; provided such
breach continues uncured for ten (10) days after written notice of such breach
is given by the Company to Executive.
(c) Upon ninety (90) days written notice to Executive where the
Board, acting by a majority, elects "Without Cause" to terminate Executive for
any reason, other than Disability (Section 8(a)) or for Cause (Section 8(b)).
9. TERMINATION BY EXECUTIVE
Executive shall have the right to terminate his employment under this
Agreement "With Good Reason" upon three (3) days' written notice to the Company
given within sixty (60) days following the date on which Executive become aware
of any of the following events:
(a) Executive is not elected or retained as Chairman and President
and a director of Company;
(b) any assignment to Executive of any duties other than those
reasonably contemplated by, or any limitation of the power or prerogatives of
Executive in any respect not reasonably contemplated by Section 2;
(c) any removal of Executive from responsibilities substantially
similar to those described or contemplated in Section 2;
(d) any reduction in, or limitation upon, the compensation,
reimbursable expenses or other benefits provided for in this Agreement, other
than by valid public law or regulation; or
(e) any assignment to Executive of duties that would require him
to relocate or transfer his current principal place or residence or would make
the continuance of such current principal place of residence unreasonably
difficult or inconvenient for him.
10. CONSEQUENCES OF TERMINATION
(a) Except as provided in Section 10(b), as used in this Agreement
"Date of Termination" shall mean the date specified in the written notice of
termination given by the Company pursuant to Section 8 or by the Executive
pursuant to Section 9. If termination occurs pursuant to Executive's death as
provided in Section 7, the date of Executive's death shall be the Date of
Termination.
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(b) If, within sixty (60) days after any notice of termination is
given, the party receiving such notice of termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date as finally determined by mutual written agreement of the parties,
by a binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected). Any party giving notice of a dispute
shall pursue the resolution of such dispute. During the period until the
dispute is finally resolved in accordance with this Section 10(b), the Company
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, his
salary) and continue Executive as a participant in all compensation, employee
benefit and insurance plans, programs, arrangements and perquisites in which
Executive was participating or to which Executive was entitled when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Section 10(b). Amounts paid under this Section 10(b)
shall be repaid to Company or be offset against or reduce any other amounts due
Executive under this Agreement, as appropriate, only upon the final resolution
of the dispute.
(c) If this Agreement is terminated by Executive With Good Reason
or by the Company Without Cause, or if the Company shall terminate Executive's
employment under this Agreement in any way that is a breach of this Agreement
by Company, the following shall apply:
(i) Executive shall continue to receive Executive's base
salary under Section 3(a) for the remainder of the term of this
Agreement. The Company may at its option upon such Date of
Termination immediately pay to Executive in a lump sum the full amount
to which he is entitled under this paragraph, but appropriately
discounted for the period over which such compensation would otherwise
be paid by a factor measured by the prevailing interest rate on ninety
(90) day U.S. Treasury Bills at the date of such lump sum payment.
(ii) Executive shall be entitled to receive the bonus that
would have been paid to Executive under Section 3(b) hereof for the
remainder of the term of this Agreement in an amount equal to not less
than the greatest amount of bonus paid to Executive during the term of
this Agreement prior to such termination. Such bonus shall be paid to
Executive (or his estate) at the same time as such bonus would have
been paid to Executive if this Agreement had not been terminated. If
such termination occurs in the last year of the employment term, the
bonus payable for the year following the year in which the Date Of
Termination occurs shall be calculated and paid as if this Agreement
had not been terminated.
(iii) In addition to all other amounts payable to Executive
under this Section 10, Executive shall be entitled to receive, not
later than the fifteenth day following the Date of Termination, all
benefits payable to him under any of the Company's tax-qualified
employee benefit plans and any other plan, program or arrangement
relating to deferred compensation, retirement or other benefits
including, without limitation, any
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profit sharing, 401k, employee stock ownership plan, or any plan
established as a supplement to any of the aforementioned plans.
(iv) The Company shall also pay to Executive, not later
than the fifteenth day following the Date of Termination, an amount
equal to all unvested Company contributions credited to Executive's
account under any tax-qualified employee benefit plan maintained by
Company as of the Date of Termination.
(v) The Company shall also pay to Executive all legal
fees and expenses incurred by Executive in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement.
(vi) The Company shall also pay to Executive, not later
than the fifteenth (15th) day following the Date of Termination, a pro
rata amount of his base salary under Section 3 hereof, in effect on
the Date of Termination, for each day of vacation or sick leave which
has accrued as of the Date of Termination, but which is unpaid as of
such date, to which Executive is entitled under the Company's vacation
and sick leave policies.
(d) If this Agreement is terminated due to Disability, Executive
or his estate shall be entitled to receive 100% of his base salary for the
remainder of the term of this Agreement and such bonus as the Board may
determine. The Company may purchase insurance to cover all or any part of its
obligations set forth in the preceding sentence, and Executive agrees to take a
physical examination to facilitate the obtaining of such insurance.
(e) If this Agreement is terminated for Cause, the Company shall
be obligated to pay Executive only such severance compensation as the Board by
majority vote deems appropriate, or none at all, and except for the provisions
of Sections 12 and 13, which shall remain in effect in accordance with their
terms, this Agreement shall be null and void upon the "Date of Termination".
11. OTHER BENEFITS FOLLOWING TERMINATION
(a) If Executive's employment is terminated by the Company due to
Disability or Without Cause, or by Executive With Good Reason, or if the
Company shall terminate Executive's employment under this Agreement in any way
that is a breach of this Agreement by the Company, in addition to the benefits
described in Section 10, Executive shall also be entitled to the following
benefits upon such termination:
(i) The Company shall provide for the balance of the term
and for a period of one (1) year thereafter, health and welfare
benefits at least comparable to those benefits in effect on the Date
of Termination, including but not limited to medical, dental,
disability, dependent care, and life insurance coverage. At the
Company's
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election, health benefits may be provided by reimbursing Executive for
the cost of converting a group policy to individual coverage, or for
the cost of extended COBRA coverage. The Company shall also pay to
Executive an amount calculated to pay any income taxes due as a result
of the payment by the Company on Executive's behalf for such health
benefits. Such tax payment shall be calculated to place Executive in
the same after-tax position as if no such income taxes had been
imposed.
(ii) The Company shall allow Executive the continued use
of a Company automobile on the same terms which existed prior to the
Date of Termination, for the balance of the term and for one (1) year
thereafter.
(iii) The Company shall provide Executive with an office
and secretarial services equivalent to those provided to Executive at
the Date of Termination for the balance of the term and for one (1)
year thereafter.
(b) For at least six (6) years following the Date of Termination,
and regardless of the reason for such termination, including any termination
for Cause, Executive shall continue to be indemnified under the Company's
Certificate of Incorporation and Bylaws at least to the same extent as prior to
the Date of Termination and Executive shall be covered by the directors' and
officers' liability insurance, the fiduciary liability insurance and the
professional liability insurance policies that are the same as, or provide
coverage at least equivalent to, those which the Company carried prior to the
Date of Termination.
12. CONFIDENTIAL INFORMATION
"Confidential Information" shall mean all information generated by
Executive or obtained by Executive from or disclosed to Executive by the
Company which relates to the Company's past, present, and future research,
development and business activities, trade secrets, including in particular all
matters of technical nature, such as "know-how", formulae, secret processes or
machines, inventions and research project, and matters of a business nature,
such as information about costs, profit, markets, sales, lists of customers,
and any other information of a similar nature, also including plans for further
development. Except as authorized by the Company in writing, Executive shall
hold all Confidential Information in trust and confidence for the Company, and
shall not disclose any of same to anyone outside of the Company, either during
or after employment with the Company. The foregoing shall not apply to any
Confidential Information which (i) is now or hereafter becomes, through no act
or failure to act on Executive's part, generally known or publicly available,
(ii) is hereafter furnished to Executive by a third party as a matter of right
and without restriction on disclosure, or (iii) is furnished to others by the
Company without restriction on disclosure. Executive further agrees to deliver
promptly to the Company on termination of employment with the Company, or at
any time it may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, and any other documents containing any Confidential
Information, including all copies of such materials which Executive may then
possess or have under his control. The rights and obligations set
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forth in this Section shall survive according to the terms hereof and continue
after any expiration or termination of this Agreement or the employment
specified herein. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Company shall be entitled to an
injunction restraining Executive from disclosing, in whole or in part, any of
such Confidential Information, or from rendering any services to any person,
firm, corporation, association, or other entity to whom such Confidential
Information, in whole or in part, has been disclosed or is threatened to be
disclosed.
13. RESTRICTIVE COVENANT
During the term of this Agreement Executive will not, and, in the
event of a termination of employment hereunder for any reason, other than (i)
termination by Executive With Good Reason, or (ii) termination by the Company
Without Cause, or (iii) termination by the Company in any way that is a breach
of this Agreement, Executive will not during the 12 month period following such
termination, without the prior written consent of the Company, directly or
indirectly, (x) engage for his own account in any business or own, manage,
operate, control, be employed as an employee or consultant, buy, participate
in, or be connected in any manner with the ownership, management, operation or
control of any firm, corporation, association, or other business entity which
is in competition with the business of the Company, provided that Executive may
invest in a business competitive with Company to an extent not to exceed five
percent (5%) of the total outstanding shares at the time of such investment in
each one or more companies whose securities are listed on a national securities
exchange or quoted daily in the "over-the-counter" market listing of the Wall
Street Journal, or (y) solicit purchase orders for vitamins or any other
related products or services from, or market or sell 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 Executive's employment, or (z) contact 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 Executive's employment, in each case, with the intention of entering
into a joint venture or other similar business relationship. This covenant on
the part of Executive shall be construed as an agreement independent of any
other provisions of this Agreement and shall survive the termination of this
Agreement, and the existence of any claims or cause of action by Executive
against Company, whether predicated on this agreement or otherwise, shall not
constitute a defense in the enforcement by Executive of this covenant.
14. INDEMNIFICATION
In the event Executive is made, or threatened to be made, a party to
any legal action or proceeding, whether civil or criminal, by reason of the
fact that Executive is or was a director or officer of the Company or serves or
served any other corporation fifty percent (50%) or more owned or controlled by
the Company in any capacity at the Company's request, Executive shall
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be indemnified by the Company, and the Company shall pay Executive's related
expenses when and as incurred, all to the fullest extent permitted by law.
15. REMEDIES
The Company recognizes that because of Executive's special talents,
stature and opportunities in the vitamin and nutritional supplement industry,
in the event of termination by the Company hereunder (except for Cause) or in
the event of termination by Executive With Good Reason, before the end of the
agreed term, the Company acknowledges and agrees that the provisions of this
Agreement regarding further payment of base salary, bonuses, and other
post-termination provisions contained herein constitute fair and reasonable
provisions for the consequences of such termination, do not constitute a
penalty, and such payments and benefits shall not be limited or reduced by
amounts Executive might earn or be able to earn from any other employment or
ventures during the remainder of the agreed term of this Agreement and
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise.
16. BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of
Executive, his heirs, distributee and assigns, and the Company, its successors
and assigns. Executive may not, without the express written permission of the
Company, assign or pledge any rights or obligation hereunder to any person,
firm or corporation. If Executive should die while any amount would still be
payable to Executive if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with this Agreement to
Executive's estate.
17. ASSIGNMENT AND OTHER RIGHTS
(a) The Company will require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or otherwise
to all or substantially all of the business and/or assets of the Company) to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to compensation from the
Company in the same amount and on the same terms as Executive would be entitled
under Sections 10 and 11 hereof, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be the
Date of Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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(b) It is the intention of the parties that the rights and
benefits of Executive under this Agreement shall be in addition to, and not in
lieu of, any right or benefits which Executive may have or be entitled to
receive pursuant to any other arrangement or agreement between Company and
Executive. Nothing contained in this Agreement shall affect any rights
Executive may have or any benefits Executive may be entitled to receive under
any other agreements, plans, programs or otherwise.
18. WAIVER
No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
19. NOTICE
For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
Executive at 87 Brookside Terrace, North Caldwell, New Jersey 07006 in the case
of Executive, and in the case of Company, to the attention of the Chairman of
the Compensation Committee of the Board of Directors with copies to the Chief
Financial Officer and the Secretary of Company at the principal executive
offices of Company, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
20. GOVERNING LAW
This Agreement shall the governed and construed in accordance with the
laws of the State of Delaware.
21. SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall to the full extent consistent
with law continue in full force an effect. If any provision of this Agreement
shall be held invalid in part, such invalidity shall in no way affect the rent
of such provision not held so invalid, and the rest Of such provision, together
with all
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other provision of this Agreement, shall to the full extent consistent with law
continue in full force and effect. If this Agreement is held invalid or cannot
be enforced, then to the full extent permitted by law, any prior agreement
between the Company or any predecessor thereof) and Executive shall be deemed
reinstated as if this Agreement has not been executed.
22. ARBITRATION
(a) Any disagreement, dispute, controversy or claim arising out of
or in any way related to this Agreement or the subject matter thereof or the
interpretation hereof or any arrangements relating hereto or contemplated
herein or the breach, termination or invalidity hereof shall be settled
exclusively and finally by arbitration.
(b) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA"). The arbitral tribunal shall consist of
one arbitrator.
(c) The Company shall pay all of the fees, if any, and expenses of
such arbitration, and shall also pay all of Executive's expenses, including
attorneys' fees, incurred in connection with the arbitration regardless of the
final outcome of such arbitration.
(d) The arbitration shall be conducted in New York City or in any
other city in the United States of America as the parties to the dispute may
designate by mutual written consent.
(e) Any decision or award of the arbitral tribunal hall be final
and binding upon tho parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to review
of such award by any court or tribunal. The parties hereto agree that the
arbitral award may be enforced against the parties to the arbitration
proceeding or their assets wherever the award may be entered in any court
having jurisdiction thereof.
23. ENTIRE AGREEMENT
As of January 1, 1996, all previous agreements relating to the
employment of Executive, however styled, are hereby superseded to the extent
inconsistent herewith, and excepting Executive's present participation in the
Company stock option and/or other benefit plans or programs and the agreements
thereunder, which are hereby reaffirmed in all respects by both parties
thereto, this Agreement embodies all agreements, contracts, and understandings
by and between the parties hereto. This Agreement may not be changed orally,
but only by an
11
<PAGE> 12
agreement in writing signed by the party against whom enforcement of any
Waiver, change, modification, extension, or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the date above stated.
VITAQUEST INTERNATIONAL INC.
By:
- --------------------------- ------------------------------
KEITH I FRANKEL Edward M. Frankel
President
12
<PAGE> 1
EXHIBIT 10.16
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by and
between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and EDWARD M. FRANKEL (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Corporation in
his or her capacity as an officer and/or Director of the Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its certificate of
incorporation, as amended, and Article V of its bylaws (collectively, the
"Organizational Documents"), has adopted provisions for the indemnification of
the directors, officers, employees and other agents of the Corporation,
including persons serving at the request of the Corporation in such capacities
with other corporations or enterprises, as authorized by the Delaware General
Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer and/or Director of the Corporation, the Corporation has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or Director after the date hereof, the parties hereto agree as
follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as an
officer and/or Director of the Corporation, or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as he
is duly elected and qualified in accordance with the Organizational Documents of
the Corporation or such affiliate; provided, however, that Indemnitee may at any
time and for any reason resign from such position or any other position (subject
to any contractual obligation that Indemnitee may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Indemnitee in such position or any other
position.
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the
<PAGE> 2
Organizational Documents and the Code, as the same may be amended from time to
time (but, only to the extent that any such amendment permits the Corporation to
provide broader indemnification rights than the Organizational Documents or the
Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation), to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Code and the Organizational Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to Indemnitee
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part thereof)
brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
is initiated pursuant to Section 9 hereof.
2
<PAGE> 3
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 4 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of Indemnitee's separate
3
<PAGE> 4
counsel shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in clause (ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting power
represented by the Company's then outstanding voting securities or if there is a
Change in Control (defined below) of the Company, then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity,
expense payments and/or advances under this Agreement or any other agreement or
the Organizational Documents now or hereafter in effect, the Company shall seek
and follow legal advice only from Independent Legal Counsel (defined below)
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company shall pay the reasonable fees of such Independent Legal Counsel and
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in Control" shall
be deemed to have occurred if (i) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets; and
4
<PAGE> 5
(f) For purposes of this section, "Independent Legal Counsel"
shall be defined as an attorney or firm of attorneys, selected in accordance
with this Section, who have not otherwise performed services for the Company or
Indemnitee within the last five years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other directors,
officers, employees or other agents under similar indemnity agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim. It shall be a defense to any action for which
a claim for indemnification is made under Section 3 hereof (other than an action
brought to enforce a claim for expenses pursuant to Section 8 hereof, provided
that the required undertaking has been tendered to the Corporation) that
Indemnitee is not entitled to indemnification because of the limitations set
forth in Section 4 hereof. Neither the failure of the Corporation (including its
Board of Directors or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors or its stockholders) that such indemnification
is improper shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Organizational
Documents, agreement, vote of
5
<PAGE> 6
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, officer, employee or
other agent of the Corporation or to serve at the request of the Corporation as
a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
shall inure to the benefit of Indemnitee's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
6
<PAGE> 7
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid addressed as follows or to such other address as a party may hereafter
designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /s/ KEITH M. FRANKEL
-----------------------------------------
Keith M. Frankel, Chief Executive Officer
INDEMNITEE
/s/ EDWARD M. FRANKEL
---------------------------------------------
Edward M. Frankel
Print Indemnitee's name and
address:
2 Timer Drive
North Caldwell, NJ 07006
8
<PAGE> 1
EXHIBIT 10.17
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by and
between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and KEITH I. FRANKEL (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Corporation in
his or her capacity as an officer and/or Director of the Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its certificate of
incorporation, as amended, and Article V of its bylaws (collectively, the
"Organizational Documents"), has adopted provisions for the indemnification of
the directors, officers, employees and other agents of the Corporation,
including persons serving at the request of the Corporation in such capacities
with other corporations or enterprises, as authorized by the Delaware General
Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer and/or Director of the Corporation, the Corporation has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or Director after the date hereof, the parties hereto agree as
follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as an
officer and/or Director of the Corporation, or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as he
is duly elected and qualified in accordance with the Organizational Documents of
the Corporation or such affiliate; provided, however, that Indemnitee may at any
time and for any reason resign from such position or any other position (subject
to any contractual obligation that Indemnitee may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Indemnitee in such position or any other
position.
<PAGE> 2
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the Organizational Documents and the Code, as the same may be amended from
time to time (but, only to the extent that any such amendment permits the
Corporation to provide broader indemnification rights than the Organizational
Documents or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation), to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Code and the Organizational Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to Indemnitee
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part thereof)
brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to
2
<PAGE> 3
be made by law, or (ii) the proceeding is initiated pursuant to Section 9
hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 4 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may
3
<PAGE> 4
be a conflict of interest between the Corporation and Indemnitee in the conduct
of the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Indemnitee's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Indemnitee shall have made the conclusion provided for in clause
(ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting power
represented by the Company's then outstanding voting securities or if there is a
Change in Control (defined below) of the Company, then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity,
expense payments and/or advances under this Agreement or any other agreement or
the Organizational Documents now or hereafter in effect, the Company shall seek
and follow legal advice only from Independent Legal Counsel (defined below)
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company shall pay the reasonable fees of such Independent Legal Counsel and
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in Control" shall
be deemed to have occurred if (i) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an
4
<PAGE> 5
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's assets; and
(f) For purposes of this section, "Independent Legal Counsel"
shall be defined as an attorney or firm of attorneys, selected in accordance
with this Section, who have not otherwise performed services for the Company or
Indemnitee within the last five years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other directors,
officers, employees or other agents under similar indemnity agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim. It shall be a defense to any action for which
a claim for indemnification is made under Section 3 hereof (other than an action
brought to enforce a claim for expenses pursuant to Section 8 hereof, provided
that the required undertaking has been tendered to the Corporation) that
Indemnitee is not entitled to indemnification because of the limitations set
forth in Section 4 hereof. Neither the failure of the Corporation (including its
Board of Directors or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors or its stockholders) that such indemnification
is improper shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
5
<PAGE> 6
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Organizational
Documents, agreement, vote of stockholders or directors, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, officer, employee or
other agent of the Corporation or to serve at the request of the Corporation as
a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
shall inure to the benefit of Indemnitee's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be
6
<PAGE> 7
produced to evidence the existence of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid addressed as follows or to such other address as a party may hereafter
designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
---------------------------------
Edward M. Frankel, President
INDEMNITEE
/s/ KEITH I. FRANKEL
--------------------------------------
Keith I. Frankel
Print Indemnitee's name and address:
87 Brookside Terrace
North Caldwell, NJ 07006
8
<PAGE> 1
EXHIBIT 10.18
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by and
between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and STEPHEN J. YOUNG (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Corporation in
his or her capacity as an officer and/or Director of the Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its certificate of
incorporation, as amended, and Article V of its bylaws (collectively, the
"Organizational Documents"), has adopted provisions for the indemnification of
the directors, officers, employees and other agents of the Corporation,
including persons serving at the request of the Corporation in such capacities
with other corporations or enterprises, as authorized by the Delaware General
Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer and/or Director of the Corporation, the Corporation has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or Director after the date hereof, the parties hereto agree as
follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as an
officer and/or Director of the Corporation, or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as he
is duly elected and qualified in accordance with the Organizational Documents of
the Corporation or such affiliate; provided, however, that Indemnitee may at any
time and for any reason resign from such position or any other position (subject
to any contractual obligation that Indemnitee may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Indemnitee in such position or any other
position.
<PAGE> 2
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the Organizational Documents and the Code, as the same may be amended from
time to time (but, only to the extent that any such amendment permits the
Corporation to provide broader indemnification rights than the Organizational
Documents or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation), to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Code and the Organizational Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to Indemnitee
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement; or
2
<PAGE> 3
(c) in connection with any proceeding (or part thereof)
brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 4 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall
3
<PAGE> 4
be at the expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and Indemnitee in the conduct of the defense of such action or (iii)
the Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Indemnitee's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Indemnitee shall have
made the conclusion provided for in clause (ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities or
if there is a Change in Control (defined below) of the Company, then with
respect to all matters thereafter arising concerning the rights of Indemnitee to
indemnity, expense payments and/or advances under this Agreement or any other
agreement or the Organizational Documents now or hereafter in effect, the
Company shall seek and follow legal advice only from Independent Legal Counsel
(defined below) selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company shall pay the reasonable fees of such Independent Legal Counsel
and fully indemnify such counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating to
this Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in
Control" shall be deemed to have occurred if (i) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such
4
<PAGE> 5
surviving entity outstanding immediately after such merger or consolidation, or
(iii) the stockholders or the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of (in
one transaction or a series of transactions) all or substantially all of the
Company's assets; and
(f) For purposes of this section, "Independent Legal
Counsel" shall be defined as an attorney or firm of attorneys, selected in
accordance with this Section, who have not otherwise performed services for the
Company or Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
directors, officers, employees or other agents under similar indemnity
agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances
granted by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Indemnitee is not entitled to indemnification
because of the limitations set forth in Section 4 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
5
<PAGE> 6
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Organizational Documents, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation or to serve at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of Indemnitee's heirs, executors and
administrators.
(b) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Corporation, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which
6
<PAGE> 7
together shall constitute but one and the same Agreement. Only one such
counterpart need be produced to evidence the existence of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid addressed as follows or to such other address as a party
may hereafter designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
---------------------------
Edward M. Frankel, President
INDEMNITEE
/s/ STEPHEN J. YOUNG
------------------------------
Stephen J. Young
Print Indemnitee's name and
address:
80 Longhill Lane
Chatham, NJ 07928
8
<PAGE> 1
EXHIBIT 10.19
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by
and between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and MYRON JACOBOWITZ (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the
Corporation in his or her capacity as an officer and/or Director of the
Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its
certificate of incorporation, as amended, and Article V of its bylaws
(collectively, the "Organizational Documents"), has adopted provisions for the
indemnification of the directors, officers, employees and other agents of the
Corporation, including persons serving at the request of the Corporation in such
capacities with other corporations or enterprises, as authorized by the Delaware
General Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as
an officer and/or Director of the Corporation, the Corporation has determined
and agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service as an officer and/or Director after the date hereof, the parties hereto
agree as follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the
will of the Corporation or under separate contract, if any such contract exists,
as an officer and/or Director of the Corporation, or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of his ability so
long as he is duly elected and qualified in accordance with the Organizational
Documents of the Corporation or such affiliate; provided, however, that
Indemnitee may at any time and for any reason resign from such position or any
other position (subject to any contractual obligation that Indemnitee may have
assumed apart from this Agreement) and that the Corporation or any affiliate
shall have no obligation under this Agreement to continue Indemnitee in such
position or any other position.
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to
hold harmless and indemnify Indemnitee to the fullest extent authorized or
permitted by the
<PAGE> 2
Organizational Documents and the Code, as the same may be amended from time to
time (but, only to the extent that any such amendment permits the Corporation to
provide broader indemnification rights than the Organizational Documents or the
Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation
of the indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Indemnitee becomes legally obligated to
pay because of any claim or claims made against or by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative (including an action by
or in the right of the Corporation), to which Indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be
provided to Indemnitee by the Corporation under the Code and the Organizational
Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity
pursuant to Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to
Indemnitee under a valid and collectible insurance policy or under a valid and
enforceable indemnity clause, bylaw or agreement, except in respect of any
excess beyond payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part
thereof) brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
is initiated pursuant to Section 9 hereof.
2
<PAGE> 3
5. CONTINUATION OF INDEMNITY. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under
this Agreement to indemnification by the Corporation for a portion of the
expenses (including attorneys' fees), witness fees, damages, judgments, fines
and amounts paid in settlement and any other amounts that Indemnitee becomes
legally obligated to pay in connection with any action, suit or proceeding
referred to in Section 4 hereof even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty
(30) days after receipt by Indemnitee of notice of the commencement of any
action, suit or proceeding, Indemnitee will, if a claim in respect thereof is to
be made against the Corporation under this Agreement, notify the Corporation of
the commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate
therein at its own expense;
(b) Except as otherwise provided below, the
Corporation may, at its option and jointly with any other indemnifying party
similarly notified and electing to assume such defense, assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After notice from
the Corporation to Indemnitee of its election to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any legal
or other expenses subsequently incurred by Indemnitee in connection with the
defense thereof except for reasonable costs of investigation or otherwise as
provided below. Indemnitee shall have the right to employ separate counsel in
such action, suit or proceeding but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Indemnitee unless (i) the employment of
counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume the
3
<PAGE> 4
defense of such action, in each of which cases the fees and expenses of
Indemnitee's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall have made the conclusion provided for in clause (ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities or
if there is a Change in Control (defined below) of the Company, then with
respect to all matters thereafter arising concerning the rights of Indemnitee to
indemnity, expense payments and/or advances under this Agreement or any other
agreement or the Organizational Documents now or hereafter in effect, the
Company shall seek and follow legal advice only from Independent Legal Counsel
(defined below) selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company shall pay the reasonable fees of such Independent Legal Counsel
and fully indemnify such counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating to
this Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in
Control" shall be deemed to have occurred if (i) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets; and
4
<PAGE> 5
(f) For purposes of this section, "Independent Legal
Counsel" shall be defined as an attorney or firm of attorneys, selected in
accordance with this Section, who have not otherwise performed services for the
Company or Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
directors, officers, employees or other agents under similar indemnity
agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances
granted by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Indemnitee is not entitled to indemnification
because of the limitations set forth in Section 4 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Organizational Documents, agreement, vote of
5
<PAGE> 6
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation or to serve at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of Indemnitee's heirs, executors and
administrators.
(b) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Corporation, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
6
<PAGE> 7
17. HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid addressed as follows or to such other address as a party
may hereafter designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
---------------------------
Edward M. Frankel, President
INDEMNITEE
/s/ MYRON JACOBOWITZ
-------------------------
Myron Jacobowitz
Print Indemnitee's name and
address:
10 Dorset Circle
Caldwell, NJ 07006
8
<PAGE> 1
EXHIBIT 10.20
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by
and between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and HOWARD L. MUNK (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the
Corporation in his or her capacity as an officer and/or Director of the
Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its
certificate of incorporation, as amended, and Article V of its bylaws
(collectively, the "Organizational Documents"), has adopted provisions for the
indemnification of the directors, officers, employees and other agents of the
Corporation, including persons serving at the request of the Corporation in such
capacities with other corporations or enterprises, as authorized by the Delaware
General Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as
an officer and/or Director of the Corporation, the Corporation has determined
and agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service as an officer and/or Director after the date hereof, the parties hereto
agree as follows:
1. Services to the Corporation. Indemnitee will
serve, at the will of the Corporation or under separate contract, if any such
contract exists, as an officer and/or Director of the Corporation, or as a
director, officer or other fiduciary of an affiliate of the Corporation
(including any employee benefit plan of the Corporation) faithfully and to the
best of his ability so long as he is duly elected and qualified in accordance
with the Organizational Documents of the Corporation or such affiliate;
provided, however, that Indemnitee may at any time and for any reason resign
from such position or any other position (subject to any contractual obligation
that Indemnitee may have assumed apart from this Agreement) and that the
Corporation or any affiliate shall have no obligation under this Agreement to
continue Indemnitee in such position or any other position.
2. Indemnity of Indemnitee. The Corporation hereby
agrees to hold harmless and indemnify Indemnitee to the fullest extent
authorized or permitted by the
<PAGE> 2
Organizational Documents and the Code, as the same may be
amended from time to time (but, only to the extent that any such amendment
permits the Corporation to provide broader indemnification rights than the
Organizational Documents or the Code permitted prior to adoption of such
amendment).
3. Additional Indemnity. In addition to and not in limitation
of the indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Indemnitee becomes legally obligated to
pay because of any claim or claims made against or by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative (including an action by
or in the right of the Corporation), to which Indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be
provided to Indemnitee by the Corporation under the Code and the Organizational
Documents.
4. Limitations on Additional Indemnity. No indemnity pursuant
to Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to
Indemnitee under a valid and collectible insurance policy or under a valid and
enforceable indemnity clause, bylaw or agreement, except in respect of any
excess beyond payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part
thereof) brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
is initiated pursuant to Section 9 hereof.
2
<PAGE> 3
5. Continuation of Indemnity. All agreements and obligations
of the Corporation contained herein shall continue during the period Indemnitee
is a director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. Partial Indemnification. Indemnitee shall be entitled under
this Agreement to indemnification by the Corporation for a portion of the
expenses (including attorneys' fees), witness fees, damages, judgments, fines
and amounts paid in settlement and any other amounts that Indemnitee becomes
legally obligated to pay in connection with any action, suit or proceeding
referred to in Section 4 hereof even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7. Notification and Defense of Claim. Not later than thirty
(30) days after receipt by Indemnitee of notice of the commencement of any
action, suit or proceeding, Indemnitee will, if a claim in respect thereof is to
be made against the Corporation under this Agreement, notify the Corporation of
the commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate
therein at its own expense;
(b) Except as otherwise provided below, the
Corporation may, at its option and jointly with any other indemnifying party
similarly notified and electing to assume such defense, assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After notice from
the Corporation to Indemnitee of its election to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any legal
or other expenses subsequently incurred by Indemnitee in connection with the
defense thereof except for reasonable costs of investigation or otherwise as
provided below. Indemnitee shall have the right to employ separate counsel in
such action, suit or proceeding but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Indemnitee unless (i) the employment of
counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Indemnitee's separate
3
<PAGE> 4
counsel shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in clause (ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities or
if there is a Change in Control (defined below) of the Company, then with
respect to all matters thereafter arising concerning the rights of Indemnitee to
indemnity, expense payments and/or advances under this Agreement or any other
agreement or the Organizational Documents now or hereafter in effect, the
Company shall seek and follow legal advice only from Independent Legal Counsel
(defined below) selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company shall pay the reasonable fees of such Independent Legal Counsel
and fully indemnify such counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating to
this Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in
Control" shall be deemed to have occurred if (i) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets; and
4
<PAGE> 5
(f) For purposes of this section, "Independent Legal
Counsel" shall be defined as an attorney or firm of attorneys, selected in
accordance with this Section, who have not otherwise performed services for the
Company or Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
directors, officers, employees or other agents under similar indemnity
agreements).
8. Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. Enforcement. Any right to indemnification or advances
granted by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Indemnitee is not entitled to indemnification
because of the limitations set forth in Section 4 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Organizational Documents, agreement, vote of
5
<PAGE> 6
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. Survival of Rights.
(a) The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation or to serve at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of Indemnitee's heirs, executors and
administrators.
(b) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Corporation, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
6
<PAGE> 7
17. Headings. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid addressed as follows or to such other address as a party
may hereafter designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /s/ EDWARD M. FRANKEL
----------------------------
Edward M. Frankel, President
INDEMNITEE
/s/ HOWARD L. MUNK
------------------------------
Howard L. Munk
Print Indemnitee's name and
address:
21 Dwight Place
Fairfield, NJ 07004
8
<PAGE> 1
EXHIBIT 10.21
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996 by and
between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and JULIUS M. HOROWITZ (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Corporation
in his or her capacity as an officer and/or Director of the Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its
certificate of incorporation, as amended, and Article V of its bylaws
(collectively, the "Organizational Documents"), has adopted provisions for the
indemnification of the directors, officers, employees and other agents of the
Corporation, including persons serving at the request of the Corporation in such
capacities with other corporations or enterprises, as authorized by the Delaware
General Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer and/or Director of the Corporation, the Corporation has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service
as an officer and/or Director after the date hereof, the parties hereto agree as
follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the will
of the Corporation or under separate contract, if any such contract exists, as
an officer and/or Director of the Corporation, or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of his ability so
long as he is duly elected and qualified in accordance with the Organizational
Documents of the Corporation or such affiliate; provided, however, that
Indemnitee may at any time and for any reason resign from such position or any
other position (subject to any contractual obligation that Indemnitee may have
assumed apart from this Agreement) and that the Corporation or any affiliate
shall have no obligation under this Agreement to continue Indemnitee in such
position or any other position.
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the
<PAGE> 2
Organizational Documents and the Code, as the same may be amended from time to
time (but, only to the extent that any such amendment permits the Corporation to
provide broader indemnification rights than the Organizational Documents or the
Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation), to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Code and the Organizational Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to Indemnitee
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part thereof)
brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
is initiated pursuant to Section 9 hereof.
2
<PAGE> 3
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under
this Agreement to indemnification by the Corporation for a portion of the
expenses (including attorneys' fees), witness fees, damages, judgments, fines
and amounts paid in settlement and any other amounts that Indemnitee becomes
legally obligated to pay in connection with any action, suit or proceeding
referred to in Section 4 hereof even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein
at its own expense;
(b) Except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of Indemnitee's separate
3
<PAGE> 4
counsel shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in clause (ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting power
represented by the Company's then outstanding voting securities or if there is a
Change in Control (defined below) of the Company, then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity,
expense payments and/or advances under this Agreement or any other agreement or
the Organizational Documents now or hereafter in effect, the Company shall seek
and follow legal advice only from Independent Legal Counsel (defined below)
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company shall pay the reasonable fees of such Independent Legal Counsel and
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in Control" shall be
deemed to have occurred if (i) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets; and
4
<PAGE> 5
(f) For purposes of this section, "Independent Legal Counsel"
shall be defined as an attorney or firm of attorneys, selected in accordance
with this Section, who have not otherwise performed services for the Company or
Indemnitee within the last five years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other directors,
officers, employees or other agents under similar indemnity agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Indemnitee is not entitled to indemnification
because of the limitations set forth in Section 4 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee
by this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Organizational
Documents, agreement, vote of
5
<PAGE> 6
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this Agreement
shall continue after Indemnitee has ceased to be a director, officer, employee
or other agent of the Corporation or to serve at the request of the Corporation
as a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
shall inure to the benefit of Indemnitee's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
6
<PAGE> 7
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid addressed as follows or to such other address as a party
may hereafter designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL INC.
By: /S/ EDWARD M. FRANKEL
-----------------------------------------
Edward M. Frankel, President
INDEMNITEE
/S/ JULIUS M. HOROWITZ
--------------------------------------------
Julius M. Horowitz
Print Indemnitee's name and
address:
443 Hungry Harbor Road
North Woodmere, NY 11581
8
<PAGE> 1
EXHIBIT 10.22
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into as of June 14, 1996, 1996
by and between VITAQUEST INTERNATIONAL INC., a Delaware corporation (the
"Corporation"), and JOEL H. GIRSKY (the "Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Corporation
in his or her capacity as an officer and/or Director of the Corporation;
WHEREAS, the Corporation, pursuant to Article XI of its
certificate of incorporation, as amended, and Article V of its bylaws
(collectively, the "Organizational Documents"), has adopted provisions for the
indemnification of the directors, officers, employees and other agents of the
Corporation, including persons serving at the request of the Corporation in such
capacities with other corporations or enterprises, as authorized by the Delaware
General Corporation Law, as amended (the "Code");
WHEREAS, the Organizational Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its
directors, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer and/or Director of the Corporation, the Corporation has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service
as an officer and/or Director after the date hereof, the parties hereto agree as
follows:
1. SERVICES TO THE CORPORATION. Indemnitee will serve, at the will
of the Corporation or under separate contract, if any such contract exists, as
an officer and/or Director of the Corporation, or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of his ability so
long as he is duly elected and qualified in accordance with the Organizational
Documents of the Corporation or such affiliate; provided, however, that
Indemnitee may at any time and for any reason resign from such position or any
other position (subject to any contractual obligation that Indemnitee may have
assumed apart from this Agreement) and that the Corporation or any affiliate
shall have no obligation under this Agreement to continue Indemnitee in such
position or any other position.
<PAGE> 2
2. INDEMNITY OF INDEMNITEE. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the Organizational Documents and the Code, as the same may be amended from
time to time (but, only to the extent that any such amendment permits the
Corporation to provide broader indemnification rights than the Organizational
Documents or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
Organizational Documents, the Code, any other applicable law and the exclusions
set forth in Section 4 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation), to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the written
request of the Corporation as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Code and the Organizational Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Indemnitee for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Corporation, pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(b) for which payment has actually been made to Indemnitee
under a valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement; or
(c) in connection with any proceeding (or part thereof)
brought or made by Indemnitee against the Corporation, unless (i) such
indemnification is expressly required to
2
<PAGE> 3
be made by law, or (ii) the proceeding is initiated pursuant to Section 9
hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under
this Agreement to indemnification by the Corporation for a portion of the
expenses (including attorneys' fees), witness fees, damages, judgments, fines
and amounts paid in settlement and any other amounts that Indemnitee becomes
legally obligated to pay in connection with any action, suit or proceeding
referred to in Section 4 hereof even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein
at its own expense;
(b) Except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may
3
<PAGE> 4
be a conflict of interest between the Corporation and Indemnitee in the conduct
of the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Indemnitee's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Indemnitee shall have made the conclusion provided for in clause
(ii) above;
(c) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent, which
may be given or withheld in Indemnitee's sole discretion;
(d) If any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting power
represented by the Company's then outstanding voting securities or if there is a
Change in Control (defined below) of the Company, then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity,
expense payments and/or advances under this Agreement or any other agreement or
the Organizational Documents now or hereafter in effect, the Company shall seek
and follow legal advice only from Independent Legal Counsel (defined below)
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company shall pay the reasonable fees of such Independent Legal Counsel and
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto;
(e) For purposes of this Section, a "Change in Control" shall
be deemed to have occurred if (i) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iii) the stockholders or the
Company approve a plan of complete liquidation of the Company or an
4
<PAGE> 5
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's assets; and
(f) For purposes of this section, "Independent Legal Counsel"
shall be defined as an attorney or firm of attorneys, selected in accordance
with this Section, who have not otherwise performed services for the Company or
Indemnitee within the last five years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other directors,
officers, employees or other agents under similar indemnity agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Organizational Documents, the Code or
otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Corporation) that Indemnitee is not entitled to indemnification
because of the limitations set forth in Section 4 hereof. Neither the failure of
the Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee
by this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter
5
<PAGE> 6
acquire under any statute, provision of the Organizational Documents, agreement,
vote of stockholders or directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Indemnitee by this Agreement
shall continue after Indemnitee has ceased to be a director, officer, employee
or other agent of the Corporation or to serve at the request of the Corporation
as a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
shall inure to the benefit of Indemnitee's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Organizational Documents, the
Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
6
<PAGE> 7
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid addressed as follows or to such other address as a party
may hereafter designate by notice given pursuant hereto:
(a) If to Indemnitee, at the address indicated on the
signature page hereof.
(b) If to the Corporation, to:
Vitaquest International Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
VITAQUEST INTERNATIONAL LTD.
By: /s/ EDWARD M. FRANKEL
-----------------------------------------
Edward M. Frankel, President
INDEMNITEE
/s/ JOEL H. GIRSKY
--------------------------------------------
Joel H. Girsky
Print Indemnitee's name and
address:
29 Winter Lane
Dix Hills, New York 11746
8
<PAGE> 1
Exhibit 10.23
STOCK REDEMPTION AGREEMENT
STOCK REDEMPTION AGREEMENT (the "Agreement"), dated this 28th day of
May, 1992, by and among 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, EARL WEISMAN ("Weisman" or the
"Seller"), residing at 8934 Kenton Avenue, Skokie, IL 60076 and, solely for the
purposes of Paragraph 6 hereto, MORRISON COHEN SINGER & WEINSTEIN (the "Escrow
Agent"), as escrow agent hereunder.
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of 2,500
shares of common stock, no par value (the "Common Stock"), of which, as of the
date hereof, 100 shares are issued and outstanding;
WHEREAS, Weisman currently owns an aggregate of 19 shares of Common
Stock;
WHEREAS, Weisman desires to sell the Company and the Company desires to
purchase and redeem from Weisman all of the shares of Common Stock owned by
Weisman (the "Shares") on the terms and conditions set forth herein; and
WHEREAS, it is contemplated that contemporaneously with the redemption
of the Shares hereunder, the following related transactions will also occur:
(i) Windmill Marketing Services, Inc. ("Windmill Marketing"), an affiliate of
the Company, will purchase and redeem all of Weisman's shares of capital stock
of Windmill Marketing, (ii) Windmill Marketing will purchase the business and
all or substantially all of the assets of Windmill Natural Vitamin Company,
Inc., an Illinois corporation, a majority of whose shares of capital stock are
owned by Weisman, (iii) Edward M. Frankel ("Frankel"), the majority shareholder
of both the Company and Windmill Marketing, shall purchase Weisman's entire
equity interest in Vitareal Associates, L.P., and (iv) Weisman shall purchase
all of Frankel's shares of capital stock of E. Burnham, Inc. (the transactions
described in clauses (i) through (iv) above shall hereinafter collectively be
referred to as the "Related Transactions").
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Redemption of the Shares. Subject to the terms and conditions herein
set forth, the Seller shall sell, transfer, assign, convey and deliver to the
Company, and the Company shall purchase, redeem and accept from the Seller, on
the Closing Date (as defined hereinafter), all of the Seller's rights, title
and interest in the Shares. The sale, transfer, assignment, conveyance and
delivery of the Shares by the Seller to the Company, as herein provided, shall
be effected on the Closing Date by delivery of the certificates representing
the Shares, stock powers endorsed in blank, a bill of sale and such other
instruments of sale,
<PAGE> 2
transfer, assignment and conveyance reasonably satisfactory in form and
substance to counsel for the Company. The Seller shall bear all state and local
sales, transfer, excise, value-added or other similar taxes, in each case that
may be imposed by reason of the sale, transfer, assignment, conveyance and
delivery of the Shares.
2. Closing. The closing of the transaction contemplated herein (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032 at 10:00 A.M., Central
Daylight Time, on Thursday, May 28, 1992 or at such other time and place as may
be mutually agreed upon in writing by the Seller and the Company (the
"Closing Date").
3. The Purchase Price. Upon and subject to the terms and conditions
herein set forth and in consideration of the sale, transfer, assignment,
conveyance and delivery of the Shares to the Company, the Company agrees to pay
to the Seller an aggregate purchase price of Two Hundred Nine Thousand Dollars
($209,000) (the "Purchase Price").
4. Form of purchase Price. The Purchase Price shall be payable as
follows:
(a) Ten Thousand Dollars shall be payable on the Closing Date, by
certified, banker's or cashier's check, to the Seller;
(b) Sixty-Five Thousand Dollars ($65,000) shall be payable on each
of the second and third anniversaries of the Closing Date (the "First Principal
Installment Payment" and "Second Principal Installment Payment," respectively),
and Sixty-Nine Thousand Dollars ($69,000) shall be payable on the fourth such
anniversary (the "Third Principal Installment Payment"), in each case, together
with interest thereon, payable quarterly in arrears, commencing with the third
month following the month hereof, on the same day of the month as the day
hereof (or the last day of the month if there is no corresponding day), at a
fluctuating rate per annum equal to the prime or equivalent rate of interest
from time to time announced or published by Chemical Bank, N.A., or if the
foregoing ceases to exist or ceases to announce or publish a prime rate of
interest, such other New York money center as the Company and the Seller may
agree. All amounts payable pursuant to this Paragraph 4(b) shall be evidenced
by a promissory note substantially in the form attached hereto as Exhibit A
(the "Company Note").
5. Delivery. At the Closing, the Seller shall deliver to the Company
the stock certificates evidencing the Shares, with all necessary transfer
stamps affixed thereto, together with separate stock powers endorsed in blank,
and such evidence of title to the Shares and of compliance with the terms and
conditions of this Agreement as may be reasonably required by counsel for the
Company in order that good and marketable title to the Shares shall pass from
the Seller to the Company.
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<PAGE> 3
6. Collateral; Escrow.
(a) Immediately subsequent to the delivery, by the Seller to the
Company, of the stock certificates evidencing the Shares, as required by
Paragraph 5 hereto, the Company, in order to secure to the Seller the prompt,
full and faithful payment of its obligations under (i) Paragraph 4(b) hereto,
as evidenced by the Company Note, and (ii) Paragraph 3(b) to the Consulting and
Non-Competition Agreement (the "Consulting and Non-Competition Agreement") of
even date herewith between the Company and the Seller (the "Non-Compete Fee"),
shall grant to the Seller a security interest in the Shares. In connection
therewith, and as evidence thereof, the Company shall cause such stock
certificates to be cancelled and a new stock certificate evidencing the Shares
to be issued in the name of the Company, which new stock certificate,
together with a stock power endorsed in blank, shall be delivered to the Escrow
Agent, to be held and delivered by the Escrow Agent as hereinafter provided.
(b) All incidents of ownership of the Shares shall be vested
solely in the Company for so long as there are no Defaults (as defined below)
by the Company under the Company Note or the Consulting and Non-Competition
Agreement.
(c) If the Company defaults with respect to any of its obligations
under the Company Note or with respect to the Non-Compete Fee, and fails to
cure such default within the grace periods provided for therein (each such
default hereinafter to be referred to as a "Default"), the holder of the
Company Note or the Seller, as the case may be, upon fifteen (15) days prior
written notice to the Company, shall have the right to sell the Shares
evidenced by the stock certificates held by the Escrow Agent, in accordance
with Section 9-504 of the Illinois Uniform Commercial Code. Such right shall be
in addition to all other rights and remedies available under law to the holder
of the Company Note and the Seller.
(d) Upon receipt by the Escrow Agent of the written notice from
the Company (the "Company Notice") that (i) the First, Second and Third
Principal Installment Payments have been made on a timely basis in accordance
with the terms of the Company Note, (ii) the Non-Compete Fee has been paid in
full, and (iii) all interest due and payable with respect to the obligations
described in (i) and (ii) immediately above has likewise been paid, the Escrow
Agent shall send a copy of such notice to the Seller (the "Seller's Notice").
If the Escrow Agent does not receive any written notice from the Seller within
fifteen (15) days after having sent the Seller's Notice which challenges the
validity of the Company's Notice, or which alleges Defaults by the Company
under the Company Note or with respect to the Non-Compete Fee subsequent to the
sending of the Company Notice, the Escrow Agent shall release from escrow and
deliver to the Company the stock certificate representing the Shares, together
with a stock power endorsed in blank.
(e) Upon receipt by the Escrow Agent of written notice from the
Seller that the entire unpaid balance of the Company Note or the Non-Compete
Fee has been declared due and payable following a Default by the Company, the
Escrow Agent shall send a copy of such notice (the "Default Notice") to the
Company and, unless within fifteen (15) days after
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<PAGE> 4
having sent such Default Notice to the Company, the Escrow Agent receives
written notice from the Company which challenges the validity of the statements
made by the Seller in the Default Notice, the Escrow Agent shall deliver to the
Seller the stock certificate representing the Shares, together with a
corresponding stock power endorsed in blank.
(f) Each of the notices which, pursuant to subparagraph (d) to
this Paragraph 6, may be given by the Seller in response to the Company's
Notice, and pursuant to subparagraph (e) to this Paragraph 6, may be given by
the Company in response to a Default Notice, are collectively hereinafter
referred to as "No Validity Notices." If the Escrow Agent receives a No
Validity Notice from either party, it shall promptly notify, in writing, the
other party, and shall withhold delivery of all instruments otherwise to be
delivered by it hereunder until the controversy is settled by written agreement
of both parties or by a final judgment of a court of competent jurisdiction.
(g) The Escrow Agent may, in its sole discretion, at any time
(and whether before or after its receipt of any No Validity Notices) deliver
any or all of the stock certificates representing the Shares into a court of
competent jurisdiction in an action for interpleader for such disposition as
may be directed by such court.
(h) The Escrow Agent shall be charged only with holding and
delivering the stock certificate as provided herein. The Escrow Agent assumes
no responsibility except for the holding and safekeeping of the stock
certificate as provided herein, and the delivery thereof as required hereby,
and shall not be liable for any action taken by it in good faith in accordance
with the terms of this Agreement.
(i) The Escrow Agent shall not be responsible in any manner for
the validity or sufficiency of any instruments, documents or any other property
delivered hereunder, or for any representations made or obligations assumed by
any other party to this Agreement. The Escrow Agent shall have the right to act
in reliance upon any document, instrument or signature believed by it to be
genuine and to assume that any person purporting to give any notice or
instructions in accordance with the provisions hereof shall have been duly
authorized to do so. The Escrow Agent shall not be liable for any action taken
or omitted hereunder except in the case of its gross negligence or willful
misconduct. The Escrow Agent shall be entitled to consult with independent
counsel of its own choosing and shall not be liable for any action taken,
suffered or omitted by it in good faith in accordance with the advice of such
counsel.
(j) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to the other parties hereto at least
twenty days prior to the date specified for such resignation to take effect,
and upon the effective date of such resignation, all property then held by the
Escrow Agent hereunder shall be delivered by it to such person as may be
designated in writing by all of the other parties hereto, whereupon all
obligations of the Escrow Agent hereunder shall cease and terminate. If no such
person shall have been designated by such date, all obligations of the Escrow
Agent shall, nevertheless, cease and terminate. The Escrow Agent's sole
responsibility thereafter shall be to keep safely all property then held by
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<PAGE> 5
it hereunder in accordance with this Agreement and to deliver the same to the
person or persons designated in writing by all of the parties hereto or in
accordance with the directions of a final, nonappealable order or judgment of a
court of competent jurisdiction.
(k) If there is any dispute relating to the property held hereunder, or
its disposition, the Company and the Seller shall be obligated to reimburse the
Escrow Agent jointly and severally for all of its costs and expenses (including
reasonable attorneys' fees and expenses), and the Company and the Seller shall
indemnify the Escrow Agent and hold harmless the Escrow Agent jointly and
severally from and against any claim asserted against it, or any liability,
loss or damage incurred by it, in connection therewith provided that none of
the foregoing was caused by Escrow Agent's negligence or willful misconduct.
Notwithstanding the foregoing, the Seller's obligation to reimburse the Escrow
Agent for its reasonable attorneys' fees and expenses shall be limited to the
lesser of one-half of the aggregate costs thereof, or $10,000.
(l) Notwithstanding any other provision of this Agreement, no notice,
demand, request or other communication to the Escrow Agent in connection
herewith shall be binding on the Escrow Agent unless it is in writing, refers
specifically to this Agreement, is addressed to the Escrow Agent at the address
set forth in Paragraph 11 hereof, to the attention of the person specified in
said paragraph, or to such other address and person as the Escrow Agent may at
any time or from time to time designate, and is actually received by the Escrow
Agent at that address.
(m) The parties acknowledge that the Escrow Agent has served and will
continue to serve as legal counsel to the Company and each party hereto
consents to such continued representation, whether in litigation or otherwise.
7. Subsequent Documentation. Seller shall at any time and from time to
time after the Closing Date, upon the request of the Company and at the expense
of the Seller, do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all further assignments, transfers,
conveyances and other evidence of the same as may be reasonably required for
the better assigning, transferring, granting, conveying and confirming to the
Company or its successors and assigns, or for aiding and assisting in
collecting and reducing to possession, the Shares
8. Representations and Warranties. The Seller represents and warrants to
the Company as follows:
(a) The Seller has full right, power and authority to execute,
deliver and enter into this Agreement and to carry out all the obligations
hereunder. This Agreement has been duly executed by the Seller and is the valid
and legally binding obligation of the Seller, enforceable against the Seller in
accordance with the terms hereof;
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<PAGE> 6
(b) As of the date hereof, the Seller has good and marketable
title to the Shares, free and clear of all liens, mortgages, pledges,
encumbrances, charges, agreements, claims and equities whatsoever, with full
right, power and authority to sell, convey, transfer, assign and deliver the
Shares to the Company at the Closing;
(c) The Shares represent the Seller's entire interest in the
Company. The Seller does not own directly, indirectly or beneficially any other
shares of Common Stock or any options, warrants or other rights to purchase
additional shares of Common Stock;
(d) Upon delivery to the Company of the stock certificates
representing the Shares, together with all necessary transfer tax stamps
affixed thereto, and separate stock powers endorsed in blank, the Company will
acquire good and marketable title to the Shares, free and clear of all
mortgages, liens, pledges, encumbrances, charges, agreements, claims and
equities whatsoever;
(e) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
violate or conflict with any provision of law, or any order, judgment or decree
of any court or other governmental or regulatory authority to which the Seller
is subject, nor any contract or other agreement to which the Seller is a party
or is otherwise subject to;
(f) All transfer taxes which are required to be paid in
connection with the sale, transfer, conveyance, assignment and delivery of the
Shares pursuant to this Agreement shall have been fully paid and all laws
imposing such taxes shall have been fully complied with;
9. Waiver. Notwithstanding anything to the contrary contained in the
stock purchase agreement dated as of November 10, 1982, as amended, by and
among, the Seller, the Company and various other third parties (the "Stock
Purchase Agreement"), by consummation of this Agreement: (a) Seller and the
Company hereby waive any and all restrictions on the transferability of the
Shares contained in the Stock Purchase Agreement and (b) Seller agrees that
payment for the Shares shall be made in accordance with the provisions of
Section 4 hereof and Seller hereby waives his right to receive payment for the
Shares in accordance with the terms of Article Six of the Stock Purchase
Agreement.
10. Conditions Precedent. The obligations of the parties hereto to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Closing Date, of the following conditions:
(a) All Related Transactions shall have been consummated and
closed.
(b) The Seller shall resign, in writing, from all official
positions with the Company in his capacity as an officer or director thereof.
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<PAGE> 7
(c) The Seller shall enter into a consulting and non-competition
agreement with the Company.
(d) The Company shall have received such other certificates,
instruments and documents in confirmation of the representations and warranties
of the Seller or in furtherance of the transactions contemplated by this
Agreement as the Company or its counsel may reasonably request.
11. 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
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 Seller, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: 708/498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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<PAGE> 8
(c) If to the Escrow Agent, to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
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.
12. 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.
13. 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.
14. Waivers and Amendments. The Seller, on the one hand, and the
Company, on the other, may be written notice to the 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.
15. 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
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<PAGE> 9
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.
16. 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.
17. 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.
18. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 11 hereof.
19. 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
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<PAGE> 10
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 hereto have executed and delivered this
Agreement as of the day and year first above written.
GARDEN STATE NUTRITIONALS, INC.
By: /s/ Edward M. Frankel,
----------------------------------
Edward M. Frankel, President
/s/ Earl Weisman
--------------------------------------
EARL WEISMAN
MORRISON COHEN SINGER & WEINSTEIN,
as Escrow Agent hereunder
By: /s/ Stephen A. Cohen
----------------------------------
10
<PAGE> 1
Exhibit 10.24
SUBORDINATED PROMISSORY NOTE
$199,000 May 28, 1992
1. FOR VALUE RECEIVED, the undersigned, GARDEN STATE NUTRITIONALS, INC.
(the "Obligor"), a New Jersey corporation, with its principal office and address
at 100 Lehigh Drive, Fairfield, New Jersey 07006, hereby promises to pay to the
order of EARL WEISMAN (the "Payee"), residing 8934 Kenton Avenue, Skokie,
Illinois 60076, the principal sum of ONE HUNDRED NINETY-NINE THOUSAND DOLLARS
($199,000) together with interest at a fluctuating rate per annum on an amount
equal to the outstanding unpaid principal amount of this Subordinated Promissory
Note (the "Note") equal to the prime or equivalent rate of interest from time to
time announced or published by Chemical Bank, N.A., or if the foregoing ceases
to exist or ceases to announce or publish a prime or equivalent rate of
interest, such other New York money center bank as the Obligor and Payee may
agree.
2. Principal shall be payable in three annual installments as follows:
(a) Sixty-Five Thousand Dollars ($65,000) shall be payable on each of
the second and third anniversaries of the date hereof; and
(b) Sixty-Nine Thousand Dollars ($69,000) shall be payable on the
fourth anniversary of the date hereof.
3. Interest hereunder shall be payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the month as
the day hereof (or the last day of the month if there is no corresponding day).
4. Principal shall be prepayable without penalty, in whole or in
installments of Ten Thousand Dollars ($10,000) or multiples thereof, at any time
and from time to time.
5. The Obligor's payment, whether voluntary or involuntary, whether in
cash, property, securities or otherwise and whether by application of offset or
otherwise (each hereinafter a "Payment") of any of its obligations under this
Note or the Stock Redemption Agreement (the "Stock Redemption Agreement") dated
as of the date hereof between the Obligor and the Payee, shall be subject to the
following restrictions:
(a) Anything in this Note or the Stock Redemption Agreement to the
contrary notwithstanding, the obligations of the Obligor in respect of the
principal of and interest (including any premium or penalty) on this Note
and any other amounts due under this Note and the Stock Redemption
Agreement shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the Senior Debt. Senior
Debt, when used with respect to the Obligor, means (i) all indebtedness for
borrowed money, purchase money indebtedness, or capitalized lease
obligations of the Obligor originating from a bank, insurance or other
financial institution, (ii) all guarantees by the Obligor of any type of
indebtedness des-
<PAGE> 2
cribed in clause (i), and (iii) renewals, extensions, refinancing,
deferrals, restructurings, amendments, modifications and waivers of the
indebtedness described in clause (i) and (ii) above. Notwithstanding the
foregoing, "Senior Debt" shall not include any indebtedness which, by its
terms, is specifically made pari passu or subordinate to this Note.
(b) So long as the Senior Debt has not been paid in full, if there
shall occur an event of default or there shall occur any event which with
the passage of time or giving of notice, or both, would constitute an event
of default under the terms of any instrument or agreement relating to
Senior Debt (any of the foregoing being a "Senior Debt Default") then,
unless and until such Senior Debt Default shall have been remedied or
waived, or shall have ceased to exist or the Cut Off Period (as hereafter
defined) shall have expired as provided in paragraph 5(c)(iii) below, the
Obligor will not make any Payment on this Note or any other subordinated
debt instrument (this Note and all other subordinated debt instruments
shall hereinafter collectively be referred to as "Subordinated Debt"), and
the holders of Subordinated Debt, upon notice of an event of default as
described in this Paragraph 5(b), will not receive or accept any direct or
indirect Payment in respect thereof, and the Obligor may not redeem or
otherwise acquire this Note or any other Subordinated Debt instrument.
(c) If there shall exist any Senior Debt Default, and notice shall
have been given to the holder of this Note or any other Subordinated Debt
Instruments, then the holder of this Note or any other Subordinated Debt
instrument shall not take or continue any action or exercise or continue to
exercise any rights, remedies or powers under the terms of this Note, or
exercise or continue to exercise any other right or remedy at law or equity
that such holder might otherwise possess, to collect any amount due and
payable in respect of the Subordinated Debt, including, without limitation,
the acceleration of this Note, the commencement of any foreclosure on any
lien or security interest, the filing (or joining the filing) or any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction, unless and until the Senior Debt shall have been fully
and finally paid and satisfied, or unless and until
(i) Senior Debt in an amount greater than $5,000,000 shall have
been accelerated, in which case the holder of this Note and of any other
Subordinated Debt instrument shall be entitled to accelerate the
maturity thereof, if the holder of this Note or any other Subordinated
Debt instrument concurrently gives notice of such acceleration to the
holders of the Senior Debt, but shall not be entitled to take any other
action described above unless otherwise permitted to do so by paragraphs
5(c)(ii) or (iii) below and, provided further, that the holder of this
Note and any other Subordinated Debt instrument will reverse any
acceleration if the holders of Senior Debt take similar action, or
(ii) one or more of the holders of the Senior Debt or the Obligor
shall have commenced, a Proceeding (as defined in paragraph 5(d) below),
or
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<PAGE> 3
(iii) a period of time shall have expired which began upon the
occurrence of such Senior Debt Default and shall have ended 180 days
after the holder of Senior Debt learns of the Senior Debt Default,
unless such default is earlier cured or waived or such period is
extended as hereinafter provided (the original cut-off period, plus any
extension, being hereinafter referred to as the "Cut-Off Period"). If
any holder of Senior Debt accelerates the time for payment of Senior
Debt held by such holder prior to the end of the original Cut-Off
Period, the Cut-Off Period shall be deemed extended indefinitely until
such time as the acceleration has been rescinded by the Senior Debt
holder or the accelerated Senior Debt has been fully paid and satisfied.
(d) (i) Except as hereinafter provided and subject to the restrictions
set forth in paragraph 5(c) above, the holder of this Note may without the
request or consent of any holder of Senior Debt, file any claim, proof of
claim, or other instrument of similar character reasonably necessary to
enforce the obligations in respect of this Note ("Claim") in any
insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other proceeding for the relief of debtors
relating to the Obligor or its properties, or any proceeding for the
liquidation, dissolution or other winding up of the Obligor, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings
(each such action brought by any Person being herein defined as a
"Proceeding") and will, pursuant to the provisions of paragraph 5(g) below,
hold in trust for the holders of Senior Debt and promptly assign, transfer
and pay over to the holders of Senior Debt, in the form received, any and
all monies, dividends or other assets received in any such Proceeding on
account of this Note;
(ii) In the event (A) of any Proceeding, (B) of any assignment by the
Obligor for the benefit of creditors, (C) of any marshalling of all or a
substantial part of the assets of the Obligor, (D) the Obligor makes an
assignment for the benefit of creditors or admits in writing its inability
to pay its debts generally as they become due, (E) an order, judgment or
decree is entered adjudicating the Obligor as bankrupt or insolvent, (F)
any order for relief with respect to the Obligor is entered under the
Federal Bankruptcy Code, (G) the Obligor petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Obligor or of any substantial part of the assets of the
Obligor, or commences any proceeding relating to the Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, (H) any petition or
application described in (G) above is filed, or any such proceeding is
commenced, against the Obligor and either (I) the Obligor by any act
indicates its approval thereof, consents thereto or acquiescence therein or
(II) such petition application or proceeding is not dismissed within 60
days (each such event is hereinafter collectively referred to as an
"Insolvency Event"), then:
(aa) the holders of Senior Debt shall be entitled to receive
Payment in full in cash of all Senior Debt (including interest thereon
accrued after the date of commencement of such proceedings) before the
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<PAGE> 4
holder of this Note shall be entitled to receive any Payment or
distribution of assets of the Obligor, of any kind or character, whether
in cash, property or securities or by set-off or otherwise, on account
of any Subordinated Debt;
(bb) any Payment or distribution of assets of the Obligor, of any
kind or character, whether in cash, property or securities, to which the
holders of Subordinated Debt would be entitled except for the provisions
of this paragraph 5(d) shall be paid or delivered by the Obligor
directly to the holders of Senior Debt in payment thereof until all
Senior Debt (including interest thereon accrued after the date of
commencement of such proceedings) shall have been paid in cash in full;
and
(cc) the holder of this Note, to the extent permitted by applicable
law, grants to the Senior Debt holders, or their agents, an irrevocable
power of attorney to file and thereafter prosecute any Claim which the
holders of Subordinated Debt may have in any Insolvency Event proceeding
with respect to such Subordinated Debt; provided, however, no holder of
Senior Debt shall be liable for any action or omission to act pursuant
to the Power of Attorney herein granted absent the gross negligence or
willful misconduct of such holder;
provided further, however, that: (x) in the event that Payment or delivery
of such assets, whether in cash, property or securities, to the holder of
Subordinated Debt, is authorized by an order or decree giving effect, and
stating specifically in such order or decree that effect is given to the
subordination of such Subordinated Debt to the Senior Debt hereunder, and
made by a court of competent jurisdiction in a reorganization proceeding to
a duly adopted plan or reorganization, no payment or delivery of such asset
payable or deliverable with respect to the Subordinated Debt shall be made
to the holders of Senior Debt; and (y) no such delivery shall be made to
holders of Senior Debt of securities which are issued pursuant to
reorganization proceedings or dissolution or liquidation proceedings (other
than as provided in Clause (x) above), or upon any merger, consolidation,
sale, lease, transfer or other disposal not prohibited by the provisions of
this Note, by the Obligor, as reorganized, or by the corporation succeeding
to the Obligor or acquiring its property and assets, (AA) if such
securities are subordinate and junior at least to the extent provided in
this paragraph 5 to the payment in full in cash of all Senior Debt then
outstanding and to the payment in full in cash of any securities which are
issued in exchange or substitution for any Senior Debt then outstanding,
and (BB) if no payment in respect of such securities is due by their terms
prior to payment in full in cash of the Senior Debt.
(e) Any holder of Senior Debt may, at any time and from time to time,
without the consent of, or notice to, the holder of this Note and without
incurring responsibility to the holder of this Note, and without impairing
or releasing the obligations of such holder:
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<PAGE> 5
(i) Change the manner, place or terms of payment or change or
extend the time of payment of or renew or alter the Senior Debt or any
portion thereof;
(ii) Sell, exchange, release or otherwise deal with any collateral
securing the Senior Debt or any other property by whomsoever at any time
pledged or mortgaged to secure, or however securing, the Senior Debt or
any portion thereof; and
(iii) Apply all sums by whomsoever paid or however released to the
Senior Debt or any portion thereof.
(f) By acceptance of this Note, the holder hereby consents to the
making of Senior Debt and hereby acknowledges that each current and future
holder of Senior Debt has relied, and in the future will rely, upon the
terms of this Note. The holders of Senior Debt shall have no liability to
the holder of this Note and the holder of this Note hereby waives any claim
which it may have now or hereafter against any holder of Senior Debt
arising from any and all actions which any holder of Senior Debt may take
or omit to take in good faith with regard to the Senior Debt or its rights
or obligations hereunder.
(g) Until the Senior Debt has been repaid in full, in the event the
holder of this Note shall receive any Payment in contravention of the
provisions of this paragraph 5, including Payments arising under the
subordination provisions of any other indebtedness of the Obligor, the
holder of this Note shall hold all such Payments so received in trust for
the holders of Senior Debt and shall forthwith turn over all such Payments
to the holders of Senior Debt in the form received (except for the
endorsement or assignment of the holder as necessary, without recourse or
warranty) to be applied to payment of the Senior Debt whether or not then
due and payable. Any Payment so received in trust and turned over to the
holders of Senior Debt shall not be deemed a Payment in satisfaction of
this Note.
(h) If any payment or distribution to which the holder of this Note
would otherwise have been entitled but for the provisions of this paragraph
5 shall have been applied, pursuant to the provisions of this paragraph 5,
to the payment of Senior Debt, then and in such case, the holder of this
Note (i) shall be entitled to receive from the holders of Senior Debt at
the time outstanding any payments or distributions received by such holders
of Senior Debt in excess of the amount sufficient to pay all Senior Debt in
cash in full (whether or not then due), and (ii) following payment of the
Senior Debt in full, shall be subrogated to any right of the holders of
Senior Debt to receive any and all further payments or distributions
applicable to Senior Debt, until all the Subordinated Debt shall have been
paid in full. If the holder of this Note has been subrogated to the rights
of the holders of Senior Debt due to the operation of this paragraph 5(h),
the Obligor agrees to take all such reasonable actions as are requested by
such holder of this Note in order to cause such holder to be able to obtain
payments from the Obligor with respect to such subrogation rights as soon
as possible.
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<PAGE> 6
(i) Except as expressly provided herein, nothing contained in this
paragraph 5 shall impair, as between the Obligor and the holder of this
Note, the obligation of the Obligor, which is absolute and unconditional,
to pay to the holder the amount of the Subordinated Debt due hereunder as
and when the same shall become due and payable in accordance with the terms
hereof.
(j) The holder of this Note, by its acceptance thereof, agrees that
each holder of Senior Debt has advanced funds or may in the future advance
funds in reliance upon the terms and conditions hereof.
(k) No right of any holder of Senior Debt to enforce its right of
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Obligor, or by
any act or failure to act by any such holder, or by any non-compliance by
the Obligor with the terms, provisions and covenants of the Subordinated
Debt, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(l) Any Payments received by a holder of Senior Debt from the Obligor
or the holder of this Note which, in connection with an Insolvency Event or
Proceeding, is required to be remitted to the payor or the bankrupt estate
shall not be deemed a Payment to such holder of Senior Debt for all
purposes hereunder.
6. In the event of (i) a sale of 80% or more of the then issued and
outstanding shares of capital stock of the Obligor or (ii) a sale of all or
substantially all of the assets of the Obligor (in each case, a "Triggering
Event"), the principal sum then remaining unpaid hereunder shall become due and
payable in full upon the payment of the aggregate purchase price with respect to
either such transaction; and if the aggregate purchase price is payable in
installments, principal shall become due and payable on the same date on which
each such purchase price installment payment is made, in each case, in amount
equal to the principal sum remaining unpaid as of the date of the Triggering
Event, multiplied by a fraction, the numerator of which is equal to the amount
of the purchase price installment payment and the denominator of which is equal
to the aggregate purchase price. Nothing in this paragraph 6 shall be deemed to
extend the due dates nor decrease the amounts of the installments set forth in
paragraph 2 hereof, except that the aggregate principal payments pursuant to
paragraph 2 and 6 hereof shall not exceed the principal amount of this Note.
7. All sums payable hereunder shall be payable in lawful money of the
United States of America at 8934 Kenton Avenue, Skokie, Illinois 60076, or, upon
receipt of notification by the Obligor, at such other place designated in
writing by the holder hereof. If the date on which any payment is required to be
made hereunder is not a Business Day (as defined hereinafter), then such date
for payment shall be extended to the next succeeding Business Day. "Business
Day" means any day other than a day on which banks in New York City are
authorized or required by law or executive order to be closed.
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<PAGE> 7
8. Subject to the provisions of paragraph 5, if any amount of principal or
interest is not paid when due and such default is not cured within fifteen (15)
days after written notice thereof from the holder of this Note to the Obligor,
this Note, if not yet then due, shall at the option of the holder hereof become
due and payable in full immediately without demand or notice to the Obligor; and
if the Note is then due or, at the option of the holder hereof becomes due and
payable in full, thereafter any principal remaining unpaid shall bear interest
until said principal amount is paid in full, at a rate of eighteen percent (18%)
per annum, or, if such rate is not lawful with respect to Obligor, then at the
highest rate allowed by law.
9. The Obligor agrees to pay reasonable attorneys' fees to the holder
hereof if an attorney is retained to enforce or collect this Note by reason of
non-payment of any amounts of principal or interest under this Note when such
amounts are due (whether at stated maturity, by acceleration or otherwise).
10. This Note is referred to in Paragraph 4(b) of the Stock Redemption
Agreement. Subject to the provisions of paragraph 5, it shall be entitled to the
benefit of all of the terms and conditions and the security of all security
interests, liens and rights granted by the Obligor to the Payee under and
pursuant to the Stock Redemption Agreement.
11. This Note shall be construed and enforced in accordance with the laws
of the State of New York. Both the Obligor and Payee, 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 Note, and consent and
subject themselves to the jurisdiction of, the courts of the state of Illinois,
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Note. All other matters arising under this Agreement, including those
involving equitable remedies sought by either the Obligor or Payee, shall be
brought exclusively in the courts of the state of New York located in New York
City, and/or the United States District Court for the Southern District of New
York, and the Obligor and Payee, acting for themselves and for their
beneficiaries, heirs, successors and assigns in that without regard to domicile,
citizenship or residence, hereby expressly and irrevocably elect such forum as
the sole judicial forum for the adjudication of all such matters, and consent
and subject themselves to the jurisdiction of such courts. Service of process,
notices and demands of such courts may be made upon any such party by personal
service at any place where it may be found.
12. The Obligor hereof hereby waives presentment, demand for payment,
notice of dishonor, protest and notice of protest, and any or all other notices
or demands in connection with this Note. The liability of the Obligor hereunder
shall be unconditional and shall not be in any manner affected by any indulgence
whatsoever granted or consented to by the holder hereof, including but not
limited to any extension of time, renewal, waiver or other modification. No
failure by the Payee or holder hereof to file, record or otherwise perfect any
lien or security interest given or to be given with respect to this Note, nor
any improper filing
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<PAGE> 8
or recording, nor any failure by the Payee or holder hereof to insure or protect
any security given or to be given with respect to this Note nor any other
dealing (or failure to deal) with, or any modification or waiver of any rights
with respect to, any such security by such Payee or holder shall impair or
release the obligations of the Obligor hereunder. Any failure of the Payee or
holder hereof to exercise any right hereunder shall not be construed as a waiver
of the right to exercise the same or any other right at any time and from time
to time thereafter.
13. Assignment of this Note shall not be valid nor shall it confer any
rights to the assignee against the Obligor unless and until written notice of
the assignment is received by the Obligor.
GARDEN STATE NUTRITIONALS, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
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<PAGE> 1
10.25
CONSULTING AND NON-COMPETITION AGREEMENT
CONSULTING AND NON-COMPETITION AGREEMENT (the "Agreement") made as of this
28th day of May, 1992 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 EARL WEISMAN
("Weisman"), residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H :
WHEREAS, Weisman has been a shareholder, director and executive officer of
the Company for more than five (5) years and has intimate knowledge of the
Company's business and customers, as well as the markets in which it operates;
WHEREAS, pursuant to that certain Stock Redemption Agreement (the "Stock
Redemption Agreement"), dated as of the date hereof, by and between Weisman and
the Company, Weisman has agreed to sell, transfer, convey, assign and deliver,
and the Company has agreed to purchase and accept, all of Weisman's shares of
capital stock in the Company provided that Weisman agrees not to thereafter
compete with the Company on the terms and conditions hereinafter provided;
WHEREAS, the Company desires to engage Weisman as a consultant, and Weisman
desires to be so engaged by the Company, upon the terms and conditions
hereinafter provided; and
WHEREAS, it is contemplated that contemporaneously with the redemption of
Weisman's shares of capital stock in the Company, as provided for in the Stock
Redemption Agreement, the following related transactions will also occur: (i)
Windmill Marketing Services, Inc. ("Windmill Marketing"), an affiliate of the
Company, will purchase and redeem all of Weisman's shares of capital stock of
Windmill Marketing, (ii) Windmill Marketing will purchase the business and all
or substantially all of the assets of Windmill Natural Vitamin Company, Inc., an
Illinois corporation, a majority of whose shares of capital stock are owned by
Weisman, (iii) Edward M. Frankel ("Frankel"), the majority shareholder of both
the Company and Windmill Marketing, shall purchase Weisman's entire equity
interest in Vitareal Associates, L.P., and (iv) Weisman shall purchase all of
Frankel's shares of capital stock of E. Burnham, Inc. (the transactions
described in clauses (i) through (iv) above shall hereinafter collectively be
referred to as the "Related Transactions").
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:
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<PAGE> 2
1. Consulting Duties. Weisman shall advise and consult with senior
executives, and managerial and supervisory personnel of the Company with respect
to the marketing of the Company. All consulting duties shall be performed upon
written notice provided by the Company, which notice shall be delivered a
reasonable time period before such duties are to be performed, such duties to be
performed either via telephone, in Chicago or at such other location as may be
agreed to by Weisman.
2. Time To Be Devoted To The Company; Term of Agreement.
(a) Weisman shall be available at such times as may reasonably be
requested by the Company and agreed to by Weisman. However, both the
Company and Weisman recognize that during the term of this Agreement,
Weisman may be engaged or employed by other persons as a consultant or in
any other capacity, and therefore will have other demands on his
professional time.
(b) The term of this Agreement shall be eight (8) years, commencing on
the date hereof.
3. Compensation; Non-Compete Fee; Certain Covenants.
(a) Weisman shall receive an aggregate fee in consideration of his
consulting services rendered hereunder equal to Eight Hundred Ninety
Thousand Dollars ($890,000), of which Two Hundred Forty Thousand Dollars
($240,000) shall be payable on the date hereof for consulting services
rendered during the immediately preceding year to the date hereof; Two
Hundred Thousand Dollars ($200,000) shall be payable on the first
anniversary of the date hereof for consulting services rendered during the
immediately preceding year to such anniversary; and One Hundred Fifty
Thousand Dollars ($150,000) shall be payable on each of the second through
fourth anniversaries of the date hereof for consulting services rendered
during the immediately preceding year to each such anniversary.
(b) Weisman shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of his covenant not-to-compete, the terms and conditions of
which are set forth in paragraph 5 hereto, equal to Six Hundred Thousand
Dollars ($600,000), payable in equal installments of One Hundred Fifty
Thousand Dollars ($150,000) on the fifth through eighth anniversaries of
the date hereof, together with interest thereon payable quarterly in
arrears, commencing with the third month following the month hereof, on the
same day of the month as the day hereof (or the last day of the month if
there is no corresponding day), at a fluctuating rate per annum equal to
the prime or equivalent rate of interest from time to time announced or
published by Chemical Bank, N.A., or if the foregoing ceases to exist or
ceases to announce or publish a prime or equivalent rate of interest, such
other New York money center bank as the Company and Weisman may agree.
(c) If any amount of the consulting fees which are to be paid to
Weisman pursuant to Paragraph 3(a) hereto are not paid when due and such
default is not cured within
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<PAGE> 3
fifteen (15) days after written notice thereof from Weisman to the Company,
all amounts which are to be paid pursuant to Paragraph 3(b) hereto, if not
yet due, shall at the option of Weisman become due and payable in full
immediately without demand or notice to the Company; and if such amount is
then due or, at the option of Weisman becomes due and payable in full,
thereafter any principal remaining unpaid shall bear interest until such
amount is paid in full, at a rate or eighteen percent (18%) per annum, or,
if such rate is not lawful with respect to the Company, then at the highest
rate allowed by law.
(d) Weisman 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.
(e) Upon prior written request from Weisman with respect to each
fiscal year, the Company hereby agrees to furnish to Weisman, with 120 days
after the close of such fiscal year, the unaudited financial statements
regularly prepared by the Company's accountants.
4. Confidentiality. All memoranda, notes, records or other documents made
or compiled by Weisman 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.
Weisman 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. For purposes of this
paragraph 4, the term "proprietary or confidential information" shall mean all
information which is known only to Weisman or to Weisman 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, marketing strategies, strategic partners
or potential strategic partners, pricing and credit techniques, research and
development activities, books and records and private processes, as they may
exist from time to time, which Weisman 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 Weisman, or is not in the public domain. In the event of
a breach or a threatened breach by Weisman of the provisions of this paragraph
4, the Company shall be entitled to an injunction restraining Weisman 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 Weisman.
5. Restrictive Covenants.
(a) Weisman hereby acknowledges and recognizes the highly competitive
nature of the Company's business and, accordingly, agrees that in
consideration of the premises
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<PAGE> 4
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 five 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; of (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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
(c) In the event of a breach or threatened breach by Weisman of the
provisions of this paragraph 5, 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 3 hereof and paragraph 3 of the Stock Redemption Agreement 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.
(d) Anything herein to the contrary notwithstanding, Weisman shall no
longer be bound by any of the restrictions contained herein in the event
that (i) the Company defaults in payment of any of its obligations pursuant
to the terms hereof or the terms of the Stock Redemption Agreement (or the
promissory note executed in connection therewith), and (ii) the default
described in paragraph 5(d)(i) is not cured within 30 days after the
Company has received written notice of such default from Weisman.
6. Death or Disability. As an inducement for Weisman to enter into this
Agreement, the Company agrees that all amounts payable to Weisman hereunder
shall be paid to Weisman, or to Weisman's estate in the event of his death,
notwithstanding his disability or death, and neither Weisman nor the estate of
Weisman shall be required to repay any amount paid to Weisman prior to Weisman's
death or disability.
7. Scope of Agreement. Weisman understands and agrees that he is not
authorized to enter into any binding agreement, accept any orders for products
or otherwise bind the Company to any obligation of any nature whatsoever.
Weisman is an independent contractor hereunder, not an employee of the Company,
and shall have no rights of an employee hereunder.
8. 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
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<PAGE> 5
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
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 Weisman, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
9. 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.
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<PAGE> 6
10. 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.
11. 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 arrangements
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.
12. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
paragraph 8 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. 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
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<PAGE> 7
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 Weisman hereby
consents and agrees that such scope may be judicially modified accordingly in
any such jurisdiction in any proceeding brought to enforce such restriction.
15. 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
By: /s/ EARL WEISMAN
------------------------------------
Earl Weisman
7
<PAGE> 1
Exhibit 10.26
STOCK REDEMPTION AGREEMENT
STOCK REDEMPTION AGREEMENT (the "Agreement"), dated this 28th day of May,
1992, by and among WINDMILL MARKETING SERVICES, INC. (the "Company"), a New
Jersey corporation, having its principal office and place of business at 100
Lehigh Drive, Fairfield, New Jersey 07006 (the "Company"), EARL WEISMAN
("Weisman" or the "Seller"), residing at 8934 Kenton Avenue, Skokie, IL 60076
and, solely for the purpose of Paragraph 6 hereto, MORRISON COHEN SINGER &
WEINSTEIN (the "Escrow Agent"), as escrow agent hereunder.
W I T N E S S E T H :
WHEREAS, the authorized capital stock of the Company consists of 1,000
shares of common stock, no par value (the "Common Stock"), of which there are
500 shares of Class A Common Stock (the "Class A Common Stock") and 500 shares
of Class B Common Stock (the "Class B Common Stock"), and as of the date hereof,
90 shares of Class A Common Stock and 5 shares of Class B Common Stock are
issued and outstanding;
WHEREAS, Weisman currently owns an aggregate of 30 shares of Class A Common
Stock; and
WHEREAS, Weisman desires to sell to the Company and the Company desires to
purchase and redeem from Weisman all of the shares of Class A Common Stock owned
by Weisman (the "Shares") on the terms and conditions set forth herein;
WHEREAS, it is contemplated that contemporaneously with the redemption of
the Shares hereunder, the following related transactions will also occur: (i)
Garden State Nutritionals, Inc. ("Garden State"), an affiliate of the Company,
will purchase and redeem all of Weisman's shares of capital stock of Garden
State, (ii) the Company will purchase the business and all or substantially all
of the assets of Windmill Natural Vitamin Company, Inc., an Illinois
corporation, a majority of whose shares of capital stock are owned by Weisman,
(iii) Edward M. Frankel ("Frankel"), the majority shareholder of both the
Company and Garden State, shall purchase Weisman's entire equity interest in
Vitareal Associates, L.P., and (iv) Weisman shall purchase all of Frankel's
shares of capital stock of E. Burnham, Inc. (the transactions described in
clauses (i) through (iv) above shall hereinafter collectively be referred to as
the "Related Transactions").
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Redemption of the Shares. Subject to the terms and conditions herein
set forth, the Seller shall sell, transfer, assign, convey and deliver to the
Company, and the Company shall purchase, redeem and accept from the Seller, on
the Closing Date (as defined hereinafter), all of the Seller's right, title and
interest in the Shares. The sale, transfer, assignment, conveyance and delivery
by the Seller of the Shares to the Company, as herein
<PAGE> 2
provided, shall be effected on the Closing Date by delivery of the certificates
representing the Shares, stock powers endorsed in blank, a bill of sale and such
other instruments of sale, transfer, assignment and conveyance reasonably
satisfactory in form and substance to counsel for the company. The Seller shall
bear all state and local sales, transfer, excise, value-added or other similar
taxes, in each case that may be imposed by reason of the sale, transfer,
assignment, conveyance and delivery of the Shares.
2. Closing. The closing of the transaction contemplated herein (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032 at 10:00 A.M., Central Daylight
Time, on Thursday, May 28, 1992 or at such other time and place as may be
mutually agreed upon in writing by the Seller and the Company (the "Closing
Date").
3. The Purchase Price. Upon and subject to the terms and conditions herein
set forth and in consideration of the sale, transfer, assignment, conveyance and
delivery of the Shares to the Company, the Company agrees to pay to the Seller
an aggregate purchase price of One Hundred Fifty Thousand Dollars ($150,000)
(the "Purchase Price").
4. Form of Purchase Price. The Purchase Price shall be payable as follows:
(a) Ten Thousand Dollars shall be payable on the Closing Date, by
certified, banker's or cashier's check, to the Seller;
(b) Fifty Thousand Dollars shall be payable on each of the second and
third anniversaries of the Closing Date (the "First Principal Installment
Payment" and "Second Principal Installment Payment," respectively), and
Forty Thousand Dollars shall be payable on the fourth such anniversary (the
"Third Principal Installment Payment"), in each case, together with
interest thereon, payable quarterly in arrears, commencing with the third
month following the month hereof, on the same day of the month as the day
hereof (or the last day of the month if there is no corresponding day), at
a fluctuating rate per annum, equal to the prime or equivalent rate of
interest from time to time announced or published by Chemical Bank, N.A.,
or if the foregoing ceases to exist or ceases to announce or publish a
prime rate of interest, such other New York money center as the Company and
the Seller may agree. All amounts payable pursuant to this Paragraph 4(b)
shall be evidenced by a promissory note substantially in the form attached
hereto as Exhibit A (the "Company Note").
5. Delivery. At the Closing, the Seller shall deliver to the Company the
stock certificates evidencing the Shares, with all necessary transfer stamps
affixed thereto, together with separate stock powers endorsed in blank, and such
evidence of title to the Shares and of compliance with the terms and conditions
of this Agreement as may be reasonably required by counsel for the Company in
order that good and marketable title to the Shares shall pass from the Seller to
the Company.
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<PAGE> 3
6. Collateral; Escrow.
(a) Immediately subsequent to the delivery, by the Seller to the
Company, of the stock certificates evidencing the Shares, as required by
Paragraph 5 hereto, the Company, in order to secure to the Seller the
prompt, full and faithful payment of its obligations under (i) Paragraph
4(b) hereto, as evidenced by the Company Note, and (ii) Paragraph 3(b) to
the Consulting and Non-Competition Agreement (the "Consulting and
Non-Competition Agreement") of even date herewith between the Company and
the Seller (the "Non-Compete Fee"), shall grant to the Seller a security
interest in the Shares. In connection therewith, and as evidence thereof,
the Company shall cause such stock certificates to be cancelled and a new
stock certificate evidencing the Shares to be issued in the name of the
Company, which new stock certificate, together with stock powers endorsed
in blank, shall be delivered to the Escrow Agent, to be held and delivered
by the Escrow Agent as hereinafter provided.
(b) All incidents of ownership of the Shares shall be vested solely in
the Company for so long as there are no Defaults (as defined below) by the
Company under the Company Note or the Consulting and Non-Competition
Agreement.
(c) If the Company defaults with respect to any of its obligations
under the Company Note or with respect to the Non-Compete Fee and fails to
cure such default within the grace periods provided for therein (each such
default hereinafter to be referred to as a "Default"), the holder of the
Company Note or the Seller, as the case may be, upon fifteen (15) days
prior written notice to the Company, shall have the right to sell the
Shares evidenced by the stock certificate held by the Escrow Agent in
accordance with Section 9-504 of the Illinois Uniform Commercial Code. Such
right shall be in addition to all other rights and remedies available under
law to the holder of the Company Note and the Seller.
(d) Upon receipt by the Escrow Agent of the written notice from the
Company (the "Company Notice") that (i) the First, Second and Third
Principal Installment Payment(s) has (have) been made on a timely basis in
accordance with the terms of the Company Note, (ii) the Non-Compete Fee has
been paid in full, and (iii) all interest due and payable with respect to
the obligations described in (i) and (ii) immediately above has likewise
been paid, the Escrow Agent shall send a copy of such notice to the Seller
(the "Seller's Notice"). If the Escrow Agent does not receive any written
notice from the Seller within fifteen (15) days after having sent the
Seller's Notice which challenges the validity of the Company's Notice, or
which alleges Defaults by the Company under the Company Note or with
respect to the Non-Compete Fee subsequent to the sending of the Company
Notice, the Escrow Agent shall release from escrow and deliver to the
Company the stock certificate representing the Shares together with a stock
power endorsed in blank.
(e) Upon receipt by the Escrow Agent of written notice from the Seller
that the entire unpaid balance of the Company Note has been declared due
and payable following a Default by the Company, the Escrow Agent shall send
a copy of such notice (the "Default Notice") to the Company and, unless
within fifteen (15) days after having sent such Default
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<PAGE> 4
Notice to the Company, the Escrow Agent receives written notice from the
Company which challenges the validity of the statements made by the Seller
in the Default Notice, the Escrow Agent shall deliver to the Seller the
stock certificate representing the Shares together with a corresponding
stock power endorsed in blank.
(f) Each of the notices which, pursuant to subparagraph (d) to this
Paragraph 6, may be given by the Seller in response to the Company's
Notice, and pursuant to subparagraph (e) to this Paragraph 6, may be given
by the Company in response to a Default Notice, are collectively
hereinafter referred to as "No Validity Notices." If the Escrow Agent
receives a No Validity Notice from either party, it shall promptly notify,
in writing, the other party, and shall withhold delivery of all instruments
otherwise to be delivered by it hereunder until the controversy is settled
by written agreement of both parties or by a final judgment of a court of
competent jurisdiction.
(g) The Escrow Agent may, in its sole discretion, at any time (and
whether before or after its receipt of any No Validity Notices) deliver any
or all of the stock certificates representing the Shares into a court of
competent jurisdiction in an action for interpleader for such disposition
as may be directed by such court.
(h) The Escrow Agent shall be charged only with holding and delivering
the stock certificates as provided herein. The Escrow Agent assumes no
responsibility except for the holding and safekeeping of the stock
certificates as provided herein, and the delivery thereof as required
hereby, and shall not be liable for any action taken by it in good faith in
accordance with the terms of this Agreement.
(i) The Escrow Agent shall not be responsible in any manner for the
validity or sufficiency of any instruments, documents or any other property
delivered hereunder, or for any representations made or obligations assumed
by any other party to this Agreement. The Escrow Agent shall have the right
to act in reliance upon any documents, instrument or signature believed by
it to be genuine and to assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof shall have
been duly authorized to do so. The Escrow Agent shall not be liable for any
action taken or omitted hereunder except in the case of its gross
negligence or willful misconduct. The Escrow Agent shall be entitled to
consult with independent counsel of its own choosing and shall not be
liable for any action taken, suffered or omitted by it in good faith in
accordance with the advice of such counsel.
(j) The Escrow Agent may at any time resign hereunder by giving
written notice of its resignation to the other parties hereto at least
twenty days prior to the date specified for such resignation to take
effect, and upon the effective date of such resignation, all property then
held by the Escrow Agent hereunder shall be delivered by it to such person
as may be designated in writing by all of the other parties hereto,
whereupon all obligations of the Escrow Agent hereunder shall cease and
terminate. If no such person shall have been designated by such date, all
obligations of the Escrow Agent shall, nevertheless, cease and terminate.
The Escrow Agent's sole responsibility thereafter shall be to keep safely
all property then held by
4
<PAGE> 5
it hereunder in accordance with this Agreement and to deliver the same to
the person or persons designated in writing by all of the parties hereto or
in accordance with the directions of a final, nonappealable order or
judgement of a court of competent jurisdiction.
(k) If there is any dispute relating to the property held hereunder,
or its disposition, the Company and the Seller shall be obligated to
reimburse the Escrow Agent jointly and severally for all of its costs and
expenses (including reasonable attorneys' fees and expenses), and the
Company and the Seller shall indemnify the Escrow Agent and hold harmless
the Escrow Agent jointly and severally from and against any claim asserted
against it, or any liability, loss or damage incurred by it, in connection
therewith provided that none of the foregoing was caused by Escrow Agent's
negligence or willful misconduct. Notwithstanding the foregoing, the
Seller's obligation to reimburse the Escrow Agent for its reasonable
attorneys' fees and expenses shall be limited to the lesser of one-half of
the aggregate costs thereof, or $10,000.
(l) Notwithstanding any other provision of this Agreement, no notice,
demand, request or other communication to the Escrow Agent in connection
herewith shall be binding on the Escrow Agent unless it is in writing,
refers specifically to this Agreement, is addressed to the Escrow Agent at
the address set forth in Paragraph 11 hereof, to the attention of the
person specified in said paragraph, or to such other address and person as
the Escrow Agent may at any time or from time to time designate, and is
actually received by the Escrow Agent at that address.
(m) The parties acknowledge that the Escrow Agent has served and will
continue to serve as legal counsel to the Company and each party hereto
consents to such continued representation, whether in litigation or
otherwise.
7. Subsequent Documentation. Seller shall at any time and from time to
time after the Closing Date, upon the request of the Company and at the expense
of the Seller, do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, all further assignments, transfers,
conveyances and other evidence of the same as may be reasonably required for the
better assigning, transferring, granting, conveying and confirming to the
Company or its successors and assigns, or for aiding and assisting in collecting
and reducing to possession, the Shares.
8. Representations and Warranties. The Seller represents and warrants to
the Company as follows:
(a) The Seller has full right, power and authority to execute, deliver
and enter into this Agreement and to carry out all the obligations
hereunder. This Agreement has been duly executed by the Seller and is the
valid and legally binding obligation of the Seller enforceable against the
Seller in accordance with the terms hereof;
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<PAGE> 6
(b) As of the date hereof, the Seller has good and marketable title to
the Shares, free and clear of all liens, mortgages, pledges, encumbrances,
charges, agreements, claims and equities whatsoever, and full right, power
and authority to sell, convey, transfer, assign and deliver the Shares to
the Company at the Closing;
(c) The Shares represent the Seller's entire interest in the Company.
The Seller does not own directly, indirectly or beneficially any other
shares of Common Stock or any options, warrants or other rights to purchase
additional shares of Common Stock;
(d) Upon delivery of the Company of the stock certificates
representing the Shares, together with all necessary transfer tax stamps
affixed thereto, and separate stock powers endorsed in blank, the Company
will acquire good and marketable title to the Shares, free and clear of all
mortgages, liens, pledges, encumbrances, charges, agreements, claims and
equities whatsoever;
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
violate or conflict with any provision of law, or any order, judgment or
decree of any court or other governmental or regulatory authority to which
the Seller is subject, nor any contract or other agreement to which the
Seller is a party or is otherwise subject to;
(f) All transfer taxes which are required to be paid in connection
with the sale, transfer, conveyance, assignment and delivery of the Shares
pursuant to this Agreement shall have been fully paid and all laws imposing
such taxes shall have been fully complied with;
9. Waiver. Notwithstanding anything to the contrary contained in the
Shareholders Agreement dated as of January 4, 1977, as amended, by and among,
the Seller, the Company and various other third parties (the "Shareholders
Agreement"), by consummation of this Agreement: (a) Seller and the Company
hereby waive any and all restrictions on the transferability of the Shares
contained in the Shareholders Agreement and (b) Seller agrees that payment for
the Shares shall be made in accordance with the provisions of Section 4 hereof
and Seller hereby waives his right to receive payment for the Shares in
accordance with the terms of the Shareholders Agreement.
10. Conditions Precedent. The obligations of the parties hereto to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Closing Date, of the following conditions:
(a) All Related Transactions shall have been consummated and closed.
(b) The Seller shall resign, in writing, from all official positions
with the Company in his capacity as an officer or director thereof.
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<PAGE> 7
(c) The Seller shall enter into a consulting and non-competition
agreement with the Company.
(d) The Company shall have received such other certificates,
instruments and documents in confirmation of the representations and
warranties of the Seller or in furtherance of the transactions contemplated
by this Agreement as the Company or its counsel may reasonably request.
11. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
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
(b) If to the Seller, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: 708/498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
7
<PAGE> 8
(c) If to the Escrow Agent, to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Attention: Stephen A. Cohen, Esq.
Telecopier: (212) 735-8708
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.
12. 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.
13. 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.
14. Waivers and Amendments. The Seller, on the one hand, and the Company,
on the other, may by written notice to the 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.
15. 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
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<PAGE> 9
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.
16. 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.
17. 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.
18. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 11 hereof.
19. 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
9
<PAGE> 10
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 hereto have executed and delivered this
Agreement as of the day and year first above written.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
By: /s/ EARL WEISMAN
------------------------------------
Earl Weisman
By: /s/ STEPHEN A. COHEN
------------------------------------
Stephen A. Cohen
10
<PAGE> 1
Exhibit 10.27
SUBORDINATED PROMISSORY NOTE
$140,000 May 28, 1992
1. FOR VALUE RECEIVED, the undersigned, WINDMILL MARKETING SERVICES, INC.
(the "Obligor"), a New Jersey corporation, with its principal office and address
at 100 Lehigh Drive, Fairfield, New Jersey 07006, hereby promises to pay to the
order of EARL WEISMAN (the "Payee"), residing 8934 Kenton Avenue, Skokie,
Illinois 60067, the principal sum of ONE HUNDRED FORTY THOUSAND DOLLARS
($140,000) together with interest at a fluctuating rate per annum on an amount
equal to the outstanding unpaid principal amount of this Subordinated Promissory
Note (the "Note") equal to the prime or equivalent rate of interest from time to
time announced or published by Chemical Bank, N.A., or if the foregoing ceases
to exist or ceases to announce or publish a prime or equivalent rate of
interest, such other New York money center bank as the Obligor and Payee may
agree.
2. Principal shall be payable in three annual installments as follows:
(a) Fifty Thousand dollars ($50,000) shall be payable on each of the
second and third anniversaries of the date hereof; and
(b) Forty Thousand Dollars ($40,000) shall be payable on the fourth
anniversary of the date hereof.
3. Interest hereunder shall be payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the month as
the day hereof (or the last day of the month if there is no corresponding day).
4. Principal shall be prepayable without penalty, in whole or in
installments of Ten Thousand Dollars ($10,000) or multiples thereof, at any time
and from time to time.
5. The Obligor's payment, whether voluntary or involuntary, whether in
cash, property, securities or otherwise and whether by application of offset or
otherwise (each hereinafter a "Payment") of any of its obligations under the
Stock Redemption Agreement (the "Stock Redemption Agreement") dated as of the
date hereof between the Obligor and the Payee, or this Note shall be subject to
the following restrictions:
(a) Anything in this Note or the Stock Redemption Agreement to the
contrary notwithstanding, the obligations of the Obligor in respect of the
principal of and interest (including any premium or penalty) on this Note
and any other amounts due under this Note and the Stock Redemption
Agreement shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the Senior Debt. Senior
Debt, when used with respect to the Obligor, means (i) all indebtedness for
borrowed money, purchase money indebtedness, or capitalized lease
obligations of the Obligor originating from a bank, insurance or other
financial institution, (ii) all guarantees by the Obligor of any type of
indebtedness des-
<PAGE> 2
cribed in clause (i), and (iii) renewals, extensions, refinancings,
deferrals, restructurings, amendments, modifications and waivers of the
indebtedness described in clause (i) and (ii) above. Notwithstanding the
foregoing, "Senior Debt" shall not include any indebtedness which, by its
terms, is specifically made pari passu or subordinate to this Note.
(b) So long as the Senior Debt has not been paid in full, if there
shall occur an event of default or there shall occur any event which with
the passage of time or giving of notice, or both, would constitute an event
of default under the terms of any instrument or agreement relating to
Senior Debt (any of the foregoing being a "Senior Debt Default") then,
unless and until such Senior Debt Default shall have been remedied or
waived, or shall have ceased to exist or the Cut Off Period (as hereafter
defined) shall have expired as provided in paragraph 5(c)(iii) below the
Obligor will not make any Payment on this Note or any other subordinated
debt instrument (this Note and all other subordinated debt instruments
shall hereinafter collectively be referred to as "Subordinated Debt"), and
the holders of Subordinated Debt, upon notice of an event of default as
described in this paragraph 5(b), will not receive or accept any direct or
indirect Payment in respect thereof, and the Obligor may not redeem or
otherwise acquire this Note or any other Subordinated Debt instrument.
(c) If there shall exist any Senior Debt Default, and notice shall
have been given to the holder of this Note or any other Subordinated Debt
instruments, then the holder of this Note or any other Subordinated Debt
instrument shall not take or continue any action or exercise or continue to
exercise any rights, remedies or powers under the terms of this Note, or
exercise or continue to exercise any other right or remedy at law or equity
that such holder might otherwise possess, to collect any amount due and
payable in respect of the Subordinated Debt, including, without limitation,
the acceleration of this Note, the commencement of any foreclosure on any
lien or security interest, the filing (or joining the filing) of any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction, unless and until the Senior Debt shall have been fully
and finally paid and satisfied, or unless and until
(i) Senior Debt in an amount greater than $5,000,000 shall have
been accelerated, in which case the holder of this Note and of any other
Subordinated Debt instrument shall be entitled to accelerate the
maturity thereof, if the holder of this Note or any other Subordinated
Debt instrument concurrently gives notice of such acceleration to the
holders of the Senior Debt, but shall not be entitled to take any other
action described above unless otherwise permitted to do so by paragraph
5(c)(ii) or (iii) below and, provided further, that the holder of this
Note and any other Subordinated Debt instrument will reverse any
acceleration if the holders of Senior Debt take similar action, or
(ii) one or more of the holders of the Senior Debt or the Obligor
shall have commenced, a Proceeding (as defined in paragraph 5(d) below),
or
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<PAGE> 3
(iii) a period of time shall have expired which began upon the
occurrence of such Senior Debt Default and shall have ended 180 days
after the holder of Senior Debt learns of the Senior Debt Default,
unless such default is earlier cured or waived or such period is
extended as hereinafter provided (the original cut-off period, plus any
extension, being hereinafter referred to as the "Cut-Off Period"). If
any holder of Senior Debt accelerates the time for payment of Senior
Debt held by such holder prior to the end of the original Cut-Off
Period, the Cut-Off Period shall be deemed extended indefinitely until
such time as the acceleration has been rescinded by the Senior Debt
Holder or the accelerated Senior Debt has been fully paid and satisfied.
(d) (i) Except as hereinafter provided and subject to the restrictions
set forth in paragraph 5(c) above, the holder of this Note may without the
request or consent of any holder of Senior Debt, file any claim, proof of
claim, or other instrument of similar character reasonably necessary to
enforce the obligations in respect of this Note ("Claim") in any
insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other proceeding for the relief of debtors
relating to the Obligor or its properties, or any proceeding for the
liquidation, dissolution or other winding up of the Obligor, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings
(each such action brought by any Person being herein defined as a
"Proceeding") and will, pursuant to the provisions of paragraph 5(g) below,
hold in trust for the holders of Senior Debt and promptly assign, transfer
and pay over to the holders of Senior Debt, in the form received, any and
all monies, dividends or other assets received in any such Proceeding on
account of this Note;
(ii) In the event (A) of any Proceeding, (B) of any assignment by the
Obligor for the benefit of creditors, (C) of any marshalling of all or a
substantial part of the assets of the Obligor, (D) the Obligor makes an
assignment for the benefit of creditors or admits in writing its inability
to pay its debts generally as they become due, (E) an order, judgment or
decree is entered adjudicating the Obligor as bankrupt or insolvent, (F)
any order for relief with respect to the Obligor is entered under the
Federal Bankruptcy Code, (G) the Obligor petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Obligor or of any substantial part of the assets of the
Obligor, or commences any proceeding relating to the Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, (H) any petition or
application described in (G) above is filed, or any such proceeding is
commenced, against the Obligor and either (I) the Obligor by any act
indicates its approval thereof, consents thereto or acquiescence therein or
(II) such petition application or proceeding is not dismissed within 60
days (each such event is hereinafter collectively referred to as an
"Insolvency Event"), then:
(aa) the holders of Senior Debt shall be entitled to receive
Payment in full in cash of all Senior Debt (including interest thereon
accrued after the date of commencement of such proceedings) before the
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<PAGE> 4
holder of this Note shall be entitled to receive any Payment or
distribution of assets of the Obligor, of any kind or character, whether
in cash, property or securities or by set-off or otherwise, on account
of any Subordinated Debt;
(bb) any Payment or distribution of assets of the Obligor, of any
kind or character, whether in cash, property or securities, to which the
holders of Subordinated Debt would be entitled except for the provisions
of this paragraph 5(d) shall be paid or delivered by the Obligor
directly to the holders of Senior Debt in payment thereof until all
Senior Debt (including interest thereon accrued after the date of
commencement of such proceedings) shall have been paid in cash in full;
and
(cc) the holder of this Note, to the extent permitted by applicable
law, grants to the Senior Debt holders, or their agents, an irrevocable
power of attorney to file and thereafter prosecute any Claim which the
holders of Subordinated Debt may have in any Insolvency Event proceeding
with respect to such Subordinated Debt; provided, however, no holder of
Senior Debt shall be liable for any action or omission to act pursuant
to the Power of Attorney herein granted absent the gross negligence or
willful misconduct of such holder;
provided further, however, that: (x) in the event that Payment or delivery
of such assets, whether in cash, property or securities, to the holder of
Subordinated Debt, is authorized by an order or decree giving effect, and
stating specifically in such order or decree that effect is given to the
subordination of such Subordinated Debt to the Senior Debt hereunder, and
made by a court of competent jurisdiction in a reorganization proceeding to
a duly adopted plan or reorganization, no payment or delivery of such asset
payable or deliverable with respect to the Subordinated Debt shall be made
to the holders of Senior Debt; and (y) no such delivery shall be made to
holders of Senior Debt of securities which are issued pursuant to
reorganization proceedings or dissolution or liquidation proceedings (other
than as provided in Clause (x) above), or upon any merger, consolidation,
sale, lease, transfer or other disposal not prohibited by the provisions of
this Note, by the Obligor, as reorganized, or by the corporation succeeding
to the Obligor or acquiring its property and assets, (AA) if such
securities are subordinate and junior at least to the extent provided in
this paragraph 5 to the payment in full in cash of all Senior Debt then
outstanding and to the payment in full in cash of any securities which are
issued in exchange or substitution for any Senior Debt then outstanding,
and (BB) if no payment in respect of such securities is due by their terms
prior to payment in full in cash of the Senior Debt.
(e) Any holder of Senior Debt may, at any time and from time to time,
without the consent of, or notice to, the holder of this Note and without
incurring responsibility to such holder, and without impairing or releasing
the obligations of such holder;
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<PAGE> 5
(i) Change the manner, place or terms of payment or change or
extend the time of payment of or renew or alter the Senior Debt or any
portion thereof;
(ii) Sell, exchange, release or otherwise deal with any collateral
securing the Senior Debt or any other property by whomsoever at any time
pledged or mortgaged to secure, or however securing, the Senior Debt or
any portion thereof; and
(iii) Apply any sums by whomsoever paid or however released to the
Senior Debt or any portion thereof.
(f) By acceptance of this Note, the holder hereby consents to the
making of Senior Debt and hereby acknowledges that each current and future
holder of Senior Debt has relied, and in the future will rely, upon the
terms of this Note. The holders of Senior Debt shall have no liability to
the holder of this Note and the holder of this Note hereby waives any claim
which it may have now or hereafter against any holder of Senior Debt
arising from any and all actions which any holder of Senior Debt may take
or omit to take in good faith with regard to the Senior Debt or its rights
or obligations hereunder.
(g) Until the Senior Debt has been repaid in full, in the event the
holder of this Note shall receive any Payment in contravention of the
provisions of this paragraph 5, including Payments arising under the
subordination provisions of any other indebtedness of the Obligor, the
holder of this Note shall hold all such Payments so received in trust for
the holders of Senior Debt and shall forthwith turn over all such Payments
to the holders of Senior Debt in the form received (except for the
endorsement or assignment of the holder of this Note as necessary, without
recourse or warranty) to be applied to payment of the Senior Debt whether
or not then due and payable. Any Payment so received in trust and turned
over to the holders of Senior Debt shall not be deemed a Payment in
satisfaction of this Note.
(h) If any payment or distribution to which the holder of this Note
would otherwise have been entitled but for the provisions of this paragraph
5 shall have been applied, pursuant to the provisions of this paragraph 5,
to the payment of Senior Debt, then and in such case, the Holders of this
Note (i) shall be entitled to receive from the holders of Senior Debt at
the time outstanding any payments or distributions received by such holders
of Senior Debt in excess of the amount sufficient to pay all Senior Debt in
cash in full (whether or not then due), and (ii) following payment of the
Senior Debt in full, shall be subrogated to any right of the holders of
Senior Debt to receive any and all further payments or distributions
applicable to Senior Debt, until all the Subordinated Debt shall have been
paid in full. If the holder of this Note has been subrogated to the rights
of the holders of Senior Debt due to the operation of this paragraph 5(h),
the Obligor agrees to take all such reasonable actions as are requested by
such holder of this Note in order to cause such holder to be able to obtain
payments from the Obligor with respect to such subrogation rights as soon
as possible.
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<PAGE> 6
(i) Except as expressly provided herein, nothing contained in this
paragraph 5 shall impair, as between the Obligor and the holder of this
Note, the obligation of the Obligor, which is absolute and unconditional,
to pay to the holder of this Note the amount of the Subordinated Debt due
hereunder as and when the same shall become due and payable in accordance
with the terms hereof.
(j) The holder of this Note, by its acceptance thereof, agrees that
each holder of Senior Debt has advanced funds or may in the future advance
funds in reliance upon the terms and conditions hereof.
(k) No right of any holder of Senior Debt to enforce its right of
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Obligor, or by
any act or failure to act by any such holder, or by any non-compliance by
the Obligor with the terms, provisions and covenants of the Subordinated
Debt, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(l) Any Payments received by a holder of Senior Debt from the Obligor
or the holder of this Note which, in connection with an Insolvency Event or
Proceeding, is required to be remitted to the payor or the bankrupt estate
shall not be deemed a Payment to such holder of Senior Debt for all
purposes hereunder.
6. In the event of (i) a sale of 80% or more of the then issued and
outstanding shares of capital stock of the Obligor or (ii) a sale of all or
substantially all of the assets of the Obligor (in each case, a "Triggering
Event"), the principal sum then remaining unpaid hereunder shall become due and
payable in full upon the payment of the aggregate purchase price with respect to
either such transaction; and if the aggregate purchase price is payable in
installments, principal shall become due and payable on the same date on which
each such purchase price installment payment is made, in each case, in an amount
equal to the principal sum remaining unpaid as of the date of the Triggering
Event, multiplied by a fraction, the numerator of which is equal to the amount
of the purchase price installment payment and the denominator of which is equal
to the aggregate purchase price. Nothing in this paragraph 6 shall be deemed to
extend the due dates nor decrease the amounts of the installments set forth in
paragraph 2 hereof, except that the aggregate principal payments pursuant to
paragraphs 2 and 6 hereof shall not exceed the principal amount of this Note.
7. All sums payable hereunder shall be payable in lawful money of the
United States of America at 8934 Kenton Avenue, Skokie, Illinois 60076, or, upon
receipt of notification by the Obligor, at such other place designated in
writing by the holder hereof. If the date on which any payment is required to be
made hereunder is not a Business Day (as defined hereinafter), then such date
for payment shall be extended to the next succeeding Business Day. "Business
Day" means any day other than a day on which banks in New York City are
authorized or required by law or executive order to be closed.
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<PAGE> 7
8. Subject to the provisions of paragraph 5, if any amount of principal or
interest is not paid when due and such default is not cured within fifteen (15)
days after written notice thereof from the holder of this Note to the Obligor,
this Note, if not yet then due, shall at the option of the holder hereof become
due and payable in full immediately without demand or notice to the Obligor; and
if the Note is then due or, at the option of the holder hereof becomes due and
payable in full, thereafter any principal remaining unpaid shall bear interest
until said principal amount is paid in full, at a rate of eighteen percent (18%)
per annum, or, if such rate is not lawful with respect to the Obligor, then at
the highest rate allowed by law.
9. The Obligor agrees to pay reasonable attorneys' fees to the holder
hereof if an attorney is retained to enforce or collect this Note by reason of
non-payment of any amounts or principal or interest under this Note when such
amounts are due (whether at stated maturity, by acceleration or otherwise).
10. This Note is referred to in Paragraph 4(b) of this stock Redemption
Agreement. Subject to the provisions of paragraph 5, it shall be entitled to the
benefit of all of the terms and conditions and the security of all security
interests, liens and rights granted by the Obligor to the Payee under and
pursuant to the Stock Redemption Agreement.
11. This Note shall be construed and enforced in accordance with the laws
of the State of New York. Both the Obligor and Payee, 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 Note, and consent and
subject themselves to the jurisdiction of, the courts of the state of Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Note. All other matters arising under this Agreement, including those
involving equitable remedies sought by either the Obligor or Payee, shall be
brought exclusively in the courts of the state of New York located in New York
City, and/or the United States District Court for the Southern District of New
York, and the Obligor and Payee, acting for themselves and for their
beneficiaries, heirs, successors and assigns in that without regard to domicile,
citizenship or residence, hereby expressly and irrevocably elect such forum as
the sole judicial forum for the adjudication of all such matters, and consent
and subject themselves to the jurisdiction of such courts. Service of process,
notices and demands of such courts may be made upon any such party by personal
service at any place where it may be found.
12. The Obligor hereof hereby waives presentment, demand for payment,
notice of dishonor, protest and notice of protest, and any or all other notices
or demands in connection with this Note. The liability of the Obligor hereunder
shall be unconditional and shall not be in any manner affected by any indulgence
whatsoever granted or consented to by the holder hereof, including but not
limited to any extension of time, renewal, waiver or other modification. No
failure by the Payee or holder hereof to file, record or otherwise perfect any
lien or security interest given or to be given with respect to this Note, nor
any improper filing
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<PAGE> 8
or recording, nor any failure by the Payee or holder hereof to insure or protect
any security given or to be given with respect to this Note nor any other
dealing (or failure to deal) with, or any modification or waiver of any rights
with respect to, any such security by such Payee or holder shall impair or
release the obligations of the Obligor hereunder. Any failure of the Payee or
holder hereof to exercise any right hereunder shall not be construed as a waiver
of the right to exercise the name or any other right at any time and from time
to time thereafter.
13. Assignment of this Note shall not be valid nor shall it confer any
rights to the assignee against the Obligor unless and until written notice of
the assignment is received by the Obligor.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
8
<PAGE> 1
Exhibit 10.28
CONSULTING AND NON-COMPETITION AGREEMENT
CONSULTING AND NON-COMPETITION AGREEMENT (the "Agreement") made as of this
28th day of May, 1992 by and between WINDMILL MARKETING SERVICES, INC. (the
"Company"), a New Jersey corporation having its principal office and place of
business at 100 Lehigh Drive, Fairfield, New Jersey 07006 and EARL WEISMAN
("Weisman"), residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H :
WHEREAS, Weisman has been a shareholder, director and executive officer of
the Company since its incorporation on January 4, 1977 and has intimate
knowledge of the Company's business and customers, as well as the markets in
which it operates;
WHEREAS, pursuant to that certain Stock Redemption Agreement (the "Stock
Redemption Agreement"), dated as of the date hereof, by and between Weisman and
the Company, Weisman has agreed to sell, transfer, convey, assign and deliver,
and the Company has agreed to purchase and accept, all of Weisman's shares of
capital stock in the Company provided that Weisman agrees not to thereafter
compete with the Company on the terms and conditions hereinafter provided;
WHEREAS, the Company desires to engage Weisman as a consultant, and Weisman
desires to be so engaged by the Company, upon the terms and conditions
hereinafter provided; and
WHEREAS, it is contemplated that contemporaneously with the redemption of
Weisman's shares of capital stock in the Company, as provided for in the Stock
Redemption Agreement, the following related transactions will also occur: (i)
Garden State Nutritionals, Inc. ("Garden State"), an affiliate of the Company,
will purchase and redeem all of Weisman's shares of capital stock of Garden
State, (ii) the Company will purchase the business and all or substantially all
of the assets of Windmill Natural Vitamin Company, Inc., an Illinois
corporation, a majority of whose shares of capital stock are owned by Weisman,
(iii) Edward M. Frankel ("Frankel"), the majority shareholder of both Garden
State and the Company, shall purchase Weisman's entire equity interest in
Vitareal Associates, L.P., and (iv) Weisman shall purchase all of Frankel's
shares of capital stock of E. Burnham, Inc. (the transactions described in
clauses (i) through (iv) above shall hereinafter collectively be referred to as
the "Related Transactions").
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:
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<PAGE> 2
1. Consulting Duties. Weisman shall advise and consult with senior
executives, and managerial and supervisory personnel of the Company with respect
to the marketing of the Company. All consulting duties shall be performed upon
prior written notice provided by the Company, which notice shall be delivered a
reasonable time period before such duties are to be performed, such duties to be
performed either via telephone, in Chicago or at such other location as may be
agreed to by Weisman.
2. Time To Be Devoted To The Company; Term of Agreement.
(a) Weisman shall be available at such times as may reasonably be
requested by the Company and agreed to by Weisman. However, both the
Company and Weisman recognize that during the term of this Agreement,
Weisman may be engaged or employed by other persons as a consultant or in
any other capacity, and therefore will have other demands on his
professional time.
(b) The term of this Agreement shall be eight (8) years, commencing on
the date hereof.
3. Compensation; Non-Compete Fee; Certain Covenants.
(a) Weisman shall receive an aggregate fee in consideration of his
consulting services rendered hereunder equal to Six Hundred Fifteen
Thousand Dollars ($615,000), of which Two Hundred Forty Thousand Dollars
($240,000) shall be payable on the date hereof for consulting services
rendered during the immediately preceding year to the date hereof; One
Hundred Twenty-Five Thousand Dollars ($125,000) shall be payable on the
first anniversary of the date hereof; Seventy-Five Thousand Dollars
($75,000) shall be payable on each of the second and third anniversaries of
the date hereof for consulting services rendered during the immediately
preceding year to each such anniversary; and One Hundred Thousand Dollars
($100,000) shall be payable on the fourth anniversary of the date hereof
for consulting services rendered during the immediately preceding year
thereto.
(b) Weisman shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of his covenant not-to-compete, the terms and conditions of
which are set forth in paragraph 5 hereto, equal to Two Hundred Thousand
Dollars ($200,000), payable in equal installments of Fifty Thousand Dollars
($50,000) on the fifth through eighth anniversaries of the date hereof,
together with interest thereon payable quarterly in arrears, commencing
with the third month following the month hereof, on the same day of the
month as the day hereof (or the last day of the month if there is no
corresponding day), at a fluctuating rate per annum equal to the prime or
equivalent rate of interest form time to time announced or published by
Chemical Bank, N.A., or if the foregoing ceases to exist or ceases to
announce or publish a prime or equivalent rate of interest, such other New
York money center bank as the Company and Weisman may agree.
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<PAGE> 3
(c) If any amount of the consulting fees which are to be paid to
Weisman pursuant to Paragraph 3(a) hereto are not paid when due and such
default is not cured within fifteen (15) days after written notice thereof
from Weisman to the Company, all amounts which are to be paid pursuant to
Paragraph 3(b) hereto, if not yet due, shall at the option of Weisman
become due and payable in full immediately without demand or notice to the
Company; and if such amount is then due or, at the option of Weisman
becomes due and payable in full, thereafter any principal remaining unpaid
shall bear interest until such amount is paid in full, at a rate of
eighteen percent (18%) per annum, or, if such rate is not lawful with
respect to the Company, then at the highest rate allowed by law.
(d) Weisman 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.
(e) Upon prior written request from Weisman with respect to each
fiscal year, the Company hereby agrees to furnish to Weisman, within 120
days after the close of such fiscal year, the unaudited financial
statements regularly prepared by the Company's accountants.
4. Confidentiality. All memoranda, notes, records or other documents made
or compiled by Weisman 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.
Weisman 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. For purposes of this
paragraph 4, the term "proprietary or confidential information" shall mean all
information which is known only to Weisman or to Weisman 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, marketing strategies, strategic partners
or potential strategic partners, pricing and credit techniques, research and
development activities, books and records and private processes, as they may
exist from time to time, which Weisman 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 Weisman, or is not in the public domain. In the event of
a breach or a threatened breach by Weisman of the provisions of this paragraph
4, the Company shall be entitled to an injunction restraining Weisman 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 Weisman.
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<PAGE> 4
5. Restrictive Covenants.
(a) Weisman 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 five
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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
(c) In the event of a breach or threatened breach by Weisman of the
provisions of this paragraph 5, 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 3 hereof and paragraph 3 of the Stock Redemption Agreement 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.
(d) Anything herein to the contrary notwithstanding, Weisman shall no
longer be bound by any of the restrictions contained herein in the event
that (i) the Company defaults in payment of any of its obligations pursuant
to the terms hereof or the terms of the Stock Redemption Agreement (or the
promissory note executed in connection therewith), and (ii) the default
described in subparagraph 5(d)(i) is not cured within 30 days after the
Company has received written notice of such default from Weisman.
6. Death or Disability. As an inducement for Weisman to enter into this
Agreement, the Company agrees that, subject to paragraph 4, all amounts payable
to Weisman hereunder shall be paid to Weisman, or to Weisman's estate in the
event of his death, notwithstanding his disability or death, and neither Weisman
nor the estate of Weisman shall be required to repay any amount paid to Weisman
prior to Weisman's death or disability.
7. Scope of Agreement. Weisman understands and agrees that he is not
authorized to enter into any binding agreement, accept any orders for products
or otherwise bind the
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<PAGE> 5
Company to any obligation of any nature whatsoever. Weisman is an independent
contractor hereunder, not an employee of the Company, and shall have no rights
of an employee hereunder.
8. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
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
(b) If to the Weisman, to:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
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<PAGE> 6
9. 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.
10. 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.
11. Entire Agreements. 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.
12. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
paragraph 8 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.
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<PAGE> 7
14. 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 of its fullest extent in any jurisdiction, then such restriction shall
be enforced to the maximum extent permitted by law in such jurisdiction, and
Weisman hereby consents and agrees that such scope may be judicially modified
accordingly in any such jurisdiction in any proceeding brought to enforce such
restriction.
15. 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 of provision hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
------------------------------------
Edward M. Frankel
President
/s/ EARL WEISMAN
--------------------------------------
Earl Weisman
7
<PAGE> 1
Exhibit 10.29
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this 28th day
of May, 1992, by and among WINDMILL MARKETING SERVICES, INC. (the "Purchaser"),
a New Jersey corporation with principal offices at 100 Lehigh Drive, Fairfield,
New Jersey 07006, WINDMILL NATURAL VITAMIN COMPANY, INC. (the "Seller"), an
Illinois corporation with principal offices at 4560 W. Touhy Avenue,
Lincolnwood, Illinois 60646, and EARL WEISMAN ("Weisman" or the "Shareholder"),
an individual residing at 8934 Kenton Avenue, Skokie, Illinois 60076.
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of distributing vitamins and
related products to retail stores, outlets and other ventures (the "Business");
WHEREAS, the Shareholder is the holder of all of the outstanding shares of
capital stock of the Seller;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to acquire from the Seller the Business and all or substantially all of
Seller's assets used in connection with the Business upon the terms and subject
to the conditions hereinafter set forth; and
WHEREAS, the Seller desires to transfer to the Purchaser and Purchaser
desires to assume the Assumed Liabilities (as hereinafter defined) upon the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, it is contemplated that contemporaneously with the purchase of the
Business and assets described hereunder, the following related transactions will
also occur: (i) Garden State Nutritionals, Inc. ("Garden State"), an affiliate
of the Purchaser, will purchase and redeem all of Weisman's shares of capital
stock of Garden State, (ii) the Purchaser will purchase and redeem all of
Weisman's shares of capital stock of the Purchaser (iii) Edward M. Frankel
("Frankel"), the majority shareholder of both Garden State and the Purchaser,
shall purchase Weisman's entire equity interest in Vitareal Associates, L.P.,
and (iv) Weisman shall purchase all of Frankel's shares of capital stock of E.
Burnham, Inc. (the transactions described in clauses (i) through (iv) above
shall hereinafter collectively be referred to as the "Related Transactions").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which
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are hereby acknowledged, the parties hereto, intending legally to be bound
hereby, agree as follows:
SECTION 1. PURCHASE AND SALE: ASSETS TO BE TRANSFERRED; ASSUMPTION OF CERTAIN
LIABILITIES
Subject to the terms and conditions hereinafter set forth, the Seller shall
sell, convey, transfer, assign and deliver to the Purchaser, and the Purchaser
shall purchase and accept from Seller, on the Closing Date (as defined
hereinafter), all of Seller's right, title and interest in the Purchased Assets
(as hereinafter defined) existing on the Closing Date, wherever located.
"Purchased Assets" shall mean all of the Seller's assets, facilities, rights and
properties set forth in this Section 1 or in the Schedules attached hereto, but
shall not include any of the excluded assets set forth in Schedule 1 hereto (the
"Excluded Assets"). The Purchaser shall not assume or acquire any liabilities of
the Seller (including with respect to any employee plans), whether or not
relating to the Business, other than the Assumed Liabilities (as set forth in
Schedule 4.1 hereto).
1.1 Equipment and Supplies. Schedule 1.1 hereto sets forth a true and
complete list of all tangible personal property, equipment and supplies
(including, but not limited to, equipment, computers and all maintenance and
other operating supplies, including small tools and spare parts and other
expendibles or non-inventoried items which may not have been treated as assets
for accounting purposes in past years) owned or leased by the Seller and used or
useful in the operation of the Business.
1.2 Books and Records. Schedule 1.2 hereto sets forth a true and complete
list of all files, books, records, invoices, accounts and surveys used or useful
in connection with the ownership of the Purchased Assets and/or operation of the
Business.
1.3 Intangibles. Schedule 1.3 hereto sets forth a true and complete list
of all of the Seller's right, title and interest in and to (i) all contracts,
including all service contracts, employment contracts, contracts with suppliers
and distributors, and insurance policies, (ii) all trademarks, tradenames,
servicemarks, copyrights, patents and applications therefor, (iii) all permits,
leases, subleases, licenses, franchises and privileges; and (iv) all other
intangible assets owned by the Seller and/or used or useful in connection with
the operation of the Business, or held for the benefit of the Seller.
1.4 Inventories. Schedule 1.4 hereto sets forth a true and complete list
of all inventory items held by the Seller on the Closing Date, together with a
reasonable estimate of (i) the value of such inventory items, valued at cost as
of the Closing Date, and (ii) the age of such inventory items.
1.5 Accounts Receivable. Schedule 1.5 hereto sets forth a true and
complete list of all the Seller's receivables for products sold or services
rendered which are not
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collected as of the Closing Date, together with a reasonable estimate of the age
of such receivables.
1.6 Prepaid Items. Schedule 1.6 hereto sets forth a true and complete list
of all of the Seller's prepaid items as of the Closing Date.
1.7 All Assets Scheduled. The assets identified in Schedules 1.1, 1.2,
1.3, 1.4, 1.5, 1.6 and 1.8 comprise all of the assets of Seller necessary in
order to conduct the Seller's Business as reflected in the financial statements
dated as of March 31, 1992, subject to those items replaced in the ordinary
course of business.
1.8 Cash. All checks and cash received on or before the Closing Date in
payment of the accounts receivable described in Schedule 1.5 hereto.
SECTION 2. DEFINITIONS.
Unless otherwise defined herein, all accounting terms shall have the
meanings ascribed to them under Generally Accepted Accounting Principles
("GAAP").
SECTION 3. CLOSING DATE.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Fred Carman, Esq., 350 Pfingten
Road, Suite 104, Northbrook, Illinois 60062-2032, at 10:00 a.m., Central
Daylight Time, on Thursday, May 28, 1992 or at such other time and place as may
be mutually agreed upon in writing by the Seller and the Purchaser (the "Closing
Date").
SECTION 4. CONSIDERATION AND PAYMENT; FUTURE TRADE PAYABLES; COLLECTIONS FROM
ACCOUNTS RECEIVABLE.
4.1 Purchase Price; Assumption of Certain Liabilities. On the Closing
Date, Purchaser shall (i) assume the Seller's liabilities described in Schedule
4.1 hereto (the "Assumed Liabilities"), and (ii) provide the Seller with a check
payable to the Seller in the amount of Eighty-Two Thousand Eight Hundred Sixty
and 89/100 Dollars ($82,860.89) (the "Cash Purchase Price"). The Assumed
Liabilities and the Cash Purchase Price shall constitute payment in full of the
purchase price (the "Purchase Price") hereunder.
4.2 Allocation of Purchase Price. Purchaser and Seller shall use their
best efforts to agree upon an allocation of the Purchase Price among the
different items of the Purchased Assets and shall (i) attach hereto as Schedule
4.2 an agreed upon allocation which shall be used in connection with their
preparation of Internal Revenue Form 8594, and (ii)
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cooperate on the timely filing of Internal Revenue Form 8594, which shall be
prepared in conformity with the purchase price allocation attached as Schedule
4.2 hereto.
4.3 Future Trade Payables. Purchaser and Seller agree that (i) the Seller
shall promptly pay all trade payables which have not expressly been assumed
pursuant to Paragraph 4.1 hereto, (ii) should the Purchaser determine in its
sole discretion that the trade payables described in (i) above have not been
paid promptly by the Seller, Purchaser may pay such trade payables directly to
the vendors or creditors in question (each a "Trade Payable Advance"), and (iii)
Seller shall immediately reimburse the Purchaser the full amount of all Trade
Payable Advances. All Trade Payable Advances shall bear interest at a
fluctuating rate per annum equal to the prime or equivalent rate of interest
announced or published from time to time by Chemical Bank, N.A., or if the
foregoing ceases to exist or to announce or publish such rates, at a New York
money center bank as the parties hereto may agree. The Purchaser may offset all
Trade Payable Advances together with interest accrued thereon against any
amounts owed by it under the Related Transactions to either the Seller or
Weisman. Notwithstanding the foregoing, it is hereby agreed that: (A) Purchaser
shall not make any Trade Payable Advances unless Seller has failed to make
payments with respect to the trade payables in question within thirty (30) days
after having received written request from Purchaser that such payments be made,
and (B) the aggregate Trade Payable Advances permitted to be made in accordance
herewith by Purchaser shall not exceed $25,000.
4.4 Collections from Accounts Receivable. The Accounts Receivable
described in Section 1.5 hereto, other than those Accounts Receivable acquired
from Windmill Vitamin of Southwest, Inc. ("Windmill Southwest") pursuant to that
certain Agreement (the "Windmill Southwest Agreement") dated as of May 15, 1992,
by and among Windmill Southwest, the Seller, Weisman and Daniel Langerman, shall
hereinafter be referred to as the "Windmill Vitamin Receivables." To the extent
the Purchaser collects (whether in cash or returned merchandise) more than an
aggregate amount equal to $118,761.20 from Windmill Vitamin Receivables, such
excess amount shall be paid to the Seller reasonably promptly. Collections from
the Accounts Receivable acquired pursuant to the Windmill Southwest Agreement
shall not be considered for purposes of this paragraph.
SECTION 5. DELIVERY.
At the Closing, or on such date thereafter as the parties shall mutually
agree upon, the Seller shall deliver to the Purchaser the Purchased Assets and
such evidence of title to the Purchased Assets and of compliance with the terms
and conditions of this Agreement as may be reasonably required by counsel to the
Company in order that good and marketable title to the Purchased Assets shall
pass from the Seller to the Purchaser.
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SECTION 6. THE SELLER'S AND SHAREHOLDER'S REPRESENTATIONS AND WARRANTIES
The Seller and the Shareholder hereby jointly and severally represent and
warrant as follows:
6.1 Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and is duly qualified to transact business as a foreign corporation in
every jurisdiction where the character of the properties owned or leased by it,
or the conduct of its business, makes such qualification necessary. Copies of
the Articles of Incorporation and By-laws of the Seller, with all amendments
thereto the date hereof, have been furnished to Purchaser or its
representatives, and such copies are accurate and complete as of the date
hereof.
6.2 Authority Relative to this Agreement: No Conflicts. The Seller has the
corporate power and authority and all licenses and permits required by
governmental authorities to own and operate its properties and to carry on its
business as now being conducted. The Seller has the corporate power to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by the Seller has been, or when
executed, will be, duly and validly authorized by all necessary corporate action
on the part of the Seller, including the due authorization of the Board of
Directors and shareholders of the Seller, and no other corporate proceedings on
the part of the Seller are necessary to authorize such execution, delivery and
performance. This Agreement is a valid and legally binding agreement of the
Seller and the Shareholder, enforceable in accordance with its terms, except to
the extent that enforcement thereof may be limited by laws affecting creditors'
rights generally. The Seller's and the Shareholder's execution, delivery and
performance of this Agreement does not and/or will not violate, breach or
constitute a default under (i) the provisions of the Certificate of
Incorporation or By-Laws of the Seller, as amended, (ii) any contracts or other
instrument to which the Seller or the Shareholder is a party or by which the
Purchased Assets may be bound, or (iii) the provisions of any order, decree or
judgment of any court, government or governmental agency or instrumentality
having applicability to the Seller or the Shareholder or by which the Purchased
Assets may be bound.
6.3 Personal Property. The Purchased Assets to be transferred hereunder
constitute substantially all of the properties, assets, rights, contracts,
leases, licenses and personal property necessary in order to conduct the
Seller's Business as reflected in the Seller's Financial Statements dated as of
March 31, 1992, subject to those items replaced in the ordinary course of
business. The Seller has good and marketable title to all the Purchased Assets
constituting personal property described in Section 1 hereof and reflected in
the schedules referred to in such section, free and clear of any adverse claims,
conditional bills of sale, chattel mortgages, security agreements, financing
statements or other security or equity interest of any kind.
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6.4 Contracts and Other Intangibles. The contracts licenses, patents,
patent rights, patent applications; trademarks, trademark applications, trade
names, servicemarks, servicemark applications, copyrights, or other intangibles
listed in Schedule 1.3 are valid and enforceable and not the subject of any
default or termination notice by any party thereto (unless so specified in
Schedule 1.3); and the Seller does not know of any existing state of facts which
would constitute an event of default or give rise to termination rights by any
of the parties thereto. The Seller has received no notice from any party to any
such contract with respect to such party's unwillingness or inability to perform
thereunder. Seller has not granted any rights in, nor encumbered in any way the
intangibles described herein, and has no knowledge of any claim to the effect
that the present or past operations of the Seller with regard to the intangibles
infringe or conflict with the asserted rights of others.
6.5 Delivery and Initialling of Documents. Copies of all contracts and
Intangibles listed in Schedule 1.3 hereto have been delivered by the Seller to
the Purchaser. Such copies are exact copies of the originals of said documents
and are complete; the underlying instruments have not been assigned or amended
(unless so specified in Schedule 1.3) and have been so initialled on behalf of
the Seller and the Purchaser.
6.6 Accuracy of Representations and Warranties. To the best of the
Seller's and the Shareholder's knowledge, none of the Seller's or Shareholder's
representations, warranties or statements contained in this Agreement, or in the
exhibits or schedules hereto, contain any untrue statement of a material fact or
omits to state any material fact necessary in order to make any such
representations, warranties or statements not misleading. All information
relating to the Seller and the Purchased Assets which is known to the Seller and
which may be material to a purchaser for value of all of the assets, businesses
and operations of the Seller has been disclosed to Purchaser and any such
information arising on or before the Closing Date forthwith will be disclosed in
writing to Purchaser. "Material" for purposes of this Section shall mean items
having a value of greater than $1,000 each and $5,000 in the aggregate.
6.7 Compliance with Laws. The Seller has complied with all applicable
statutes and regulations of the United States of the State of Illinois, and all
municipalities, and agencies thereof, with respect to the conduct of its
operations, and has not received any notice or notices of violations of any such
statutes or regulations which have not been cured, which violations could have a
material adverse effect on the business, financial condition or prospects of
Seller on the Purchased Assets.
6.8 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of the Seller, threatened against or affecting the Seller, the
Purchased Assets, or the Business, at law or in equity, before any court,
federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and, so far as the
Seller knows, no basis exists for any such action, suit or proceeding, other
than as disclosed in Schedule 6.8. The Seller will advise the Purchaser promptly
in writing of the commencement, threat or knowledge of any litigation, including
administrative proceedings,
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known to the Seller and to which it is or may be made a party or which
materially affects the Seller, the Purchased Assets or the Business. The Seller
is not operating under, subject to or in default with respect to any order,
writ, injunction or decree of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign which could have a material adverse impact on the Purchased
Assets or the Business. Neither the Shareholder, nor the Seller, nor any of the
Seller's officers, know of any violation by the Seller of any antitrust or
environmental laws, nor are aware of any claim of violation of any antitrust or
environmental laws by the Seller which could have a material adverse impact on
the Purchased Assets or the Business, and, so far as is known to the
Shareholder, the Seller, and the Seller's respective officers, no basis for any
such claim exists.
6.9 Consents and Approvals. There are no consents, waivers, authorizations
or approvals necessary of any governmental or regulatory authority, domestic or
foreign, or of any other person, firm or corporation, and each declaration to or
filing or registration with any such governmental or regulatory authority, that
is required in connection with the execution and delivery of this Agreement by
the Seller and the Shareholder and the performance by the Seller and the
Shareholder of their respective obligations hereunder, have been made.
6.10. Tax Matters.
A. All returns, including estimated tax returns, required to be filed
on or prior to the Closing Date by the Seller with respect to any Federal,
state, local, foreign and other income, franchise, capital stock,
employees' income withholding, nonresident alien withholding, social
security, unemployment, disability, real property, personal property,
sales, use, transfer and other taxes, including any interest, penalties, or
additions to tax in respect of the foregoing (all the foregoing
collectively referred to as "Taxes"), which, if unpaid, might result in a
lien upon any of the Purchased Assets, have been duly filed and are true,
correct and complete;
B. All returns, including estimated tax returns, required to be filed
after the Closing Date by the Seller with respect to Taxes which, if
unpaid, might result in a lien on any of the Purchased Assets will be duly
filed and will be true, correct and complete; and
C. No deficiency or adjustment in respect of any Taxes which were
assessed against the Seller and which might result in a lien on the
Purchased Assets, remains unpaid.
6.11 Financial Statements. The Seller has delivered to the Purchaser
copies of the following financial statements which, to the Seller's knowledge,
are true and correct and have been prepared in accordance with GAAP:
Profit and Loss Statement for the period from inception through March
31, 1992.
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6.12 Events since March 31, 1992. Since March 31, 1992, there has not
been:
(i) any materially adverse change in the financial condition, assets,
liabilities or business of the Seller (other than changes in the ordinary
course of business), except that Purchaser has been informed by Seller that
Seller has been operating at a loss and continues to do so;
(ii) any sale or transfer of any of the assets of the Seller, except
in the ordinary course of business;
(iii) any mortgage, pledge or other lien or encumbrance created by
Seller on any of the Purchased Assets; or
(iv) any transaction entered into relating to the Seller other than in
the ordinary course of business, except this Agreement and the transactions
contemplated in subdivision (ii) hereof.
6.13 Liabilities. Except only as to those liabilities expressly assumed by
the Purchaser in accordance with Section 4.1 hereof, the Seller covenants to pay
or cause to be paid all liabilities incurred by the Seller or which may affect
the Business or the Purchased Assets in the ordinary course as and when they
come due.
6.14 Insurance. All policies of insurance covering the equipment conveyed
hereunder or providing for business interruption, personal and product liability
coverage, for the Business, are described in Schedule 6.14, and are outstanding
and in full force and effect. Such insurance is in amounts deemed by the Seller
to be sufficient with respect to the Seller's assets, properties, business,
operations, products and services as the same are presently owned or conducted
by the Business. There are no claims, actions, suits or proceedings arising out
of or based upon any of such policies of insurance, and, so far as is known to
the Seller or its officers, no basis for any such claim, action, suit or
proceeding exists.
6.15 Sales and Use Taxes. The Purchaser shall be responsible for all sales
or use taxes imposed in connection with the sale by Seller of the Purchased
Assets and the acquisition thereof by Purchaser. The Purchaser will indemnify
and hold the Seller harmless therefrom.
6.16 Customers. The Seller represents that its books and records contain
the names and addresses of all of its customers and business prospects on the
Closing Date.
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6.17 Pension Plans: Accrued Salaries and Benefits.
A. For purposes of this Section, "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended. Neither the Seller nor
any of its directors, officers, shareholders, employees or any other
"fiduciary," as such term is defined in Section 3 of ERISA (i) has
committed any breach of fiduciary responsibility imposed by ERISA or any
other applicable law which after the Closing Date would subject the
Purchaser or any of its directors, officers, shareholders or employees to
liability under ERISA or any other applicable law, or (ii) has engaged in
any "prohibited transaction," as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended, or incurred or
suffered to exist any "accumulated funding deficiency," as defined in
Section 302 of ERISA.
B. The Seller shall cause all unpaid accrued salary and deferred
compensation and other benefits accrued (including, without limitation,
unused vacation benefits, whether or not currently vested) for the benefit
of those employees, consultants or representatives associated with the
Business to be paid in full as due.
6.18 Environmental Matters. The Seller has obtained and is in
compliance with all permits, licenses and other authorizations which are
required with respect to its assets, properties and operations under all
applicable laws, regulations and other requirements of governmental or
regulatory authorities relating to pollution or protection of the
environment ("Environmental Laws"). None of such permits, licenses and
authorizations will in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. None of the
Seller's properties, whether leased or owned (collectively, the
"Premises"), have been subject to any of the following: (a) the presence of
any Hazardous Substance (as herein defined) on the Premises; (b) any
spills, releases, discharges, or disposal of Hazardous Substances that have
occurred or are occurring on or onto the Premises; (c) any spills or
disposal of Hazardous Substances that have occurred or are occurring off
the Premises as a result of any construction on or operation and use of the
Premises; (d) the presence of any equipment containing polychlorinated
biphenyl ("PCB"); or (e) the presence of any asbestos in use or on the
Premises. In connection with the construction on or operation and use of
the Premises, the Seller and the Shareholder represent that, to the best of
their knowledge, there has been no failure to comply by the Seller and its
officers and directors with all applicable local, state, and federal
Environmental Laws relating to the generation, recycling, reuse, sale,
storage, handling, transport, and disposal of any Hazardous Substances. As
used in this Section 6.18, "Hazardous Substances" shall mean: Asbestos and
any substance or material defined or designated as hazardous or toxic
waste, hazardous or toxic material, a hazardous or toxic substance, or
other similar term by any federal, state or local Environmental Law
presently in effect or that may be promulgated in the future as such Laws
may be amended from time to time.
SECTION 7. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants as follows:
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7.1 Organization and Good Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has full power to carry on its business and to enter into this
Agreement.
7.2 Authority Relative to the Agreement. The Purchaser has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution, delivery and performance of this Agreement by the Purchaser has
been, or when executed, will be, duly and validly authorized by all necessary
corporate action on the part of the Purchaser, and no other corporate
proceedings on the part of the Purchaser are necessary to authorize such
execution, delivery and performance. This Agreement when duly executed by the
Purchaser, is a valid and legally binding agreement of the Purchaser enforceable
in accordance with its terms, except to the extent that enforcement thereof may
be limited by laws affecting creditors' rights generally. The Purchaser's
execution, delivery and performance of this Agreement does not and/or will not
violate, breach or constitute a default under (i) the provisions of the
Purchaser's Certificate of Incorporation or By-Laws, (ii) the provisions of any
agreement or other instrument to which the Purchaser is a party or by which it
or its properties may be bound, or (iii) the provisions of any order, decree or
judgment of any court, government or governmental agency or instrumentality
having applicability to the Purchaser or by which it or its properties may be
bound.
SECTION 8. COVENANTS OF THE SELLER AND THE SHAREHOLDER
8.1 Satisfaction of Conditions. The Seller and the Shareholder shall use
their best efforts to obtain the satisfaction of the conditions specified in
Section 6 hereof. In addition, the Seller and the Shareholder expressly
authorize the Purchaser to apply in advance of the Closing Date for such
licenses and permits, if any, as the Purchaser deems necessary or appropriate
for the operation of the Seller's business from and after the Closing Date.
8.2 Collection of Accounts. The Seller and the Shareholder will cooperate
with the Purchaser, at the request of the Purchaser, on and after the Closing
Date in endeavoring to effect the collection of all receivables and other items
owing to the Seller, in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or disputes
relating to the adjustment of federal, state, country or local taxes for which
the Seller may be liable for all periods prior to the Closing Date and in
connection with any other actions, proceedings, arrangements or disputes
involving the Seller based upon contacts, arrangements or acts of the Seller
which were in effect or occurred on or prior to the Closing Date.
8.3 Corporate Name. At the Closing Date, the Seller and the Shareholder
will execute such documents and certificates and take such steps as are
necessary for the Purchaser to obtain the legal right to and use of the Seller's
corporate name. From the Closing Date and beyond, neither the Seller nor the
Shareholder, nor any of their respective affiliates shall use,
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in any manner whatsoever, directly or indirectly, the name "Windmill" or any
words similar thereto except pursuant to a license or other agreement issued by
the Purchaser.
8.4 Loan Out of Employee Services. During the period beginning on the
Closing Date and ending on July 31, 1992, the Seller and the Shareholder, at the
Purchaser's request, shall make available to the Purchaser those individuals
currently employed by the Seller to perform the same or similar services on
behalf of the Purchaser as such individuals currently perform for the Seller,
and the Purchaser covenants that it will reimburse the Seller for all reasonable
costs associated therewith, including the cost of salaries of each of the
individuals at their current salary levels. Both the Seller and Purchaser agree
to take all necessary measures to ensure that the individuals discussed herein
shall at no time become employees of the Purchaser, but instead shall at all
times remain employees of the Seller and be considered independent contractors
of the Purchaser.
8.5 Right of Offset. Seller and Shareholder hereby agree that, with
respect to the Windmill Vitamin Receivables referred to in Paragraph 4.4 hereto,
to the extent the Purchaser is unable to collect an aggregate amount which is
equal to or greater than $118,761.20 (the "Base Amount") by the first
anniversary of the Closing Date, the Purchaser shall be permitted to offset from
the amounts either it, Edward M. Frankel, or any other of its affiliates owe to
the Seller or the Shareholder hereunder or in connection with the Related
Transactions, an amount equal to the difference between the aggregate amount it
collected and the Base Amount. Any collections received from Windmill Vitamin
Receivables subsequent to the right of offset being exercised by the Purchaser
pursuant to this paragraph, shall be paid reasonably promptly to the Seller.
SECTION 9. COVENANTS OF THE PURCHASER
9.1 Release of the Seller. The Purchaser will cooperate with the Seller to
obtain the release of the Seller from all liabilities occurring after the
Closing Date under the contracts, leases and other agreements or instruments
covered by Schedule 1.3 hereto.
9.2 Applications. The Purchaser will join with the Seller upon its request
in making any and all requests or applications necessary or convenient to obtain
the consents and approvals of third parties to the assignment of those
instruments referred to in Schedule 1.3 hereto which cannot be effectively
transferred without the consents or approvals of such third persons, provided,
that the Purchaser shall not be obligated hereby to pay money or other
consideration to any such third party to obtain any such consents or approvals.
The Purchaser will diligently prosecute each such application made or joined in
by it pursuant to this Agreement, and will use every reasonable effort to obtain
final action thereon prior to the Closing Date.
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SECTION 10. CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligation of Purchaser to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, at or before the Closing Date, of
the following conditions, any one or more of which may be waived by it in its
sole discretion;
10.1 Representations and Warranties of the Seller and Shareholder. All
representations and warranties made by the Seller and the Shareholder in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as if again made by the Seller and Shareholders on and as of such
date, and the Purchaser shall have received a certificate dated the Closing Date
and signed by the President and by the chief financial officer of the Seller and
by the Shareholder to that effect.
10.2 Performance of the Seller's and Shareholder's Obligations. The Seller
and the Shareholder shall have performed in all material respects all
obligations required under this Agreement to be performed by them on or before
the Closing Date.
10.3 Consents and Approvals. All consents, waivers, authorizations and
approvals of any governmental or regulatory authority, domestic or foreign, and
of any other person, firm or corporation, required in connection with the
execution, delivery and performance of this Agreement, shall have been duly
obtained and shall be in full force and effect on the Closing Date.
10.4 No Violation of Orders. No preliminary or permanent injunction or
other order issued by any court or governmental or regulatory authority,
domestic or foreign, nor any statute, rule, regulation, decree or executive
order promulgated or enacted by any government or governmental or regulatory
authority, which declares this Agreement invalid in any respect or prevents the
consummation of the transactions contemplated hereby, or which materially and
adverse affects the assets, properties, operations, prospects, net income or
financial condition of the Companies shall be in effect.
10.5 Other Closing Documents. Purchaser shall have received such other
certificates, instruments and documents in confirmation of the representations
and warranties of the Seller and the Shareholder or in furtherance of the
transactions contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.
10.6 Legal Matters. All certificates, instruments and other documents
required to be executed or delivered by or on behalf of any of the shareholders
or the Seller under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of any of the Shareholders or
the Seller in furtherance of the transactions contemplated hereby (including
shareholders consent to the transaction), shall be reasonably satisfactory in
form and substance to counsel for the Purchaser.
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10.7 U.C.C. Searches. On or prior to the Closing Date, Purchaser shall
have received from the Seller Uniform Commercial Code Search Forms, with respect
to all of the Purchased Assets and properties of the Seller, the result of which
will be in accordance with the representations and warranties contained in this
Agreement and satisfactory to Purchaser's counsel.
10.8 Windmill Southwest. On or prior to the Closing Date, the Seller shall
have purchased certain account receivables of Windmill Vitamins of Southwest,
Inc., a Texas corporation, on terms and conditions satisfactory to the
Purchaser.
10.9. Related Transactions. All of the Related Transactions shall have
been consummated and closed.
SECTION 11. TAXES, UTILITIES, ASSESSMENTS AND OTHER ADJUSTMENTS
11.1 General Taxes.
A. The Seller shall be liable for and shall pay all General Taxes (as
hereinafter defined) levied and assessed against the Purchased Assets for
periods prior to the Closing Date. The Purchaser shall be liable for and
shall pay all General Taxes levied and assessed against the Purchased
Assets for periods from the Closing Date onward.
B. The Seller shall pay all installments of special taxes or special
assessments which were levied or assessed against the Purchased Assets
prior to the Closing Date, whether payable prior to the Closing Date or
thereafter, and the Purchaser shall pay all special taxes or special
assessments levied or assessed against the Purchased Assets on or after the
Closing Date.
C. As used in this Section 11, the term "General Taxes" shall mean all
taxes imposed by any government including, but not limited to, ad valorem
and severance taxes or other taxes on real or personal property, and
highway vehicle use taxes and fees, but the term "General Taxes" shall not
include sales and use taxes, real property transfer taxes, or any franchise
taxes, income taxes or other taxes based on income.
11.2 Sales, Use, Transfer and Other Taxes. The following taxes will be
paid as indicated:
A. Sales and use taxes imposed on the purchase, sale, use or transfer
of any of the Purchased Assets by the Seller prior to the Closing Date
shall be paid by the Seller. Any such taxes imposed on any purchase, sale,
use or transfer of any of the Purchased Assets by the Purchaser after the
Closing Date shall be paid by the Purchaser.
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<PAGE> 14
B. Franchise taxes, income taxes or any other taxes based on net
income earned from the Purchased Assets on or prior to the Closing Date,
together with expenses incidental to the determination and payment thereof,
shall be paid by the Seller. Any such taxes based on net income earned from
the Purchased Assets after the Closing Date, together with expenses
incidental to the determination and payment thereof, shall be paid by the
Purchaser.
SECTION 12. RISK OF LOSS AND CONDEMNATION
12.1 Risk of Loss After the Closing. The Purchaser shall bear all risk of
loss of or damage to the Purchased Assets, after the Closing.
12.2 Risk of Loss Prior to the Closing. The Seller shall bear all risk of
loss of or damage to the Purchased Assets, until consummation of the Closing.
SECTION 13. INDEMNIFICATION: BULK SALES COMPLIANCE
13.1 The Seller's and Shareholder's Indemnity. Except as otherwise
provided herein, the Seller and the Shareholder, jointly and severally, shall
indemnify and hold harmless the Purchaser against and in respect of (i) any and
all liabilities and obligations of the Seller arising out of any transaction
entered into by the Seller or other facts or circumstances arising or existing
prior to the Closing Date and not expressly assumed by the Purchaser pursuant to
Section 4, (ii) any and all losses, damages or deficiencies resulting from any
misrepresentations, breach of warranty or non-fulfillment of any covenant or
agreement on the part of the Seller and/or the Shareholder under this Agreement
and (iii) any and all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including reasonable attorneys' fees) incident to
the foregoing.
13.2 The Purchaser's Indemnity. Except as otherwise provided herein, the
Purchaser shall indemnify and hold harmless the Seller against and in respect of
any and all liabilities and obligations of: (i) the Purchaser arising out of any
transaction entered into by the Purchaser after the Closing Date, (ii) any and
all loss, damage or deficiency resulting from any misrepresentations, breach of
warranty or non-fulfillment of any covenant or agreement on the part of the
Purchaser under this Agreement, and (iii) any and all actions, suits,
proceedings, demands, assessments, judgments, costs and expenses (including
reasonable attorneys' fees) incident to the foregoing.
13.3 Bulk Sales Compliance. The Purchaser hereby waives compliance by the
Seller with the provisions of any so-called bulk transfer laws of any
jurisdiction in connection with the sale of the Purchased Assets to the
Purchaser. The Seller and Shareholder shall jointly and severally indemnify and
hold harmless the Purchaser against any and all liabilities which
14
<PAGE> 15
may be asserted by third parties against the Purchaser as a result of the
Seller's noncompliance with any such bulk transfer laws.
SECTION 14. FURTHER ASSURANCES BY THE SELLER
The Seller's Further Assurances. As used in this Section, "Further
Assurances" shall mean any deeds, assignments, powers of attorney or other
documents or instruments which may be reasonably required to transfer ownership
of the Business and the Purchased Assets to the Purchaser, to confirm such
ownership or to facilitate effective recordation thereof, or to put the
Purchaser in actual possession and operating control of the Purchased Assets. As
soon as practicable after any request for Further Assurances made by the
Purchaser at or after the Closing Date and subject to the following sentence,
the Seller shall, if authorized by law to do so, either execute such Further
Assurances and deliver them to the Purchaser or cause them to be executed and
delivered to the Purchaser (i) without any charge to the Purchaser, and (ii) in
proper form for any required recording, filing or registration. This Section 14
shall not obligate the Seller to provide or pay for documentary stamps or to pay
transfer or sales taxes on recording or similar charges not otherwise provided
for in this Agreement.
SECTION 15. MISCELLANEOUS
15.1 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and shall become
effective when one or more counterparts have been signed by each of the parties.
15.2 Survival of Representations and Warranties. The representations and
warranties made in this Agreement and in any certificate, exhibit or document
delivered in connection therewith shall survive the Closing Date.
15.3 Brokerage and Other Expenses. Each of the parties hereto represents
and warrants to the others that this Agreement is the result of direct
negotiations between the parties hereto and that such party is not paying and is
not obligated to pay any commission, broker's fee or finder's fee in connection
with the transaction contemplated hereby. Except as otherwise provided herein,
each of the parties hereto shall pay its or their respective expenses,
including, without limitation, attorneys' fees, in connection herewith and with
the transactions contemplated hereby, and none of the parties hereto shall be
liable for such expenses of any other party hereto.
15.4 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 York. The parties to this Agreement, acting for themselves and for
their respective successors and assigns, without regard to domicile, citizenship
or residence, hereby expressly and
15
<PAGE> 16
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 Illinois located
in Cook County, and/or the United States District Court for the same location,
in respect of any matter involving money damages and arising under this
Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Subsection 15.5 hereof.
15.5 Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or served
if in writing and delivered personally or sent by telefacsimile, certified mail,
postage prepaid, or by telegraph, charges prepaid.
A. If to the Purchaser, addressed to the Purchaser at:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
Telecopier: (201) 575-6782
Attn: Mr. Edward M. Frankel, President
with a copy to:
Morrison Cohen Singer & Weinstein
750 Lexington Avenue
New York, New York 10022
Telecopier: (212) 735-8708
Attn: Stephen A. Cohen, Esq.
and;
B. If to the Seller, addressed to the Seller at:
Windmill Natural Vitamin Company, Inc.
4560 W. Touhy Avenue
Lincolnwood, Illinois 60646
Telecopier: (708) 498-8978
16
<PAGE> 17
Attn: Earl Weisman, President
and;
C. If to the Shareholder, addressed to the Shareholder at:
Mr. Earl Weisman
8934 Kenton Avenue
Skokie, Illinois 60076
with a copy to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
or such address as shall be furnished in writing by either party to the other
party.
15.6 Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement, provided, however, that the Purchaser may assign or transfer
this Agreement, or any interest therein, to any person or entity controlled by,
controlling, or under common control with the Purchaser, provided that no such
assignment shall relieve Purchaser of any liabilities to Seller hereunder.
15.7 Modification. This Agreement may not be amended, modified, or
supplemented except by a written instrument executed by duly authorized officers
of the Seller and the Purchaser.
15.8 Waiver. Each party may, at its option, waive in writing any and all
of the conditions herein contained to which its obligations hereunder are
subject. Except by such a writing, no action or omission of a party shall be
construed as a waiver of any condition or right.
15.9 Severability. If any provision of this Agreement shall for any reason
be determined by a court of competent jurisdiction to be so broad as to be
invalid or unenforceable, such provision shall be automatically reformed and
construed so as to be valid, operative, and enforceable to the maximum extent
permitted by law or equity while most nearly preserving its original intent. The
invalidity of any part of this Agreement shall not render invalid the remainder
of this Agreement.
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<PAGE> 18
15.10 Entire Agreement. This instrument contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and supersedes all previous written or oral negotiations, commitments and
writings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
WINDMILL MARKETING SERVICES, INC.
By: /s/ EDWARD M. FRANKEL
---------------------------------------
Edward M. Frankel
President
WINDMILL NATURAL VITAMIN COMPANY, INC.
By: /s/ EARL WEISMAN
---------------------------------------
Earl Weisman
President
/s/ EARL WEISMAN
------------------------------------------
Earl Weisman
18
<PAGE> 1
Exhibit 10.30
GUARANTEE AGREEMENT
1. EDWARD M. FRANKEL ("Guarantor") having an office at 100 Lehigh Drive,
Fairfield, New Jersey 07006 hereby unconditionally guarantees to EARL WEISMAN
("Weisman") residing at 8934 Kenton Avenue, Skokie, Illinois 60076, the due and
punctual payment in full when due of all amounts payable (the "Guaranteed
Payments") by (a) Garden State Nutritionals, Inc. ("Garden State") under the
Stock Redemption Agreement dated May 28, 1992 between Garden State, Weisman, et.
al., under the Garden State promissory note issued pursuant thereto and under
the Consulting and Non-competition Agreement dated May 28, 1992 between Garden
State and Weisman, and (b) Windmill Marketing Services, Inc. ("Windmill") under
the Stock Redemption Agreement dated May 28, 1992 between Windmill, Weisman, et.
al., under the Windmill promissory note issued pursuant thereto and under the
Consulting and Non-competition Agreement dated May 28, 1992 between Windmill and
Weisman (all of the foregoing, collectively, the "Agreements").
2. The liability of Guarantor under this Guarantee Agreement (hereinafter
referred to as the "Guarantee") is absolute, primary, direct and immediate and
not conditional or contingent upon pursuit by Weisman of any other action or
proceeding for collection, or of any other remedies it may have, against Garden
State, Windmill, any other guarantor, or any other person, except that prior to
making demand hereunder, Weisman shall have made prior demand on Garden State or
Windmill, as the case may be, with respect to the Guaranteed Payment in
question, and five (5) business days shall have elapsed from the time of such
demand, with Garden State or Windmill, as the case may be, not having made such
Guaranteed Payment.
3. Guarantor hereby expressly agrees that Weisman may, in his sole and
absolute discretion, without prior notice to, or consent of, Guarantor and
without in any way releasing, affecting or impairing the obligations and
liabilities hereunder of Guarantor:
(a) waive, in whole or in part, compliance with, or any defaults
under, or grant any other indulgences with respect to, or act or fail to
act with respect to, any instrument or document now or hereafter in effect
evidencing or relating to the Guaranteed Payments;
(b) grant extensions, continuations or renewals of, or with respect
to, the Guaranteed Payments, or the Agreements, in whole or in part, and/or
effect any release, compromise or settlement in connection therewith; or
(c) assign or otherwise transfer the Guaranteed Payments, together
with this Guarantee, free of any defense, counterclaim or setoff in favor
of Garden State, Windmill or Guarantor, such parties, however, retaining
any right of action available directly against Weisman to enforce any such
counterclaim or setoff.
4. Except as otherwise provided in paragraph 2 hereof, Guarantor hereby
expressly waives, to the fullest extent permitted by law, (i) presentment and
demand for
<PAGE> 2
payment, notice of nonpayment and dishonor, and protest and notice of protest,
of the Guaranteed Payments, (ii) notice of acceptance of this Guarantee and of
presentment, demand and protest, (iii) notice of any default hereunder or with
respect to the Guaranteed Payments or under the Agreements or, (iv) demand for
observance or performance of, or enforcement of, any term or provision of this
Guarantee, any of the Guaranteed Payments or the Agreements, and (v) all other
notices and demands required by law which Guarantor may lawfully waive.
Guarantor agrees to reimburse Weisman and his assigns, on demand, for all
expenses, collection charges, court costs and reasonable attorney's fees
incurred in endeavoring to collect or enforce the Guaranteed Payments against
Garden State or Windmill or Guarantor or any other person or entity liable
thereon, including such expenses, charges or fees incurred in proving the amount
and reasonableness thereof.
5. Any notice, demand or request (including service of process in any
action to enforce this Guarantee) which Weisman may give to Guarantor with
respect to this Guarantee shall be deemed sufficient if in writing and delivered
personally or given by prepaid telegram or by registered or certified mail to
Guarantor at the address set forth above.
6. All rights and remedies afforded to Weisman by reason of this Guarantee,
the Guaranteed Payments, the Agreements, or by law, are separate and cumulative
and the exercise of one shall not in any way limit or prejudice the exercise of
any other such right or remedy. No delay or omission by Weisman in exercising
any such right or remedy shall operate as a waiver thereof. No waiver of any of
its rights or remedies hereunder, and no modification or amendment hereof, shall
be deemed made by Weisman unless in writing and duly signed on behalf of
Weisman. Any such written waiver duly signed on behalf of Weisman shall apply
only to the particular instance specified therein and shall not impair the
further exercise of such right or remedy of Weisman, and no single or partial
exercise of any right or remedy hereunder shall preclude any other or further
exercise thereof or of any other right or remedy.
7. This Guarantee shall be binding upon Guarantor and his heirs, executors
and legal representatives.
8. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Payments or of any security therefor, or under any of the
Agreements, shall affect, impair or be a defense to this Guarantee, and this
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment, without regard to the validity, regularity or
enforceability of any of the Agreements or any collateral security therefor at
any time or from time to time held by Weisman and without regard to any defense,
offset or counterclaim which may at any time be available to Garden State or
Windmill which constitutes, or might be construed to constitute, an equitable or
legal discharge of Garden State or Windmill in any federal or state bankruptcy
or insolvency proceeding.
9. The invalidity or unenforceability of any one or more sentences,
phrases, clauses or provisions in this Guarantee shall not affect the validity
or enforceability of any other sentence, phrase, clause or provision of this
Guarantee.
2
<PAGE> 3
10. THIS GUARANTY SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW
YORK AND THE RIGHTS AND LIABILITIES OF THE PARTIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE GUARANTOR,
ACTING FOR HIMSELF AND FOR HIS HEIRS, EXECUTORS AND LEGAL REPRESENTATIVES,
WITHOUT REGARD TO DOMICILE, CITIZENSHIP OR RESIDENCE, HEREBY EXPRESSLY AND
IRREVOCABLY ELECTS AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ANY
MATTERS INVOLVING MONEY DAMAGES AND ARISING UNDER OR IN CONNECTION WITH THIS
GUARANTY, AND CONSENTS AND SUBJECTS HIMSELF TO THE JURISDICTION OF, THE COURTS
OF THE STATE OF ILLINOIS LOCATED IN COOK COUNTY, AND/OR THE UNITED STATES
DISTRICT COURT FOR THE SAME LOCATION, IN RESPECT OF ANY MATTER INVOLVING MONEY
DAMAGES AND ARISING UNDER THIS GUARANTY. ALL OTHER MATTERS ARISING UNDER THIS
GUARANTY, INCLUDING THOSE INVOLVING EQUITABLE REMEDIES SOUGHT BY EITHER PARTY
HERETO, SHALL BE BROUGHT EXCLUSIVELY IN COURTS OF THE STATE OF NEW YORK LOCATED
IN NEW YORK CITY, AND/OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND THE GUARANTOR AND WEISMAN, ACTING FOR THEMSELVES AND
FOR THEIR HEIRS, EXECUTORS AND LEGAL REPRESENTATIVES, WITHOUT REGARD TO
DOMICILE, CITIZENSHIP OR RESIDENCE, HEREBY EXPRESSLY AND IRREVOCABLY ELECT SUCH
FORUM AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ALL SUCH MATTERS, AND
CONSENT AND SUBJECT THEMSELVES TO THE JURISDICTION OF SUCH COURTS. 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 PARTY AS PROVIDED IN THE AGREEMENTS.
11. This Guarantee shall remain in full force and effect until the full and
complete payment of all the Guaranteed Payments.
IN WITNESS WHEREOF, this instrument has been duly executed by the
undersigned as of the 11th day of April, 1996.
/s/ EDWARD M. FRANKEL
--------------------------------------
Edward M. Frankel
The undersigned hereby accepts the above Guarantee, in lieu of and in
substitution for all stock certificates for shares of capital stock of Garden
State and of Windmill which had been delivered as collateral under the
Agreements, and consents to the release thereof from escrow by the Escrow Agent
named therein and delivery thereof by such Escrow Agent to Garden State and
Windmill, respectively.
/s/ EARL WEISMAN
--------------------------------------
Earl Weisman
DATED: MAY 10, 1996
3
<PAGE> 1
Exhibit 10.31
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (the "Agreement") made as of this 28th day of
May, 1992 by and between WINDMILL MARKETING SERVICES, INC. (the "Company"), a
New Jersey corporation having its principal office and place of business at 100
Lehigh Drive, Fairfield, New Jersey 07006 and WINDMILL NATURAL VITAMIN COMPANY,
INC. ("Windmill Vitamin") having its principal office and place of business at
4560 W. Touhy Avenue, Lincolnwood, Illinois 60646.
W I T N E S S E T H:
WHEREAS, Windmill Vitamin has been in the business of soliciting orders for
vitamins and cosmetics from retail stores, outlets and other ventures for more
than five (5) years and has intimate knowledge of its business and customers, as
well as the markets in which it operates;
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of the date hereof, by and between Windmill
Vitamin and the Company, Windmill Vitamin has agreed to sell, transfer, convey,
assign and deliver, and the Company has agreed to purchase and accept, the
business and all or substantially all of Windmill Vitamin's assets provided that
Windmill Vitamin agrees not to thereafter compete with the Company on the terms
and conditions hereinafter provided.
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. Restrictive Covenants.
(a) Windmill Vitamin hereby acknowledges and recognizes the highly
competitive nature of its business and, accordingly, agrees that in
consideration of the premises contained herein and the Non-Compete Fee to
be paid hereunder, it will not, other than on behalf of the Company or any
affiliate of the Company, during the term hereof, and for a period of five
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 from any retail or wholesale
store, outlet or other business, whether through the use of the mails or by
any other means, and (ii) the marketing or sale of vitamins to any retail
or wholesale store, outlet or other business.
1
<PAGE> 2
(c) In the event of a breach or threatened breach by Windmill Vitamin
of the provisions of this paragraph 1, the Company shall be entitled to an
injunction restraining it 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 reasonable 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.
(d) Anything herein to the contrary notwithstanding, Windmill Vitamin
shall no longer be bound by any of the restrictions contained herein in the
event that (i) the Company defaults in payment of any of its obligations
pursuant to the terms of this Agreement, and (ii) the default described in
paragraph 1(d)(i) is not cured within 30 days after the Company has
received written notice of such default from Windmill Vitamin.
2. Non Compete Fee.
Windmill Vitamin shall receive an aggregate fee (the "Non-Compete Fee") in
consideration of its covenant not-to-compete, the terms and conditions of which
are set forth in paragraph 1 hereto, equal to Two Hundred Thousand Dollars
($200,000), payable in four equal installments of Fifty Thousand Dollars
($50,000) each on the fifth through eighth anniversaries of the date hereof, in
each case, together with interest thereon, payable quarterly in arrears,
commencing with the third month following the month hereof, on the same day of
the month as the day hereof (or the last day of the month if there is no
corresponding day), at a fluctuating rate per annum equal to prime or an
equivalent rate of interest from time to time announced or published by Chemical
Bank, N.A., or if the foregoing ceases to exist or ceases to publish a prime
rate of interest such other New York money center as Windmill Vitamin and the
Company may agree.
3. 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:
Windmill Marketing Services, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07006
Attention: Edward M. Frankel, President
Telecopier: (201) 575-6782
2
<PAGE> 3
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 Windmill Vitamin, to:
Windmill Natural Vitamin Company, Inc.
4560 West Touhy Avenue
Lincolnwood, Illinois 60646
Attention: Earl Weisman, President
Telecopier: (708) 498-8978
with copies to:
Fred Carman, Esq.
350 Pfingten Road
Suite 104
Northbrook, Illinois 60062-2032
Telecopier: (708) 498-8978
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.
4. Modification and Waiver. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by all 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.
5. 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.
6. Entire Agreement. This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, representations, and understandings of the parties with
respect thereto.
3
<PAGE> 4
7. 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 York. 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 Illinois
located in Cook County, and/or the United States District Court for the same
location, in respect of any matter involving money damages and arising under
this Agreement. All other matters arising under this Agreement, including those
involving equitable remedies sought by either party hereto, shall be brought
exclusively in courts of the State of New York located in New York City, and/or
the United States District Court for the Southern District of New York, and the
parties hereto, acting for themselves and for their beneficiaries, heirs,
successors and assigns, without regard to domicile, citizenship or residence,
hereby expressly and irrevocably elect such forum as the sole judicial forum for
the adjudication of all such matters, and consent and subject themselves to the
jurisdiction of such courts. 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 party as provided in
Paragraph 3 hereof.
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
9. 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
Windmill Vitamin hereby consents and agrees that such scope may be judicially
modified accordingly in any such jurisdiction in any proceeding brought to
enforce such restriction.
10. Headings. The headings hereof are inserted for convenience of
reference only and shall not be deemed to constitute a part hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
WINDMILL MARKETING SERVICES, INC.
BY: /s/ EDWARD M. FRANKEL
---------------------------------------
Edward M. Frankel
President
WINDMILL NATURAL VITAMIN COMPANY, INC.
BY: /s/ EARL WEISMAN
---------------------------------------
Earl Weisman
President
5
<PAGE> 1
Exhibit 10.32
Amended and Restated Standard Indemnity Agreement CONFIDENTIAL
AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, dated November 11, 1992, by
and between Showa Denko America, Inc. ("SDA"), and Garden State Nutritionals,
Inc. (which, together with the subsidiaries listed on Attachment 1 hereto, are
referred to collectively as the "Company") .
WITNESSETH
WHEREAS, the Company has manufactured, sold, and/or distributed
products containing L-tryptophan ("LTCPs"), some or all of which may have
contained L-tryptophan ("LT") sold by SDA; and
WHEREAS, claims have been asserted and lawsuits have been
instituted against SDA, the Company, and/or direct or indirect customers of the
Company for whom the Company is or may become responsible to provide a defense
(individually a "Secured Customer" and collectively the "Secured Customers"),
alleging that one or more of them is liable for personal injuries arising from
ingestion of LTCPs manufactured, sold, or distributed by the Company; and ,
WHEREAS, in partial settlement of the Company's claim for
indemnification against SDA arising from SDA's sale of LT to the
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Company, or to an entity from which the Company may have purchased, without any
admission of liability by SDA or by the Company with respect to the claims
between them or against them, SDA and the Company wish to provide for their
respective responsibilities for the defense of such claims and for the payment
of judgments and settlements in respect of such claims as provided in this
Restated and Amended Agreement; and
WHEREAS, the Company and SDA previously have entered into an agreement,
dated, August 2, 1990 (the "Prior Agreement"), on the same subject matter as
this Amended and Restated Agreement, and desire by this Amended and Restated
Agreement to amend and restate the Prior Agreement in its entirety (all
references to "this Agreement" below being to the Prior Agreement as amended and
restated in this Amended and Restated Agreement), all in consideration of the
mutual covenants and promises contained herein; and
WHEREAS, in concurrence with the execution of this Amended and Restated
Agreement, Showa Denko K.K., a Japanese company ("SDK") is entering into a
Guaranty Agreement with the Company substantially in the form annexed to this
Agreement as Attachment 2;
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NOW, THEREFORE:
1. This Agreement shall apply to all claims, whether in
litigation or not, alleging liability for personal injuries arising from the
ingestion of LTCPs manufactured, sold, or distributed by the Company asserted
against SDA, the Company, and/or Secured Customers, or against any one or more
of them, whether on, before, or after the date hereof (except as specifically
provided herein) . Each such claim is hereinafter referred to individually as a
"Claim," and all such claims are hereinafter referred to collectively as the
"Claims." Each person asserting a Claim is hereinafter referred to individually
as a "Claimant" and all such persons are hereinafter referred to collectively as
the "Claimants."
2. SDA agrees to indemnify and to hold harmless the Company from
and against any obligation (whether direct or by virtue of any obligation to a
Secured Customer or any cross-claim, third-party claim, claim for contribution
or indemnification, or otherwise) to make payment of any settlement or judgment
for damages in favor of any person in respect of a Claim where the LTCPs
allegedly ingested by the Claimant or Claimants making such Claim contained LT
sold by SDA, as follows:
(a) If a proximate cause of the personal injuries giving rise to
liability, as determined on the basis of a preponderance of the
evidence, including but not limited to
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epidemiological, chemical, and medical evidence, was a constituent of the LT
product sold by SDA or was a factor for which SDK, SDA or any other company or
other entity controlling, controlled by or under common control with SDA (SDK
and each such other company or other entity, an "SDA Affiliate") was
responsible, then, subject to subparagraph (b) below, SDA shall be solely
responsible for the Company's payment obligations, whether direct or indirect as
noted above, in respect of such settlement or judgment;
(b) If a proximate cause of the personal injuries giving rise to liability, as
determined on the basis of a preponderance of the evidence, including but not
limited to epidemiological, chemical, and medical evidence, was (i) the sale of
LT, or of an LTCP for which the recommended daily dosage contained more than 100
mg. of LT, by the Company or by any Secured Customer subsequent to March 17,
1990, or (ii) the sale of an LTCP for which the recommended daily dosage
contained 100 mg. or less of LT by the Company or by any Secured Customer
subsequent to May 23, 1990, or (iii) the addition of any substance to, or
tampering with, any LT or an LTCP while that LT or LTCP was in the possession,
custody or control of the Company or any Secured Customer (each such sale,
addition or tampering, an "Exclusion Event"), then SDA and the Company shall
seek to reach agreement regarding the Company's responsibility, if any,
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for payment in respect of said settlement or such judgment as is fair under all
the circumstances;
(c) If SDA and the Company are unable to agree on the matters which are the
subject of the provisions of subparagraphs (a) or (b) above, then SDA and the
Company shall submit the matter to binding arbitration as specified in paragraph
15 hereof;
(d) Either SDA or the Company may make any payment contemplated under this
paragraph 2 without prejudice to its right to seek reimbursement from the other
under the procedures set forth in paragraph 15;
(e) Each of the Company and SDA agrees that it will provide prompt notice to the
other if it learns of the existence of any Exclusion Event (each such notice, an
"Notice of Exclusion"), it being agreed, however, that a failure by SDA or the
Company to provide such notice shall not (i) be deemed to constitute a material
breach of this Agreement or (ii) result in any change in the rights or
obligations of SDA or the Company pursuant to this Agreement, including without
limitation their respective rights and obligations under or arising by virtue of
subparagraph (b) above. A Notice of Exclusion of any Claim shall be null and
void and of no effect unless provided prior to the earlier to occur of (i) sixty
(60) days prior to the date of the commencement of the earliest to occur of the
trial, arbitration or
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mediation of such Claim and (ii) thirty (30) days prior to any
settlement of such Claim.
(f) Any Notice of Exclusion pursuant to this paragraph shall be made in
the manner provided in paragraph 19 (which paragraph specifies the
party to whom and the place notice is to be delivered).
3. SDA agrees (i) to designate Citibank, N.A., or another bank mutually
acceptable to the parties as the disbursement agent (the "Disbursement Agent")
pursuant to a Disbursement Agent Agreement substantially in the form annexed to
this Agreement as Attachment 3 (such agreement, or any replacement thereof
substantially in such form, the "Disbursement Agent Agreement") and (ii) to
maintain the Disbursement Agent Agreement in effect during the term of this
Agreement. In support of its payment obligations hereunder and under similar
agreements with other customers of SDA, SDA has delivered to the Disbursement
Agent an irrevocable standby letter of credit in favor of the Disbursement
Agent pursuant to the terms of the Disbursement Agent Agreement in the amount
of Twenty Million US Dollars ($20,000,000) substantially in the form of the
letter of credit annexed as Exhibit B to the Disbursement Agent Agreement. If
amounts are drawn on the letter of credit, SDA during the term of this
Agreement will cause an amendment or supplement to the letter of credit or a
new letter of credit to be delivered to the Disbursement Agent providing for a
restored limit of Twenty
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Million US Dollars ($20,000,000) within thirty (30) days after such drawing.
During the term of this Agreement, no later than thirty (30) days prior to the
expiration date of any letter of credit (as it may have been extended from time
to time) , SDA will deliver to the Disbursement Agent a renewal of the letter of
credit for a term of at least two years or a substitute letter of credit for
such term.
The Company shall be a Beneficiary within the meaning of the
Disbursement Agent Agreement, but only so long as (i) this Agreement remains in
effect and to the extent provided in this Agreement or (ii) the Company
otherwise remains entitled to the benefits of the Disbursement Agent Agreement
under paragraph 16 of this Agreement. The Company acknowledges that other direct
and indirect customers of SDA will have equal rights as Beneficiaries under the
Disbursement Agent Agreement.
The Company acknowledges (i) that any claim by it to the
benefits of the Disbursement Agent Agreement must be submitted and administered
in strict compliance with the following procedures, (ii) that the Company has no
right to receive, and the Disbursement Agent has no authority to make, payments
by the Disbursement Agent or draws under the letter of credit unless the claim
has been certified for payment to the Disbursement Agent by the Verification
Agent hereafter referred to, and (iii) that it may claim payment hereunder only
as long as this Agreement remains in effect or the Company otherwise remains
entitled to benefits under paragraph 16 hereof.
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The procedures for submission and review of any claim by the
Company shall be the following:
(a) The Verification Agent shall be a mutually acceptable lawyer
independent of the parties. If such Verification Agent or any
successor shall die or resign or otherwise become unable or
cease to continue to act as such, SDA, after consultation with
the Company and the parties to any other similar agreements with
SDA, shall appoint a successor Verification Agent, who shall be
a lawyer independent of the parties. The Verification Agent will
act independently and impartially on behalf of both parties in
reviewing claims for payment and certifying amounts to the
Disbursement Agent for payment and shall use professional care
in the performance of his function. The Verification Agent shall
not be liable to either party for determinations made by him in
good faith and with due care even though such determinations
subsequently are held to be erroneous. The Verification Agent
shall have no duties except to SDA, the Company, and the parties
other than SDA to agreements similar to this Agreement (such
parties being referred to in the Disbursement Agent Agreement as
Beneficiaries) . Persons asserting Claims, plaintiffs with
judgments against any of SDA, the Company, or Secured Customers,
and Secured Customers shall have no right to assert any
third-party beneficiary relationship against the Verification
Agent or any claim to payment from the Disbursement Agent under
this
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Agreement , except that any Secured Customer that has entered into a separate
indemnification agreement between itself and SDA entitling it to do so may
directly exercise its rights as a Beneficiary under the Disbursement Agent
Agreement pursuant to such separate indemnification agreement. The Company shall
have no responsibility for any part of the fees and expenses of the Verification
Agent or the Disbursement Agent .
(b) If a judgment for money damages is entered against the Company or its
Secured Customer, or a settlement amount is reduced to a judgment enforceable
against the Company or its Secured Customer, as to which the Company contends
that SDA is required to make payment pursuant to paragraph 2 hereof , the
Company may give written notice thereof (the "Payment Request Notice") to SDA
and to the Verification Agent setting forth a brief statement of the basis for
its contention, accompanied by a certified copy of the judgment, together with
evidence that the judgment has become enforceable against the judgment debtor
under applicable law. If SDA does not respond in the terms permitted by
subparagraph (c) hereof within ten (10) business days of the receipt by it of
the Payment Request Notice, the Verification Agent, subject only to his review
of relevant documents and his verification of any pertinent additional
circumstances, shall certify the amount claimed to the
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Disbursement Agent for payment pursuant to the provisions of the Disbursement
Agent Agreement.
(c) In response to a Payment Request Notice, SDA may
(1) acknowledge to the Company and the Verification Agent its obligation
hereunder to pay part or all of the amount claimed, in which event the
Verification Agent shall forthwith certify the amount or such part thereof, as
the case may be, to the Disbursement Agent for payment pursuant to the
provisions of the Disbursement Agent Agreement, and any portion of such claim as
to which SDA does not acknowledge its obligation hereunder to pay shall be
governed by clause (3) of this subparagraph (C);
(2) state that it proposes to take effective steps to stay or suspend
the enforcement of such judgment pending post-trial applications or appeal,
including the posting of any bond or other security required for that purpose,
in which event, provided that the Verification Agent is satisfied that such stay
or suspension has been effected within five (5) business days after notice to
SDA and the Verification Agent from the Company of an attempted enforcement of
such judgment against the Company, further action by the Verification Agent in
respect of such judgment shall be deferred until such stay or suspension
expires; or
(3) object to payment of part or all of the amount requested, stating
briefly its grounds of objection and that it intends to submit its contentions
in arbitration pursuant
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to paragraph 15 hereof and SDA agrees to use its best efforts to expedite any
such arbitration, to select its arbitrator promptly pursuant to the applicable
procedures and to cause such person to select the neutral arbitrator
expeditiously, and to have the arbitration held no later than 180 days after
submission of the matter to arbitration. If SDA submits the matter to
arbitration within thirty (30) days of its response, the liability of SDA, if
any, shall be determined by the decision of the arbitrators. If the arbitrators
award an amount to the Company, then the Verification Agent shall certify the
sum so awarded by the arbitrators to the Disbursement Agent for payment pursuant
to the provisions of the Disbursement Agent Agreement. If in subsequent
proceedings in conformity with the CPR Rules (as defined in paragraph 15) and
the U.S. Arbitration Act the award of the arbitrators is overturned and it is
determined that the amount awarded by the arbitrators and paid by the
Disbursement Agent to or on behalf of the Company exceeds the amount that was
properly owed by SDA, then the Company agrees to pay promptly such excess amount
plus interest at the legal rate. If the Company shall commence judicial
proceedings to review a decision of the arbitrators, the Verification Agent
shall certify to the Disbursement Agent for payment the amount determined in
such judicial proceedings to be due from SDA. If SDA shall object to payment of
less than all the amount claimed by the
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Company, then the Verification Agent shall proceed, as to the balance claimed,
pursuant to clause (1) of this subparagraph (c).
(d) If SDA in response to a Payment Request Notice objects to payment of part or
all of the amount requested by the Company, so that the Verification Agent
cannot certify to the Disbursement Agent a payment to be made in full
satisfaction of the judgment, then the Company may elect to require such a full
payment by SDA notwithstanding its objection by (i) giving notice to the
Verification Agent of such election not later than ten (10) business days after
receipt of SDA's objection, including therewith evidence acceptable to the
Verification Agent demonstrating the Company's compliance with the Escrow
Requirement, and (ii) satisfying the Escrow Requirement, as hereinafter defined,
with respect to all that part of the judgment as to which SDA made objection.
Promptly upon receipt of such timely notice with such evidence, the Verification
Agent shall certify the amount to which SDA objected to the Disbursement Agent
for payment pursuant to the provisions of the Disbursement Agent Agreement. To
exercise this election, the Company must deposit a sum of money in an amount
equal to all that part of the judgment to which SDA made objection in an
interest-bearing escrow account with a substantial mutually acceptable bank and
execute an escrow agreement in standard form (the "Escrow Agreement") with
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said bank for the benefit of SDA (the "Escrow Requirement"). If the Company
exercises this election, then SDA will submit the dispute to arbitration within
thirty (30) days as provided in subparagraph 3(c)(3) above. The Escrow Agreement
shall provide that the deposited escrow funds, with interest earnings net after
escrow fees thereon, will be released by the escrow agent to the parties as
their interests may appear pursuant to and in accordance with the award of the
arbitrators on the dispute as to such amount to which SDA made objection, or as
otherwise directed in a writing signed by both SDA and the Company. If the award
is overturned in any subsequent proceedings (as above provided), and it is
determined that either SDA or the Company received an amount from the escrow
larger than that to which it was entitled, then the party receiving such excess
agrees to pay promptly such excess amount, plus the attributable share of the
net interest earnings on the amount that it received, plus interest at the legal
rate accruing after the escrow distribution, to the party determined to be
entitled thereto.
(e) In any case in which the Verification Agent is required to verify the
appropriateness of payment of an amount claimed by the Company, the Verification
Agent shall promptly review the documents submitted and conduct such further
investigation, if any, of additional facts and circumstances as he determines to
be appropriate. SDA and
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the Company shall cooperate fully in any such investigation and shall respond to
inquiries from the Verification Agent and provide explanations within two (2)
business days of any such inquiry. The Company shall use its best efforts to
cause any Secured Customer to cooperate in like manner. Whenever he deems it
appropriate, the Verification Agent may seek information by conference
telephone calls with counsel for the parties, and the parties agree to cause
their respective counsel to cooperate fully with the Verification Agent for that
purpose, subject to the maintenance of any privilege .
(f) At the request of either party, the Verification Agent may require that
procedures be followed to assure that a payment from the Disbursement Agent will
be applied solely to payment of the judgment or arbitral award as to which claim
has been made, and for no other purpose. These procedures may include a
direction to the Disbursement Agent to issue a check directly to the order of a
judgment plaintiff against delivery of a satisfaction of the judgment and
release of the defendant or defendants against which the judgment or portion
thereof being paid was entered, satisfactory to counsel for the parties.
4. SDA shall have no obligation to indemnify for or to
make any payments in respect of any judgment or part of a
judgment (i) for damages caused by the intentional tort of the
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Company or any Secured Customer, (ii) for punitive damages attributable to
conduct of the Company or any Secured Customer, (iii) for civil or criminal
penalties, or (iv) for any award of multiple damages caused by the intentional
misconduct or violations of law by the Company or by any Secured Customer; but
SDA's obligation to indemnify shall apply to the extent that the Company's or
any Secured Customer's liability for such damages or penalties is attributable
solely to the acts or the failure to act of SDA or of any SDA Affiliate.
However, nothing in the preceding sentence shall constitute a waiver of any
rights that the Company or a Secured Customer may have under common law or
statute to seek indemnification or contribution from SDA or any affiliate
thereof in respect of damages or penalties of a type specifically described in
the preceding sentence that are imposed upon the Company or the Secured
Customer, subject to the provisions of paragraphs 14 and 15. SDA shall not be
obligated to make any payments in respect of a default judgment on a Claim
against the Company or any Secured Customer unless SDA or counsel retained by
SDA was responsible for defense of the Claim in litigation at the time of
default. SDA shall have no obligation under this Agreement to pay for any
settlement of any Claim entered into by the Company or any Secured Customer
prior to the date of this Agreement, but SDA may agree to accept such obligation
in a separate agreement in writing.
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5. The parties hereto agree that the Company shall use best efforts to
secure the compliance of its Secured Customers with the provisions of this
Agreement that pertain to them. Failure of such compliance on the part of a
Secured Customer that adversely affects the ability of SDA to conduct a defense
against any Claim shall be a basis for SDA to withhold the benefits of this
Agreement from such Secured Customer with respect to such Claim, but shall not
be a basis for SDA to withhold the benefits of this Agreement from the Company
except as expressly provided in the last sentence of paragraph 6(b), paragraph
9(d), or the third sentence of paragraph 14 of the Agreement.
6. (a) SDA shall pay the legal fees and expenses as incurred in, and
shall be entitled to supervise and direct, the defense of any
Claims which fall within the provisions of this Agreement made
against SDA, the Company, or any Secured Customer including,
without limitation, any Claim presented to any court,
administrative body, other tribunal, or otherwise and including
the negotiation of settlement of any Claim before or after such
presentation.
(b) The Company hereby consents to be jointly represented with SDA
by common counsel selected by SDA (such common counsel, so
selected; "Common Counsel") in respect of any Claim where SDA, in
its sole discretion, deems it advisable to retain such Common
Counsel. The
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Company will use best efforts to obtain the consent of each
Secured Customer involved in the Claim to such joint
representation. SDA shall be responsible for all fees and
disbursements of such Common Counsel as they are incurred. SDA and
the Company agree promptly to enter into a common representation
agreement or agreements substantially in the form annexed to this
Agreement as Attachment 4 (and the Company will use best efforts
to cause any involved Secured Customers to become parties thereto)
providing for the retention of Common Counsel on a Claim-by-Claim
basis, which agreements shall provide for the waiver of any
conflicts of interest that may exist. SDA shall have no obligation
to defend any Secured Customer who shall refuse to agree to a
request for such common representation, and SDA shall have no
obligation to make payment hereunder to the extent that such
payment obligation is in respect of a Claim against a Secured
Customer who refused to participate in the common defense against
such Claim.
(C) If the Company or SDA shall terminate this Agreement, and SDA
is not then in default of its obligations under the provisions of
paragraph 3 above, then the terminating party shall withdraw from
representation by Common Counsel; provided, however, that in the
event SDA terminates this Agreement
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pursuant to the second sentence of paragraph 16 of this Agreement,
the Company will be deemed to have withdrawn from all applicable
common representation agreements and to have consented to the
continued representation by Common Counsel of SDA and all other
parties to any common representation agreement in respect of any
Claims. Except as set forth in the immediately preceding proviso,
the Company and SDA each hereby expressly agrees that the
non-terminating party may continue to be represented by Common
Counsel. The Company and SDA each waives any conflicts of interest
that continued representation of the other party by Common Counsel
in accordance with this Agreement might otherwise entail. If SDA
is in default of its obligations under the provisions of paragraph
3 above, and if the Company or SDA shall terminate this Agreement,
then at the Company's request SDA shall withdraw from
representation by Common Counsel, and each party hereby expressly
agrees that the Company and the Secured Customers may continue to
be represented by Common Counsel and waives any conflicts of
interest that such representation might otherwise entail. If the
Company terminates this Agreement or if SDA terminates this
Agreement pursuant to the provisions of the second sentence of
paragraph 16, SDA shall have no
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further obligation to defend Secured Customers under this
Agreement.
(d) Nothing herein shall preclude SDA, the Company, or any Secured
Customer from retaining separate counsel in respect of any Claim,
but the party retaining separate counsel shall instruct such
separate counsel to cooperate with SDA's counsel unless it is
prejudicial to do so, and a party retaining separate counsel shall
be responsible for payment of the fees and disbursements of its
separate counsel unless otherwise agreed by SDA.
(e) At the request of the Company, SDA will pay the reasonable
fees, costs and disbursements of one national coordinating counsel
for the Company, who shall also be responsible for contact with
each of the Company's Secured Customers. If the Company shall have
retained national coordinating counsel, then SDA will use best
efforts to consult with such counsel regarding the selection of
counsel for particular cases and regarding important decisions in
the litigation. SDA will instruct Common Counsel (i) to provide
such national coordinating counsel, on a timely basis, copies of
all pleadings, discovery, and status reports and material
correspondence so that such national coordinating counsel will be
kept fairly apprised of the progression of the litigation; (ii) to
consult with
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such national coordinating counsel regarding material Court
filings made on behalf of the Company or a Secured Customer on a
timely basis in advance of making such filings; and (iii) to keep
such national coordinating counsel advised of settlement
negotiations at least bimonthly. SDA and Common Counsel shall
endeavor to contact the Company and the Secured Customers through
the Company's national coordinating counsel. National coordinating
counsel will be provided reasonable access to the files of Common
Counsel for the review and copying of such files on all matters
related to the joint defense.
7. The Company will cooperate fully with SDA, and will use best efforts
to obtain the Secured Customers' cooperation with SDA, in the investigation and
defense of Claims, including but not limited to making its or their records and
personnel available to SDA and its attorneys and providing witnesses to present
testimony at any trial, arbitration, or proceeding, if requested to do so, and
consulting with SDA's attorneys prior to providing any documents or information
to any claimant or any person acting on behalf of a claimant. SDA will also
cooperate in the defense of Claims in cases in which it is not a party. The
Company agrees promptly to instruct all counsel which, prior to the date of this
Agreement, have represented the Company in connection with any Claim (i) to
provide counsel for SDA with
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copies of all written communications, and to disclose to counsel for SDA the
substance of all oral communications, made prior to the date of this Agreement
to counsel for any plaintiff in any Claim (other than documents or oral
statements either previously provided to counsel for SDA or exclusively in
respect of procedural issues); and (ii) except with respect to a Withdrawn Claim
(as defined in paragraph 13 below) to refrain from oral or written
communications with any such plaintiff's counsel (x) without providing Common
Counsel prior notice of the opportunity to attend, or (y) as authorized by
counsel for SDA, or (z) as required by law.
8. The Company represents and agrees that (a) no default judgment on
any Claim has been entered against it or to its knowledge any of its Secured
Customers as of the date of this Agreement, and it will not, and will use best
efforts to cause its Secured Customers not to, knowingly permit a default
judgment to be taken against it or them hereafter without SDA's express written
consent; (b) neither it nor, to its knowledge, any of its Secured Customers has
knowingly made, and it will not, and will use best efforts to cause its Secured
Customers not to, knowingly make, any admission of liability for any Claim; and
(c) neither it nor, to its knowledge, any of its Secured Customers has entered
into any agreement for the compromise or settlement of any Claim (except for any
such agreements as have been identified in writing to SDA prior to execution of
this Agreement) or will
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hereafter enter into any agreements for the compromise or settlement of any
Claim without SDA's consent (which consent shall not be unreasonably withheld) ,
and any such settlement payment made shall be subject to paragraph 2(d) above.
9. (a) In the event of any material breach by the company or by SDA
of this Agreement, then the other party ("the non-breaching
party") may, at its sole option, waive the breach or, in addition
to any other remedies provided herein (including without
limitation arbitration pursuant to paragraph 15), (i) terminate
this Agreement or (ii) terminate this Agreement with respect to
any Claim the defense of which has been materially adversely
affected by such breach. If the party alleged to be in material
breach disputes the grounds for termination of the Agreement, then
such party must submit the matter to arbitration within 30 days
after the notice of termination or be deemed to have accepted it.
(b) The failure of a Secured Customer to comply with the
provisions of this Agreement shall not be deemed a breach of this
Agreement by the Company entitling SDA to invoke the termination
rights in subparagraph (a) above if and so long as the Company has
exercised, and continues to exercise, its best efforts to persuade
the Secured Customer to comply.
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(C) In the event of a material breach by the Company, and in
addition to the remedy in subparagraph (a) above, SDA may seek to
reduce (in whole or in part) the portion of any settlement or
judgment it must pay under this Agreement to the extent such
amount was adversely affected by such breach. If the Company
disputes any such reduction in payment, then SDA must submit the
matter to arbitration pursuant to paragraph 15 hereof. Should SDA
reduce its portion of any settlement or judgment as provided
herein, the Company shall not be required to pay any part or all
of said settlement or judgment by virtue of this provision except
by order of the arbitrators.
(d) SDA may also invoke the provisions of paragraph 9(c) above to
seek to reduce its obligation as to amounts attributable to a
Secured Customer in a situation described in paragraph 9(b) above.
(e) Nothing contained in this paragraph 9 shall limit the right of
a party to terminate this Agreement pursuant to paragraph 16 of
this Agreement.
10. SDA shall be solely responsible for retaining and supervising claims
adjusters for Claims, except for any Claims asserted before the date hereof for
which the Company has engaged an adjuster who has already contacted the claimant
or the claimant's lawyer or representative (the "Contacted Claimants"),
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and the Company agrees not to retain claims adjusters for any other Claims. The
Company has, concurrently with the execution of this Agreement, provided SDA
with a list of all such Contacted Claimants, specifying the responsible adjuster
and the status of the Claims. SDA will pay all costs of the adjusters retained
by it and, beginning with the date of this Agreement, all reasonable costs of
adjusters previously retained by the Company for purposes of adjusting Claims of
Contacted Claimants. Notwithstanding the foregoing, if SDA shall fail to retain
and supervise such claims adjusters in a timely manner, as a result of which the
Company or the Secured Customers may be adversely prejudiced, the Company shall
have the right to retain and supervise such adjusters at SDA's expense.
11. Adjusters retained by SDA will keep the Company's national
coordinating counsel (if any) and/or its insurer fully apprised of the status of
all Claims not in litigation on at least a bimonthly basis. Adjusters retained
by the Company in respect of Contacted Claimants shall keep SDA apprised of the
status of such Claims as reasonably requested by SDA, and such adjusters shall
be available to pursue settlement as requested by SDA.
12. (a) SDA may settle any Claim without prior approval of or prior
notice to the Company or any Secured Customer if such settlement
makes no admissions, acknowledges no
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liabilities, includes an unconditional release of the Company and
any involved Secured Customers and either
(i) the amount of the settlement is $5,000 or less, or
(ii) the Company or any Secured Customer will have no
responsibility for payment of such settlement pursuant to
paragraph 2 hereof. If SDA shall settle a Claim without prior
notice to the Company or any Secured Customer, SDA shall provide
prompt notice of the settlement thereafter .
(b) SDA may settle any Claim with prior notice to the Company or
any Secured Customer for an amount in excess of $5,000 if the
Company or any of its Secured Customers may have some
responsibility for payment of such settlement pursuant to
paragraph 2, but only if SDA has given the Company a timely Notice
of Exclusion with respect to such Claim as required by paragraph
2(e) hereof. Any such settlement shall make no admissions,
acknowledge no liabilities, and include an unconditional release
of the Company and any involved Secured Customers. If SDA intends
to assert any claim against the Company for contribution pursuant
to paragraph 2(b) relating to the settlement, such prior notice of
the settlement will also contain notice of such intent, stating
the portion of the settlement amount expected to be so claimed by
SDA and an explanation in reasonable detail of SDA's basis for
25
<PAGE> 26
such claim. SDA shall have no obligation to delay settlement to
await a response from the Company or any Secured Customer, but SDA
will endeavor to give the Company or any Secured Customer such
reasonable period to respond as will not jeopardize the
opportunity to settle. It is agreed that neither party is the
agent or the attorney in fact of the other party and cannot bind
the other party to any settlement agreement in any Claim or suit.
(c) Whether the provisions of paragraphs 2(a) or 2(b) of this
Agreement apply to the settlement of any Claim, unless the parties
hereto have agreed otherwise all amounts payable to the plaintiff
or claimant in such settlement shall be advanced by SDA, without
prejudice to SDA's rights to seek reimbursement pursuant to the
provisions of paragraph 2(b) and, in the event of disagreement, to
arbitrate the dispute pursuant to the provisions of paragraph 15,
and in any such arbitration the Company may raise any disagreement
it may have had regarding the amount of settlement. If SDA settles
any Claim against itself in an action in which a Claim is also
asserted against the Company, such settlement will also extend to
and cover the Company. SDA shall expressly extend releases
achieved by such settlement to cover the Company's Secured
Customer(s); provided, however, that the Company's Secured
Customer(s) have
26
<PAGE> 27
participated with SDA in the common defense and have executed a
waiver of conflicts satisfactory to SDA.
13. Notwithstanding any other provision of this Agreement to the
contrary, the Company may elect not to be represented by Common Counsel, or to
terminate its representation by Common Counsel, in respect of any particular
Claim (each such election by the Company, an "Election") in the event that the
Company determines in its sole discretion that representation of the Company by
Common Counsel in respect of such Claim is not or may not be in the best
interest of the Company (each Claim in respect of which the Company makes an
Election, a "Withdrawn Claim"). Any Election (i) shall be made in writing and
shall expressly refer to this paragraph 13, and (ii) shall be effective when
delivered to SDA and, in the event that Common Counsel has represented the
Company in defending the Claim to which such Election relates, to Common
Counsel. It is agreed that SDA's obligations under paragraphs 1, 2, 3 and 6 of
this Agreement shall be inapplicable with respect to any Withdrawn Claim, and,
without limiting the generality of the foregoing, that SDA shall have no
obligation (i) to make any indemnification or other payment to the Company
pursuant to this Agreement in respect of any Withdrawn Claim, or (ii) to provide
or pay for any national coordinating counsel for the Company in respect of any
Withdrawn Claim; provided, however, that nothing in the foregoing sentence shall
affect the obligation of SDA to pay any fees or
27
<PAGE> 28
disbursements of Common Counsel incurred in defending the Company in a Claim
prior to the date of an Election by the Company with respect to that Claim. In
addition, the Company irrevocably waives any right it may have (whether under
this Agreement, at common law or otherwise) to recover from SDA or any SDA
Affiliate any fees or disbursements of any counsel (other than Common Counsel)
incurred by the Company in connection with any Withdrawn Claim or the defense
thereof.
14. Each of SDA and the Company hereby covenant during the term of this
Agreement not to sue or to assert any cross-claim, third-party claim, or other
claim against the other or against any SDA Affiliate or against any parent,
subsidiary, or affiliate of the Company in respect of any Claim, but the
foregoing shall not preclude a judicial action to compel arbitration or to
enforce an award resulting from an arbitration pursuant to the provisions of
paragraph 15. The Company covenants to use its best efforts to cause its Secured
Customers to covenant during the term of this Agreement not to sue or to assert
any cross-claim, third-party claim, or other claim against SDA or any SDA
Affiliate, in which event SDA will agree not to assert any such claims against
such Secured Customers or their parents, subsidiaries, or affiliates in respect
of any Claim. If the Company or any Secured Customer (whether or not such
Secured Customer shall have agreed not to do so) shall bring any claim against
SDA or any SDA Affiliate in respect of a Claim, SDA shall
28
<PAGE> 29
have available the remedies provided in the last sentence of paragraph 6(b) and
paragraph 9(d) hereof. The provisions of this paragraph only apply for so long
as this Agreement is in effect. After termination by any party, cross-claims,
third-party claims or other claims may be brought without restriction. Each
party hereto waives any statute of limitations, any defense of laches, and any
procedural rules of court which apply to the assertion of cross-claims,
third-party claims, or other claims against each other relating to any Claim for
the period from the date hereof through the date that is one year from and after
the latest of (i) the date a settlement is entered into with the
claimant/plaintiff relating to such Claim, (ii) the date a non-appealable, final
judgment relating to such Claim is entered as to any party hereto; and (iii) the
date of termination of this Agreement. Each party also agrees that no pleading,
discovery response, order, verdict, judgment, or court decision in any lawsuit
asserting a Claim shall have collateral-estoppel or similarly preclusive effect
with respect to any litigation or other proceedings between the parties.
15. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes (the "CPR Rules"), by three arbitrators, of whom each party
shall appoint one and the third shall be the Chairman. The arbitration
29
<PAGE> 30
shall be governed by the United States Arbitration Act, 9 U.S.C. ch. 1, and
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. Arbitration shall take place in a city to be agreed
upon by the parties or, in the absence of agreement, in New York City, Chicago,
Atlanta, Los Angeles, or San Francisco (whichever city is geographically closest
to the venue of the Claim out of which the matter is to be arbitrated), subject
to the power of the arbitrators to hold hearings or meetings wherever they deem
it appropriate. The arbitrators shall apply the substantive law of the State of
New York. Arbitration of disputes concerning the parties' payment obligations in
respect of a judgment rendered on a Claim shall be based on the trial record
with respect to such Claim and such further evidence as either party may present
to the arbitrators. Arbitration of disputes concerning the parties' payment
obligations in respect of a settlement of a Claim shall be based on the pretrial
record developed with respect to such Claim and such further evidence as either
party may present to the arbitrators. No pleading, discovery response, order,
verdict, judgment or court decision in any lawsuit asserting a Claim shall have
a collateral-estoppel or similarly preclusive effect with respect to an
arbitration to determine the proximate cause of the personal injuries or the
cause of damages giving rise to the liability (the responsibility for which is
being disputed in the arbitration). The parties agree that discovery authorized
by the arbitrators can be pursued anywhere in the
30
<PAGE> 31
world and that each will cooperate to accomplish same. Any party obstructing
orderly discovery can be sanctioned at the discretion of the Chairman. As
provided in the CPR Rules, attorneys fees and costs may be awarded to a
prevailing party as part of the arbitral award.
16. Either party may terminate this Agreement at any time in the event
the terminating party is entitled to do so under Paragraph 9(a). In addition,
SDA may terminate this Agreement in the event that (i) the Company has made an
Election in respect of one or more Claims and (ii) SDA determines in its sole
discretion that the exercise of the right by the Company to make such Election
is or may be prejudicial to SDA. Paragraphs 2, 4, 13 and 15 (with respect only
to all settlements and judgments entered into or awarded prior to termination),
paragraph 6(c) (except in respect of any Withdrawn Claim) , this paragraph 16
and paragraph 17 shall survive termination of this Agreement. In addition, SDA
will have the right to terminate this Agreement with respect to a Claim, and
promptly retender the defense of a Claim back to the Company, in the event it is
determined (and SDA shall have the burden of proof to establish) that such Claim
arises solely out of LTCPs and is based upon LT contained therein acquired from
some person or entity other than SDA (directly or indirectly) , or that the
LTCPs sold by the Company to the claimant contained no LT sold by SDA; provided,
however, that the right of termination granted to SDA in this sentence may be
31
<PAGE> 32
exercised no later than sixty (60) days prior to the date of commencement of the
trial, arbitration or mediation of such Claim.
Notwithstanding termination, SDA shall be responsible for adjustment
costs for services rendered pursuant to paragraph 10 and the Company's national
coordinating counsels' fees and costs pursuant to paragraph 6 (except as
otherwise provided in paragraph 13), incurred prior to termination. Once
terminated, this Agreement will not survive or affect the rights of the parties
except as specifically set forth in this paragraph.
17. Communications concerning and/or the exchange of information or
materials of any kind between or among the parties hereto or their counsel,
Secured Customers, insurers, or adjusters concerning the Claims are and shall be
made in furtherance of the common defense of such Claims (whether pursued
through common or separate counsel) and are intended to be, and shall remain,
confidential and privileged to the full extent permitted under the
attorney-client privilege, work-product doctrine, trade secret privilege, and
any other applicable privilege or protective doctrine. Neither participation in
this Agreement nor the sharing of information pursuant to it is intended to
reduce or diminish the confidentiality of such information or to waive any
privilege or protection which may apply in the absence of such participation or
sharing of
32
<PAGE> 33
information. The obligations under this paragraph shall survive termination of
this Agreement.
This Agreement in no way restricts the rights of any party hereto to
use evidence against each other in any arbitration under this Agreement or
litigation between the parties hereto following termination of this Agreement.
18. This Agreement contains the entire agreement between the Company
and SDA with respect to the subject matter hereof and supersedes and replaces in
its entirety (a) the Prior Agreement and (b) any other prior agreement between
or among the parties with respect to the settlement of Claims and to the
allocation of responsibility between the parties for the payment of settlements
of or judgments on Claims; provided, however, that this Agreement shall not
supersede, modify or effect any common representation agreement(s) previously
entered into by the Company, which agreements are substantially in the form
annexed to this Agreement as Attachment 4. No modifications of this Agreement
shall be effective unless in a written agreement properly executed by
authorized representatives of each of the parties hereto. Nothing in this
Agreement shall amend or modify any agreement or understanding between the
parties hereto, or preclude any action, relating to reimbursement of costs and
expenses of the Company, and any other damages associated therewith, incurred in
connection with the product recall of LTCPs, nor shall this paragraph preclude
any party to argue the
33
<PAGE> 34
pertinence to proceedings between the parties of purchase orders, invoices or
other agreements between the parties relating to the purchase and sale of LT.
19. Notices by either party to the other with respect to the subject
matter of this Agreement shall be provided by facsimile with confirming copy by
mail, addressed as follows:
If to SDA:
Showa Denko America, Inc.
280 Park Avenue
27th Floor, West Building
New York, New York 10017
tel: (212) 687-0773
fax: (212) 573-9007
Attention: President
with a copy to:
Christopher H. Lunding, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
tel: (212) 225-2000
fax: (212) 225-3999
If to the Company:
President
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
tel: (201) 575-9200
fax: (201) 575-6782
With a copy to:
Daniel J. Lanahan, Esq.
Ropers, Majeski, Kohn, Bentley, Wagner & Kane
3558 Round Barn Boulevard, Suite 300
Santa Rosa, California 95403 -
tel: (707) 524-4200
fax: (707) 523-4610
34
<PAGE> 35
The Company and SDA each reserves the right to change its address and/or
facsimile number for the purposes set forth above by giving fifteen (15) days'
prior written notice of such change to the other party either at its address for
the giving of notices set forth above in this paragraph or to such other address
as the party giving such notice shall have specified to the other party in the
manner set forth above.
20. The signatures of the representatives of SDA and the Company at the
end of this Agreement constitute the representation by each that it is the duly
authorized representative of SDA and the Company, respectively, and that they
are authorized to enter into this Agreement.
21. This Agreement shall be governed by the law of the State of New
York; provided, however, that if applying Federal law would result in upholding
a claim of the attorney-client privilege, the work product-doctrine, the trade
secret privilege, or any other applicable privilege or protective doctrine which
otherwise would be lost or waived if New York law were to be applied, then
Federal law shall govern this Agreement insofar as such privilege or doctrine
is concerned.
22. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
35
<PAGE> 36
23. The Company represents, covenants, and agrees that (i) it will
cause its subsidiaries listed on Attachment 1 to fulfill each of the
obligations, representations, and warranties required of or made by the Company
in this Agreement; (ii) each of the obligations, representations, and warranties
required of or made by the Company will be deemed to have been made by or
required of the Company and each of its subsidiaries listed on Attachment 1;
(iii) a breach of such obligations, representations, or warranties by any one or
more of the subsidiaries listed on Attachment 1 that is not timely performed by
the Company deemed to be a breach by the Company; and (iv) the Company has
full authority to act for and bind its said subsidiaries, and can act for them,
in all matters covered by this Agreement. It is further agreed that each
subsidiary listed on Attachment 1 shall be considered to be part of the Company
and shall be entitled to benefits under this Agreement only so long as it
remains a wholly-owned subsidiary (direct or indirect) of the Company, and the
Company shall no longer be responsible under this paragraph 23 for conduct of
any such subsidiary after the date the subsidiary ceases to be a wholly-owned
subsidiary of the Company.
36
<PAGE> 37
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
SHOWA DENKO AMERICA, INC.
By /s/ Norio Masubuchi
-------------------------------
Norio Masubuchi
President
GARDEN STATE NUTRITIONALS, INC.
By /s/ Edward Frankel
-------------------------------
President
37
<PAGE> 38
Attachment 1
to Agreement Dated as of November 11, 1992
By and Between Showa Denko America, Inc.
and Garden State Nutritionals, Inc.
List of Subsidiaries
Natural Vitamin Concepts, Inc.
38
<PAGE> 1
Exhibit 10.33
SDK Guaranty Agreement CONFIDENTIAL
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of November 11, 1992, by and between SHOWA
DENKO K.K. (the "Guarantor"), a corporation organized and existing under the
laws of Japan, and Garden State Nutritional is, Inc. (the "Beneficiary"), a
corporation organized and existing under the laws of New Jersey.
.
WITNESSETH
WHEREAS the Beneficiary and SHOWA DENKO AMERICA, INC. ("SDA") have entered into
a written agreement dated as of the date of this Guaranty Agreement providing
(among other things) that SDA agrees to indemnify the Beneficiary from and
against certain obligations in respect of Claims relating to L-tryptophan
manufactured by the Guarantor, all to the extent specified and pursuant to the
terms and conditions contained in that agreement (that agreement, as the same
may be amended, modified or supplemented from time to time, referred to herein
as the "Agreement") , and
WHEREAS it is a requirement of the Agreement that SDA deliver the guaranty of
SDA's obligations under the Agreement to the Beneficiary contained in this
Guaranty Agreement;
NOW, THEREFORE, the Guarantor and the Beneficiary agree as follows:
1. Guaranty. (a) The Guarantor unconditionally and irrevocably guarantees (as
primary obligor and not merely as surety) payment in full as provided in the
Agreement of all amounts payable by SDA under the Agreement, as and when those
amounts become payable by SDA pursuant to the terms and conditions contained in
the Agreement. The Guarantor further unconditionally and irrevocably guarantees
the performance by SDA, as and when required pursuant to the terms and
conditions of the Agreement, of all obligations of SDA under the Agreement. The
Guaranty contained herein is made subject to all of the terms and conditions
contained in the Agreement evidencing the obligations of SDA guaranteed hereby,
and nothing contained herein shall be deemed to amend or modify any of such
terms or conditions in any way.
(b) This is a continuing Guaranty and a guaranty of payment (not merely of
collection) and performance, and it shall remain in full force and effect until
the later to occur of (i) termination of the Agreement in accordance with its
terms and (ii) such time as all amounts payable by SDA under
<PAGE> 2
the Agreement have been validly, finally and irrevocably paid in full. This
Guaranty shall not be affected in any way by the absence of any action to obtain
those amounts from SDA. With respect to this Guaranty, the Guarantor waives all
requirements as to presentment, demand for payment, demand for performance,
notice of default, protest or notice of any kind regarding SDA or the breach by
SDA of its obligations under the Agreement.
(c) This Guaranty shall not be affected by the occurrence of any circumstance
(other than complete, irrevocable payment) that might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor. If SDA merges
or consolidates with or into another entity, loses its separate legal identity
or ceases to exist, or files any petition for bankruptcy or any other insolvency
proceeding, the Guarantor shall nonetheless continue to be liable for
the payment of all amounts payable by SDA under the Agreement and for the
performance of all obligations of SDA under the Agreement.
(d) This Guaranty shall remain in full force and effect or shall be reinstated
(as the case may be) if at any time any payment by SDA made pursuant to the
Agreement, in whole or in part, is rescinded or must otherwise be returned by
the Beneficiary upon the insolvency, bankruptcy or reorganization of SDA or
otherwise, all to the same extent as if that payment had not been made.
(e) So long as any amount payable by SDA under the Agreement is overdue and
unpaid, the Guarantor shall not (i) exercise any right of subrogation or
indemnity, or similar right or remedy, against SDA or any of its assets or
property in respect of any amount paid by the Guarantor under this Guaranty or
(ii) file a proof of claim in competition with the Beneficiary for any amount
owing to the Guarantor by SDA on any account whatsoever in the event of the
bankruptcy, insolvency or liquidation of SDA.
2. Contractual Currency. All payments by the Guarantor under this Guaranty shall
be made in United States currency.
3. No Conflict With Law; Remedies Not Exclusive. (a) Neither the execution or
delivery of this Guaranty Agreement by the Guarantor, nor the performance by the
Guarantor of its obligations hereunder, conflicts with or will result in the
breach of any applicable Japanese law, regulation or statute.
(b) The rights and remedies set forth in the Agreement are in addition to and
not exclusive of any rights and remedies
2
<PAGE> 3
available to the Beneficiary by law in respect of this Guaranty.
4. Amendments, Waivers. All amendments, waivers and modifications of or to any
provision of this Guaranty and any consent to departure by the Guarantor from
the terms hereof shall be in writing and signed and delivered by the Beneficiary
and, in the case of any such amendment or modification, by the Guarantor, and
shall not otherwise be effective. Any such waiver or consent shall be effective
only in the specific instance and for the purpose for which it is given.
5. Binding Effect. This Guaranty shall be binding on the Guarantor and its
successors and assigns. However, the Guarantor shall not transfer any of its
obligations hereunder without the prior written consent of the Beneficiary, and
any purported transfer without that consent shall be void. This Guaranty shall
inure to the benefit of the Beneficiary and its successors and assigns.
6. Governing Law; Jurisdiction; Waiver of Jury Trial. (a) This Guaranty shall be
governed by and construed and interpreted in accordance with the law of the
State of New York.
(b) The Guarantor irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of New York and of the United States sitting in the Borough
of Manhattan in connection with any action or proceeding by the Beneficiary to
enforce the Guarantor's obligations under this Guaranty (each, a "Proceeding")
and irrevocably appoints CT CORPORATION SYSTEM, 1633 Broadway, New York, New
York 10019 as its agent for the sole purpose of receiving service of process or
other legal summons in connection with any Proceeding brought in any such court.
So long as the Guarantor has any obligation under this Guaranty, it will
maintain a duly appointed agent in New York City for the service of such process
or summons and, if it fails to maintain such an agent, any such process or
summons may be served on it by mailing a copy thereof to the Guarantor at its
address set forth, and in the manner provided, in Paragraph 7 hereof, with such
service deemed effective on the fifteenth day after the date of such mailing.
(c) The Guarantor irrevocably waives, to the fullest extent permitted by
applicable law, any defense or objection it may now or hereafter have to the
laying of venue of any Proceeding brought in the courts of the State of New York
or of the United States sitting in the Borough of Manhattan (a Proceeding
brought in any such court, a "New York Proceeding") and any claim that any
Proceeding brought in
3
<PAGE> 4
any such court has been brought in an inconvenient forum. Nothing herein
contained shall preclude the Beneficiary from bringing an action or proceeding
to enforce the Guarantor's obligations under this Guaranty in any other place
where jurisdiction over the Guarantor properly may be obtained.
(d) The Guarantor irrevocably agrees that it will not raise as a defense or
set-off in any New York Proceeding an allegation that the Beneficiary is
indebted to the Guarantor or SDA, or interpose a counter-claim in a New York
Proceeding seeking recovery of any such alleged indebtedness, unless that
indebtedness allegedly arose out of the same operative facts as form the basis
of the Beneficiary's claims in that New York Proceeding.
(e) The Guarantor and the Beneficiary each irrevocably waives trial by jury in
any New York Proceeding.
(f) The Guarantor and the Beneficiary each irrevocably agree that the party
prevailing in any New York Proceeding shall be entitled to be awarded therein an
amount equal to the reasonable fees and expenses of its attorneys incurred in
connection with that Proceeding.
7. Enforcement in Japan. The Guarantor solemnly covenants that in the event that
a final, non-appealable judgment is rendered against it in a New York Proceeding
(any such final, non-appealable judgment, a "Judgment"), the Guarantor (i) will
not raise any defense to the enforcement of such Judgment in Japan which would,
or seeks to, require relitigation of that New York Proceeding; and (ii) will do
everything within its power to assure that such Judgment becomes enforceable in
Japan as soon as is possible under Japanese law after the time enforcement of
such Judgment is sought in that country.
8. Notices. All notices, requests, demands and other communications to the
Guarantor or the Beneficiary which are required or permitted hereunder shall be
made in writing and shall be deemed properly given hereunder when provided by
confirmed facsimile transmission, with a separate confirming copy sent by United
States registered mail, return receipt requested, with sufficient postage
prepaid thereon to carry it to its addressed destination, as follows:
SHOWA DENKO K.K.
13-9, Shiba Daimon 1-chome
Minato-ku, Tokyo 105
Japan
Attention: President
Facsimile: 011-81-3-5470-3709
4
<PAGE> 5
with a copy to:
CLEARY, GOTTLIEB, STEEN & HAMILTON
One Liberty Plaza
New York, New York 10006
Attention: Christopher H. Lunding, Esq.
Facsimile: 212-225-3999
If to the Beneficiary:
Garden State Nutritionals, Inc.
100 Lehigh Drive
Fairfield, New Jersey 07004
Attention: President
Facsimile: (201) 575-6782
with a copy to:
Ropers, Majeski, Kohn, Bentley, Wagner & Kane
3558 Round Barn Boulevard, Suite 300
Santa Rosa, California 95403
Attention: Daniel J. Lanahan, Esq.
Facsimile: (707) 523-4610
The Guarantor and the Beneficiary each reserves the right to change its address
and/or facsimile number for the purposes set forth above by giving fifteen days'
prior written notice of such change to the other either at its address for the
giving of notices set forth in the Agreement or to such other address as the
party giving such notice shall have specified to the other party in the manner
set forth above.
9. Headings. The section headings in this Guaranty are for convenience of
reference only and shall not affect the meaning or construction of any provision
hereof.
5
<PAGE> 6
IN WITNESS WHEREOF the Guarantor and the Beneficiary each has duly executed this
Guaranty Agreement as of the date first written above.
SHOWA DENKO K.K.
By: /s/ Daiya Miyoshi
--------------------------
Daiya Miyoshi
Representative Director
and Executive Vice President
GARDEN STATE NUTRITIONALS, INC.
By: /s/ Edward Frankel
------------------------------
President
6
<PAGE> 1
Exhibit 10.34
PARTNERSHIP AGREEMENT
AGREEMENT made as of the 20 day of October, 1989 by and between
PHARMACHEM LABORATORIES, INC., a New Jersey corporation with its principal
offices located at 130 Wesley Street, South Hackensack, New Jersey 07606
("Pharmachem") and GARDEN STATE NUTRITIONALS, INC., a New Jersey corporation
with its principal offices located at 100 Lehigh Drive, Fairfield, New Jersey
07005 ("Garden State"). (Pharmachem and Garden State shall be referred to
individually, as a "Partner" and collectively, as the "Partners".)
W I T N E S S E T H:
In consideration of the mutual promises and agreements set forth
herein, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Formation of Partnership. The Partners hereby form a partnership
(the "Partnership") under and pursuant to the terms of the Uniform Partnership
Law of the State of New Jersey, N.J.S.A. 42:1-1 et seq. for the purpose
described in Paragraph 2 below.
2. Type of Business. The purpose of the Partnership shall be to
conduct the general business of manufacturing and distributing pharmaceutical
products, and any other business that may from time to time be agreed on by
the Partners.
3. Name of Partnership. The name of the Partnership shall be AMERICAN
INULIN GROUP.
4. Term of Partnership. The Partnership shall commence on the date
first above written and shall continue until dissolved by
<PAGE> 2
mutual agreement of the Partners or terminated as provided in this Agreement.
5. Place of Business. The principal place of business of the
Partnership shall be at 130 Wesley Street, South Hackensack, New Jersey 07606,
and any other place or places that may be mutually agreed on by the Partners.
6. Initial Capital. The initial capital of the Partnership shall be
the sum of $184,240, of which each Partner shall contribute to by depositing in
a checking account in the name of the Partnership at the United Jersey Bank in
Hackensack, New Jersey, on or before November, 1989 the following amounts:
Pharmachem shall contribute $92,120.
Garden State shall contribute $92,120.
7. Withdrawal of Capital. No Partner shall withdraw any portion of the
capital of the Partnership without the express written consent of the other
Partner.
8. Profits and Losses. Any net profits or losses that may accrue to
the Partnership shall be distributed to or borne by the Partners in [the
following proportions/equal proportions]:
[Pharmachem: 50%
Garden State: 50%]
9. Partnership Books. At all times during the continuation of the
Partnership, the Partners shall keep accurate books of account in which all
matters relating to the Partnership, including all of its income, expenditures,
assets, and liabilities, shall be entered. These books shall be kept on [an
-2-
<PAGE> 3
accrual/a cash] basis and shall be open to examination by either Partner at any
time.
10. Fiscal Year. The fiscal year of the Partnership shall end on the
30th day of September each year.
11. Accountings. A complete accounting of the Partnership affairs as
of the close of business on the last day of March, June, September, and
December of each year shall be rendered to each Partner within [fourteen (14)]
days after the close of each of those months. On each accounting, the net
profits of the Partnership shall be distributed to the Partners as provided in
this Agreement to the extent that cash is available for this distribution.
Except as to manifest errors discovered within [seven (7)] days after its
rendition, each accounting shall be final and conclusive as to each Partner.
12. Best Efforts. Each Partner shall use the utmost of its skills and
ability in furtherance of the Partnership business.
13. Management and Authority. Each Partner shall have an equal voice
in the management of the Partnership and shall have authority to bind the
Partnership in making contracts and incurring obligations in the name and on
the credit of the Partnership. However, no Partner shall incur any obligations
in the name or on the credit of the Partnership exceeding $90,000 without the
express written consent of the other Partner. Any obligation incurred in
violation of this provision shall be charged to and collected from the Partner
incurring the obligation.
14. Net Profits Defined. The term "net profits" as used in this
Agreement shall mean the net profits of the Partnership as determined by
generally accepted accounting principles for each accounting period provided for
in this Agreement.
-3-
<PAGE> 4
15. Withdrawal of Partner. Any Partner may withdraw from the
Partnership at the end of any accounting period by giving the other Partner
[thirty (30)] days' prior written notice of its intention to do so.
16. Option to Purchase Terminated Interest. On dissolution of the
Partnership by the withdrawal of a Partner, the remaining Partner, on written
notice to the other Partner within [thirty (30)] days of the dissolution, may
continue the Partnership business by purchasing the interest of the other
Partner in the assets and goodwill of the Partnership. The remaining Partner
shall have the option to purchase the interest of the withdrawing Partner by
paying to this Partner the value of the interest determined as provided in
Paragraph 17 of this Agreement.
17. Purchase Price of Partnership Interest. On exercise of the option
described in Paragraph 16 above, the remaining Partner shall pay to the
withdrawing Partner the net book value of the interest as shown on the last
regular accounting of the Partnership preceding the dissolution, together with
the full unwithdrawn portion of the withdrawing Partner's distributive share of
any net profits earned by the Partnership between the date of the accounting and
the date of dissolution of the Partnership.
18. Duties of Purchasing Partner. On any purchase and sale pursuant
to the provisions of Paragraphs 16 and 17 of this Agreement, the remaining
Partner shall assume all obligations of the Partnership and shall hold the
withdrawing Partner, and the property of any withdrawing Partner free and
harmless from all liability for these obligations. Furthermore, the remaining
Partner, at its own expense, shall immediately cause to be prepared, filed,
served, and published all notices that may be required by law to protect the
withdrawing Partner from liability for the future obligations of the
Partnership business.
-4-
<PAGE> 5
19. Dissolution. On dissolution of the Partnership, other than as
provided in Paragraphs 16 and 17 of this Agreement, the affairs of the
Partnership shall be wound up, the assets of the Partnership liquidated, the
debts paid, and the surplus divided equally between the Partners.
20. Notices. All notices between the Partners provided for or
permitted under this Agreement or by law shall be in writing and shall be
deemed duly served when personally delivered to a Partner or, instead of
personal service, when deposited in the United States mail, as certified, with
postage prepaid, and addressed to the Partner at the address of the principal
place of business of the Partnership or to another place that may from time to
time be specified in a notice given pursuant to this paragraph as the address
for service of notice on the Partner.
21. Consents and Agreements. All consents and agreements provided for
or permitted by this Agreement shall be in writing and a signed copy of them
shall be filed and kept with the books of the Partnership.
22. Sole Agreement. This instrument contains the sole agreement of
the parties relating to their Partnership and correctly sets forth the rights,
duties, and obligations of each to the other in connection with it as of its
date. Any prior
-5-
<PAGE> 6
agreements, promises, negotiations, or representations not expressly set forth
in this Agreement are of no force or effect.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
ATTEST: PHARMACHEM LABORATORIES
/s/ Howard March By: /s/ David A Holmes
- ------------------------------------ -------------------------------------
DAVID A. HOLMES, President
ATTEST: GARDEN STATE NUTRITIONALS, INC.
/s/ Howard March By: /s/ Edward M. Frankel
- ------------------------------------ -------------------------------------
Edward M. Frankel,
Chief Executive Officer
-6-
<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
June 18, 1996
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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0
0
<OTHER-SE> 11,997
<TOTAL-LIABILITY-AND-EQUITY> 28,928
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<CGS> 8,973
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