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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TWIN LABORATORIES INC.
(Exact name of registrant as specified in its charter)
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UTAH 2833 87-0467271
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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2120 SMITHTOWN AVENUE
RONKONKOMA, NEW YORK 11779
(516) 467-3140
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
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COPY TO:
PHILIP M. KAZIN, ESQ. HOWARD A. SOBEL, ESQ.
GENERAL COUNSEL KRAMER, LEVIN, NAFTALIS & FRANKEL
TWIN LABORATORIES INC. 919 THIRD AVENUE
2120 SMITHTOWN AVENUE NEW YORK, NEW YORK 10022
RONKONKOMA, NEW YORK 11779 (212) 715-9100
(516) 467-3140
(Name, Address, Including Zip Code, and
Telephone
Number, Including Area Code, of Agent For
Service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the registration statement becomes effective and all other
conditions to the exchange offer (the "Exchange Offer") pursuant to the
registration rights agreement (the "Registration Rights Agreement") described in
the enclosed Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
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10 1/4% Senior
Subordinated Notes Due
2006.................. $100,000,000 100%(1) $100,000,000(1) $34,482.76
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Guarantees of the
10 1/4% Senior
Subordinated Notes due
2006.................. $100,000,000 -- (2) -- --
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate
consideration is payable for the Guarantees.
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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OTHER REGISTRANTS
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PRIMARY
STANDARD ADDRESS, INCLUDING ZIP CODE
INDUSTRIAL IRS EMPLOYER AND TELEPHONE NUMBER
JURISDICTION OF CLASSIFICATION IDENTIFICATION INCLUDING AREA CODE, OF
NAME OF CORPORATION INCORPORATION CODE NUMBER NUMBER PRINCIPAL EXECUTIVE OFFICE
- --------------------------------- --------------- ----------- ------------ ---------------------------
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Twinlab Corporation.............. Delaware 2833 11-3317986 2120 Smithtown Avenue
Ronkonkoma, NY 11779
(516) 467-3140
Advanced Research Press, Inc..... New York 2721/2731 11-2727629 2120 Smithtown Avenue
Ronkonkoma, NY 11779
(516) 467-3140
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TWIN LABORATORIES INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A)
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN FORM S-4
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REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus............... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information; Table of Contents;
Inside Front Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; The Exchange
Offer, Summary Historical and Pro Forma
Financial Data; Unaudited Pro Forma Condensed
Consolidated Financial Data
4. Terms of the Transaction....................... Prospectus Summary; The Exchange Offer;
Description of New Notes; Incorporation of
Certain Documents by Reference
5. Pro Forma Financial Information................ Unaudited Pro Forma Condensed Consolidated
Financial Data
6. Material Contacts with the Company
Being Acquired............................... Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters; Independent Auditors
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information With Respect to S-3 Registrants.... Not Applicable
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants.................. Prospectus Cover Page; Available Information;
Prospectus Summary; Selected Historical
Financial Data; Unaudited Pro Forma Condensed
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Index to Consolidated Financial
Statements
15. Information with Respect to S-3 Companies...... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Management; Certain Relationships and Related
Transactions; Principal Stockholders
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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.
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 25, 1996
TWIN LABORATORIES INC.
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
GUARANTEED BY TWINLAB CORPORATION ("TLC")
AND BY ADVANCED RESEARCH PRESS, INC. ("ARP")
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on , 1996 (as such date may be extended, the "Expiration
Date").
Twin Laboratories Inc. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of its 10 1/4% Senior
Subordinated Notes due 2006 (the "New Notes") for each $1,000 in principal
amount of its outstanding 10 1/4% Senior Subordinated Notes due 2006 (the "Old
Notes") (the Old Notes and the New Notes are sometimes collectively referred to
herein as the "Notes") held by Eligible Holders. An aggregate principal amount
of $100,000,000 of Old Notes is outstanding. See "The Exchange Offer." For
purposes of the Exchange Offer, "Eligible Holder" shall mean the registered
owner of any Old Notes that remain Transfer Restricted Securities as reflected
on the records of Fleet National Bank, as registrar for the Old Notes (in such
capacity, the "Registrar"), or any person whose Old Notes are held of record by
the depository of the Old Notes. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Old Note until the earliest to occur of (i)
the date on which such Old Note has been exchanged for a New Note in the
Exchange Offer, (ii) the date on which such Old Note is registered under the
Securities Act of 1933, as amended (the "Securities Act"), and disposed of in
accordance with a registration statement or (iii) the date on which such Old
Note is distributed to the public pursuant to Rule 144 under the Securities Act.
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions, which may be
waived by the Company, and to the terms and provisions of the Registration
Rights Agreement dated as of May 7, 1996 (the "Registration Rights Agreement")
among the Company, TLC and ARP, each of which has guaranteed the Old Notes and
has agreed to guarantee the New Notes (collectively, the "Guarantors"), and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(collectively, the "Initial Purchasers"). The Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer."
(continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is June 25, 1996.
<PAGE> 5
The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued an aggregate of $100,000,000 principal amount of the
Old Notes to the Initial Purchasers on May 7, 1996 (the "Closing Date") pursuant
to a Purchase Agreement dated May 1, 1996 (the "Purchase Agreement") among the
Company, the Guarantors and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A and certain other
exemptions under the Securities Act. The Company and the Initial Purchasers also
entered into the Registration Rights Agreement, pursuant to which the Company
granted certain registration rights for the benefit of the holders of the Old
Notes. The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer -- Purpose and Effect."
The Old Notes were issued under an indenture, dated as of May 7, 1996 (the
"Indenture"), among the Company, the Guarantors and Fleet National Bank as
trustee (in such capacity, the "Trustee"). The New Notes will be issued under
the Indenture as it relates to the New Notes. The form and terms of the New
Notes will be identical in all material respects to the form and terms of the
Old Notes, except that (i) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, (ii) holders of New Notes will not be entitled to the liquidated
damages of $0.05 per week per $1,000 principal amount of the Old Notes (up to a
maximum amount of $0.30 per week per $1,000 principal amount) otherwise payable
under the terms of the Registration Rights Agreement in respect of Old Notes
constituting Transfer Restricted Securities held by such holders during any
period in which a Registration Default (as defined) is continuing (the
"Liquidated Damages") and (iii) holders of New Notes will not be, and upon the
consummation of the Exchange Offer, Eligible Holders of Old Notes will no longer
be, entitled to certain rights under the Registration Rights Agreement intended
for the holders of unregistered securities. The Exchange Offer shall be deemed
consummated upon the delivery by the Company to the Registrar under the
Indenture of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of
Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of
New Notes."
The New Notes will bear interest at a rate equal to 10 1/4% per annum from
and including their date of issuance. Interest on the New Notes is payable
semiannually on May 15 and November 15 of each year (each, an "Interest Payment
Date"). Eligible Holders whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on the day prior to the issuance of
the New Notes. The New Notes will mature on May 15, 2006. See "Description of
New Notes."
The New Notes will not be redeemable, in whole or in part, prior to May 15,
2001. Thereafter, the New Notes will be redeemable at the redemption prices set
forth herein, plus interest accrued thereon to the redemption date.
Notwithstanding the foregoing, at any time on or before May 15, 1999, the
Company may redeem up to 35% of the original aggregate principal amount of the
New Notes, in whole or in part, with the net proceeds of one or more Equity
Offerings (as defined herein) at a redemption price equal to 109 1/2% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption. Upon the occurrence of a Change of Control (as defined herein),
the Company will be required to make an offer to repurchase all outstanding
Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See "Description of New
Notes -- Certain Covenants -- Repurchase of Notes at the Option of the Holder
Upon a Change of Control."
The New Notes will be general unsecured obligations of the Company
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including borrowings under the New Credit
Facility (as defined herein). The payment of the principal of, premium, if any,
and interest on the New Notes will be guaranteed by the Guarantors. The
Guarantees will be subordinated in right of payment to all existing and future
Senior Debt of the Guarantors. See "Description of New Notes." See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and
2
<PAGE> 6
Capital Resources." The Indenture permits the Company and its subsidiaries to
incur additional indebtedness, including additional Senior Debt.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer to an Eligible Holder in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by such Eligible Holder (other than a
broker-dealer who purchased Old Notes directly from the Company for resale
pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Eligible
Holder is not an affiliate of the Company, is acquiring the New Notes in the
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
As of , 1996, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was the registered holder
of $ aggregate principal amount of the Old Notes and held such Old Notes for
of its participants. The Company believes that no such participant is an
affiliate (as such term is defined in Rule 405 of the Securities Act) of the
Company. There has previously been only a limited secondary market, and no
public market, for the Old Notes. The Old Notes are eligible for trading in the
Private Offering, Resales and Trading through Automatic Linkages ("PORTAL")
market. There can be no assurance as to the liquidity of the trading market for
either the New Notes or the Old Notes. The New Notes constitute securities for
which there is no established trading market, and the Company does not currently
intend to list the Notes on any securities exchange. If such a trading market
develops for the New Notes, future trading prices will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities. Depending on such factors,
the New Notes may trade at a discount from their face value. See "Risk
Factors -- Absence of Public Markets."
The Company will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will bear all
expenses incident to the Company's consummation of the Exchange Offer and
compliance with the Registration Rights Agreement.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
$ aggregate principal amount of the Old Notes were issued originally in
global form (the "Global Old Note"). The Global Old Note was deposited with, or
on behalf of, DTC, as the initial depository with respect to the Old Notes (in
such capacity, the "Depository"). The Global Old Note is registered in the name
of Cede, as nominee of DTC, and beneficial interests in the Global Old Note are
shown on, and transfers thereof are effected only through, records maintained by
the Depository and its participants. The use of the Global Old Note to represent
certain of the Old Notes permits the Depository's participants, and anyone
holding a beneficial interest in an Old Note registered in the name of such a
participant, to transfer interests in the Old Notes electronically in accordance
with the Depository's established procedures without the need to transfer a
physical certificate. Except as provided below, the New Notes will also be
issued initially as a note in global form (the "Global New Note", and together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depository. Notwithstanding the foregoing, holders of Old Notes that are
held, at any time, by a person that is not a qualified institutional buyer under
Rule 144A (a "Qualified
3
<PAGE> 7
Institutional Buyer"), and any Eligible Holder that is not a Qualified
Institutional Buyer that exchanges Old Notes in the Exchange Offer, will receive
the New Notes in certificated form and is not, and will not be, able to trade
such securities through the Depository unless the New Notes are resold to a
Qualified Institutional Buyer. After the initial issuance of the Global New
Note, New Notes in certificated form will be issued in exchange for a holder's
proportionate interest in the Global New Note only as set forth in the
Indenture.
TABLE OF CONTENTS
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PAGE
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Available Information................................................................. 5
Prospectus Summary.................................................................... 6
Risk Factors.......................................................................... 16
The Exchange Offer.................................................................... 22
Capitalization........................................................................ 30
Unaudited Pro Forma Condensed Consolidated Financial Data............................. 31
Selected Historical Financial Data.................................................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 40
Business.............................................................................. 44
Management............................................................................ 57
Certain Relationships and Related Transactions........................................ 60
Principal Stockholders................................................................ 62
Description of New Notes.............................................................. 64
Description of New Credit Facility.................................................... 90
Description of Capital Stock of TLC................................................... 92
Certain Federal Income Tax Consequences of an Investment in the New Notes............. 93
Plan of Distribution.................................................................. 96
Incorporation of Certain Documents By Reference....................................... 96
Legal Matters......................................................................... 97
Experts............................................................................... 97
Index to Consolidated Financial Statements............................................ F-1
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4
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is not necessarily complete and is qualified in its
entirety by reference to the exhibit or schedule for a complete statement of its
terms and conditions. In addition, upon the effectiveness of the Registration
Statement filed with the Commission, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, the Company will file
periodic reports and other information with the Commission relating to its
business, financial statements and other matters. Any interested parties may
inspect and/or copy the Registration Statement, its schedules and exhibits, and
the periodic reports and other information filed in connection therewith, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The obligations of the Company under
the Exchange Act to file periodic reports and other information with the
Commission may be suspended, under certain circumstances, if the New Notes are
held of record by fewer than 300 holders at the beginning of any fiscal year and
are not listed on a national securities exchange. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and file with the Commission (unless the Commission
will not accept such a filing) all annual, quarterly and current reports that
the Company is or would be required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act. In addition, for so long as any of
the Old Notes remain outstanding, the Company has agreed to make available to
any prospective purchaser of the Old Notes or beneficial owner of the Old Notes
in connection with any sale thereof the information required by Rule 144A(d) (4)
under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE COMPANY,
INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY REGISTERED HOLDER OR
BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL REQUEST AND WITHOUT
CHARGE FROM TWIN LABORATORIES INC., 2120 SMITHTOWN AVENUE, RONKONKOMA, NEW YORK
11779, ATTENTION: GENERAL COUNSEL. TELEPHONE REQUESTS MAY BE DIRECTED TO THE
COMPANY AT (516) 467-3140. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY , 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
5
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, the term "Continuing Stockholders" collectively refers to
Brian, Dean, Neil, Ross and Steve Blechman and Stephen Welling, and the term
"Stockholders" collectively refers to the Continuing Stockholders together with
David and Jean Blechman. Unless the context otherwise requires, the term
"Company" refers to (a) Twin Laboratories Inc. and, unless otherwise indicated
and as applicable, each of its subsidiary, Advanced Research Press, Inc.
("ARP"), and its parent, Twinlab Corporation when used with respect to
information about events occurring upon completion of or after the Acquisition
(as defined herein) or when giving pro forma effect thereto and (b) collectively
Natur-Pharma Inc., Twin Laboratories Inc., Alvita Products, Inc., Twinlab Export
Corp., Twinlab Specialty Corporation, B. Bros. Realty Corporation and Advanced
Research Press, Inc., all of which were affiliated entities, as such entities
existed prior to the consummation of the Acquisition, when used with respect to
historical information contained herein. The term "TLC" means Twinlab
Corporation excluding its direct and indirect subsidiaries.
THE COMPANY
The Company is the leading manufacturer and marketer of brand name
nutritional supplements sold through domestic independent health food stores.
Since the Company's founding in 1968 by David and Jean Blechman, the Company has
emphasized the development and introduction of high-quality, unique products in
response to emerging trends in the nutritional supplement industry. The Company
produces a full line of nutritional supplements and offers the broadest product
line in the industry with more than 800 products and 1,500 stockkeeping units
(SKU's). The Company's product line includes vitamins, minerals, amino acids,
fish and marine oils, sports nutrition products and special formulas marketed
under the TWINLAB(R) trademark and a full line of herbal supplements and
phytonutrients and herb teas marketed under the Nature's Herbs(R) and Alvita(R)
trademarks, respectively. None of the Company's products individually accounted
for more than 7% of total net sales in 1995. The Company's broad product line,
strong history of new product introductions and innovations, superior marketing
and advertising programs and premium product quality have established TWINLAB,
Nature's Herbs and Alvita as leading brands in the nutritional supplement
industry.
Under the management of Mr. and Mrs. Blechman's five sons, the Company has
diversified its product line through internal growth, product development and
selected acquisitions, including the acquisition in 1989 of Natur-Pharma Inc., a
leading manufacturer and marketer of herbal supplements and phytonutrients under
the Nature's Herbs brand name, and the acquisition in 1991 of Alvita Products,
Inc., a leading marketer of herb teas. The Company has achieved increased net
sales and EBITDA every year since 1990. In particular, during the three-year
period from 1993 through 1995, the Company achieved a compound annual growth
rate in net sales and EBITDA of 22.0% and 38.6%, respectively. For the fiscal
year ended December 31, 1995, the Company achieved net sales growth of 26.8% to
$148.7 million and EBITDA growth of 33.9% to $33.5 million, as compared to
fiscal year 1994. For the quarter ended March 31, 1996, the Company achieved net
sales of $44.0 million and EBITDA of $11.1 million, representing an increase of
21.7% and 66.4%, respectively, as compared to the quarter ended March 31, 1995.
The Company's products target consumers who utilize nutritional supplements
in their daily diet and who demand premium quality ingredients in a broad
variety of dosages and delivery methods. The Company's products compete
primarily in the health food store market, where the dominant competitive
factors include product attributes such as quality, potency and the uniqueness
of the product formulation. The Company sells its products domestically through
a network of approximately 60 distributors, who service approximately 11,000
health food stores and other selected retail outlets. The Company believes that
its products are available in over 90% of the health food stores in the United
States. The health food store channel of distribution has expanded significantly
in recent years and is expected to grow further as national chains such as
General Nutrition Companies, Inc. ("GNC"), Whole Foods Market, Wild Oats
Markets, Fresh Fields and other industry participants continue to add stores in
new and existing markets. The health food store market differs significantly
from the mass market for vitamin and other nutritional supplements where price
and
6
<PAGE> 10
convenience constitute the primary bases of competition. The nutritional
supplement products sold in grocery stores, drug stores and mass merchandisers
are typically manufactured by large pharmaceutical companies and private label
manufacturers. The Company's products are also offered in Europe, Asia, South
America and other international markets through arrangements with overseas
distributors.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates in a 1994 survey conducted
by Packaged Facts (the "Packaged Facts Survey"), an independent consumer market
research firm, the retail market for vitamins, minerals and other nutritional
supplements has grown at a compound annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. Furthermore, the Company's rate of
sales growth has exceeded the industry's growth rate for each year during this
period. Packaged Facts forecasts approximately 7% annual industry growth through
the end of the decade in vitamins, minerals and other supplements, which
management believes will be fueled by (i) favorable demographic trends towards
older Americans, who are more likely to consume nutritional supplements; (ii)
product introductions in response to new scientific research findings; (iii) the
nationwide trend toward preventive medicine in response to rising health care
costs; and (iv) the heightened understanding and awareness of the connection
between diet and health. Moreover, although the industry has grown dramatically
in recent years, there is still a large untapped domestic market as only an
estimated 50% of Americans currently consume vitamins, minerals and herbal
supplements on a regular basis.
Twin Laboratories Inc. is incorporated under the laws of the State of Utah
and maintains its principal executive offices at 2120 Smithtown Avenue,
Ronkonkoma, New York 11779. Its telephone number is (516) 467-3140.
BUSINESS STRATEGY
The Company's strategy is to continue to enhance its leadership position in
the domestic sale of vitamins, minerals and other nutritional supplements in
health food stores and to increase its market share and sales while continuing
to improve its overall operating efficiency and financial performance. The
Company intends to capitalize on the TWINLAB brand name by growing market share
domestically, increasing penetration of the Company's other brands, continuing
to introduce new products and product extensions, and expanding internationally.
Specifically, the Company seeks to:
Capitalize on Powerful Brand Name Recognition. The Company's recognized
product quality, broad product line, strong history of new product introductions
and innovations, and superior marketing and advertising programs have
established TWINLAB, Nature's Herbs and Alvita as leading brands in the
nutritional supplement industry. Each of the Company's product categories,
including vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas, have posted
double digit sales growth in each of the last three years. The Company's
extensive marketing and advertising programs have been critical components of
its products' strong brand name recognition, and management believes that the
Company offers its customers the strongest marketing and advertising support
programs in the industry. In fiscal 1995, the Company invested $11.1 million, an
increase of 27% over fiscal 1994, in marketing and advertising to promote its
products. Furthermore, since quality is a critical factor in consumer purchase
decisions, the Company believes that its premium quality ingredients, modern
manufacturing facilities and comprehensive quality control procedures have
enabled the Company to establish a competitive advantage based on the quality of
its products.
Increase Penetration in the Growing Health Food Market. Management
believes that the expansion of retail distribution channels and the strong
growth characteristics of the nutritional supplement industry provide the
Company with significant opportunities to increase sales. Management further
believes that the established brand name recognition of the Company's products
positions it to increase its penetration of shelf space as health food retailers
seek to align themselves with companies who possess strong brand names, offer a
wide range of products, demonstrate continued marketing and advertising support
and provide consistently high levels of customer service. Since Nature's Herbs
and Alvita products currently are available in only an estimated 60% and 50%,
respectively, of domestic health food stores, compared to an estimated 90% for
TWINLAB products, the Company believes that it will be able to capitalize on
health food retailers' success
7
<PAGE> 11
with the TWINLAB product line in order to significantly increase shelf space for
the Company's herbal supplements, phytonutrients and herb teas.
Continue to Introduce New Products and Product Innovations. A cornerstone
of the Company's success has been its ability to rapidly utilize recent
scientific and medical findings in its new product development efforts. The
Company has consistently been among the first in its industry to introduce new
products and product innovations which anticipate and meet customer demands for
newly identified nutritional supplement benefits. Furthermore, the Company's
geographically diverse network of more than 60 distributors allows the Company
to achieve immediate and broad distribution for new product launches. As part of
its ongoing research and development effort, the Company maintains an extensive
database and actively researches and monitors a wide variety of publications
containing scientific and medical research. From 1991 through 1995, the Company
introduced over 350 products, with over 90 new products introduced in 1995
alone. Gross sales during 1995 from new products introduced in 1995 were $18.4
million, or approximately 11% of gross sales. The Company intends to build upon
its historical success by continuing to introduce new and innovative products
not previously available in health food stores.
Build Upon Established Customer Relationships. The Company's established
relationships with distributors and health food store retailers are based upon
the Company's long-standing commitment to a high level of customer service. In
order to ensure that its customers receive prompt and reliable service, the
Company has designed a flexible and responsive manufacturing process and has
achieved a 98% fill rate for customer orders. In addition, the Company's sales
force consists of 30 dedicated sales professionals who operate in sales
territories which cover the entire continental United States and Alaska. The
primary functions of the Company's sales force are to gain better placement and
additional shelf space for the Company's products and to stay abreast of
customer needs. The sales force personnel work with direct accounts,
distributors and individual retailers to enhance knowledge of TWINLAB, Nature's
Herbs and Alvita products and to achieve maximum exposure for these products.
Increase Penetration of Foreign Markets. Management believes that there
are substantial opportunities for the Company to expand its presence in foreign
markets. The Company has a department, headed by a senior sales professional,
dedicated to increasing sales in such markets. The Company's foreign marketing
effort is primarily focused on establishing additional relationships with
leading overseas distributor organizations as a cost-effective method of
increasing international sales. The Company presently has distribution
agreements covering over 45 foreign countries and has agreements for another
seven countries currently in negotiation. In 1995, the Company had net sales of
$8.3 million to foreign markets.
Supplement Internal Growth Through Strategic 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 strategically positioned to participate in the consolidation of the
industry due to its established brand name, broad distribution capabilities and
proven ability to generate sales of its products through successful marketing
programs. Since 1989 the Company has acquired two businesses, Natur-Pharma Inc.
(Nature's Herbs) and Alvita Products, Inc. (Alvita), and in each case has
embarked on successful expansion programs which resulted in substantially higher
sales and EBITDA for the acquired companies. Net sales for Natur-Pharma Inc.
increased from $5.2 million in 1990 (the first full year after its acquisition)
to $17.9 million in 1995, and net sales for Alvita Products, Inc. increased from
$1.7 million in 1992 (the first full year after its acquisition) to $5.6 million
in 1995. The Company regularly evaluates acquisition opportunities, including
product line acquisitions, that complement its existing products or are
compatible with its business philosophy and strategic goals.
ISSUANCE OF THE OLD NOTES
The outstanding $100.0 million principal amount of 10 1/4% Senior
Subordinated Notes due 2006 (the "Old Notes") were sold by the Company to
Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(the "Initial Purchasers"), on May 7, 1996 (the "Closing Date") pursuant to a
Purchase Agreement, dated May 1, 1996 (the "Purchase Agreement"), among the
Company, TLC and ARP (collectively the "Guarantors") and the Initial Purchasers.
The Initial Purchasers subsequently resold the Old
8
<PAGE> 12
Notes in reliance on Rule 144A under the Securities Act and other available
exemptions under the Securities Act (the "Offering"). The Company also entered
into the Registration Rights Agreement, dated as of the Closing Date (the
"Registration Rights Agreement"), among the Company, the Guarantors and the
Initial Purchasers, pursuant to which the Company granted certain registration
rights for the benefit of the holders of the Old Notes. The Exchange Offer is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Old Notes. See "-- The Exchange Offer" and
"The Exchange Offer -- Purpose and Effect."
THE ACQUISITION
The Stockholders, TLC, Natur-Pharma Inc. and Green Equity Investors II,
L.P. ("GEI") entered into a Stock Purchase and Sale Agreement, dated as of March
5, 1996, as amended (the "Acquisition Agreement"), pursuant to which, among
other things, on the Closing Date (i) GEI acquired 48% of the common stock of
TLC for aggregate consideration of $4.8 million and shares of non-voting junior
redeemable preferred stock of TLC (the "Junior Preferred Stock") for aggregate
consideration of $37.0 million, (ii) certain other investors acquired 7% of the
common stock of TLC for aggregate consideration of $0.7 million and shares of
non-voting senior redeemable preferred stock of TLC (the "Senior Preferred
Stock," and, together with the Junior Preferred Stock, the "Preferred Stock")
for aggregate consideration of $30.0 million, (iii) the Continuing Stockholders
exchanged certain of their shares of common stock of Natur-Pharma Inc. for 45%
of the outstanding shares of common stock of TLC, valued at $4.5 million, (iv)
TLC purchased all of the remaining shares of common stock of Natur-Pharma Inc.
from the Stockholders for cash, resulting in Natur-Pharma Inc. becoming a wholly
owned subsidiary of TLC, (v) Twin Laboratories Inc., Alvita Products, Inc.,
Twinlab Export Corp., Twinlab Specialty Corporation and B. Bros. Realty
Corporation merged into Natur-Pharma Inc. (the "Natur-Pharma Merger"); and
Advanced Research Press, Inc. merged with Natur-Pharma II Inc., a wholly owned
subsidiary of Natur-Pharma Inc. (together with the Natur-Pharma Merger, the
"Mergers"; the surviving entity in such merger is referred to herein as "ARP")
and (vi) in connection with such mergers the Stockholders received cash in
consideration for all of their shares of capital stock of Twin Laboratories
Inc., Alvita Products, Inc., Twinlab Export Corp., Twinlab Specialty
Corporation, B. Bros. Realty Corporation and Advanced Research Press, Inc. The
total cash consideration that the Stockholders received was approximately $212.5
million, the majority of which was paid to David and Jean Blechman. Of the total
cash consideration to the Stockholders, approximately $15 million represented
consideration for the Non-Competition Agreements (as defined herein). See
"Management -- Employment Agreements." The transactions described above are
hereinafter referred to as the "Acquisition." Concurrently with the consummation
of the Acquisition, the Company consummated the Offering and entered into the
New Credit Facility (which provides for a term facility in the amount of $53.0
million and a revolving credit facility in the amount of $15.0 million) (the
"New Credit Facility," and, collectively with the Acquisition and the Offering,
the "Transactions"). The net cash proceeds of the Offering were used, together
with borrowings under the New Credit Facility, the proceeds from the issuance of
the common stock and Preferred Stock of TLC and available cash of the Company,
to finance the Acquisition, to refinance approximately $7.9 million aggregate
principal amount of debt of the Company and to pay related fees and expenses.
See "Description of New Notes," "Description of New Credit Facility" and
"Description of Capital Stock of TLC." In connection with the Acquisition,
Natur-Pharma Inc.'s name was changed to Twin Laboratories Inc.
The consolidated financial statements of TLC contained in this Prospectus
include the financial statements of Twin Laboratories Inc. and TLC's indirect
wholly owned subsidiary, ARP, after giving retroactive effect, in a manner
similar to a pooling of interests, to the Mergers pursuant to the Acquisition.
The Old Notes are, and the New Notes will be, jointly and severally guaranteed
by TLC and ARP on a full and unconditional basis. TLC has no separate operations
and no significant assets other than TLC's investment in Twin Laboratories Inc.
and, through Twin Laboratories Inc., in ARP. Accordingly, separate financial
statements of Twin Laboratories Inc. or ARP are not included herein.
9
<PAGE> 13
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering, upon the terms and subject
to the conditions set forth herein and in the
accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal
amount of its 10 1/4% Senior Subordinated Notes due
2006 (the "New Notes," with the Old Notes and the
New Notes sometimes collectively referred to herein
as the "Notes") for each $1,000 in principal amount
of the outstanding Old Notes (the "Exchange
Offer"). As of the date of this Prospectus, $100.0
million in aggregate principal amount of the Old
Notes is outstanding, the maximum amount authorized
by the Indenture for all Notes. As of ,
1996, there were two registered holders of the Old
Notes, including Cede & Co. ("Cede") which held
$ of aggregate principal amount of the Old
Notes for of its participants. See "The
Exchange Offer -- Terms of the Exchange Offer."
Expiration Date............ 5:00 p.m., New York City time, on ,
1996, as the same may be extended. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments."
Conditions of the Exchange
Offer.................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer
is subject to the condition that it does not
violate any applicable law or interpretation of the
staff of the Commission. See "The Exchange
Offer -- Conditions of the Exchange Offer."
Termination of Certain
Rights..................... Pursuant to the Registration Rights Agreement and
the Old Notes, Eligible Holders of Old Notes (i)
have rights to receive the Liquidated Damages and
(ii) have certain rights intended for the holders
of unregistered securities. "Liquidated Damages"
means damages of $0.05 per week per $1,000
principal amount of Old Notes constituting Transfer
Restricted Securities (up to a maximum of $0.30 per
week per $1,000 principal amount) during the period
in which a Registration Default is continuing
pursuant to the terms of the Registration Rights
Agreement. Holders of New Notes generally will not
be and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated
Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders
of unregistered securities. See "The Exchange
Offer -- Termination of Certain Rights" and
"-- Procedures for Tendering Old Notes."
Accrued Interest on the Old
Notes.................... The New Notes will bear interest at a rate equal to
10 1/4% per annum from and including their date of
issuance. Eligible Holders whose Old Notes are
accepted for exchange will have the right to
receive interest accrued thereon from the date of
original issuance of the Old Notes or the last
Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes,
such interest to be payable with the first interest
payment on the New Notes. Interest on the Old Notes
accepted for exchange, which accrues at the rate of
10 1/4% per annum, will cease to accrue on the day
prior to the issuance of the New Notes.
Procedures for Tendering
Old Notes.................. Unless a tender of Old Notes is effected pursuant
to the procedures for book-entry transfer as
provided herein, each Eligible Holder desiring to
10
<PAGE> 14
accept the Exchange Offer must complete and sign
the Letter of Transmittal, have the signature
thereon guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined) at
the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial Owner
(as defined) of the Old Notes whose Old Notes are
registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust company
and who wishes to tender Old Notes in the Exchange
Offer, should instruct such entity or person to
promptly tender on such Beneficial Owner's behalf.
See "The Exchange Offer -- Procedures for Tendering
Old Notes."
Guaranteed Delivery
Procedures............... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date (or complete the
procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to the
guaranteed delivery procedures set forth in the
Letter of Transmittal. See "The Exchange Offer --
Procedures for Tendering Old Notes -- Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes.... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept any and
all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
The Exchange Agent......... Fleet National Bank is the exchange agent (in such
capacity, the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- The Exchange Agent;
Assistance."
Fees and Expenses.......... All expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by the
Company. The Company will also pay certain transfer
taxes applicable to the Exchange Offer. See "The
Exchange Offer -- Fees and Expenses."
Resales of the New Notes... Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such Eligible Holder (other than (i)
a broker-dealer who
11
<PAGE> 15
purchased the Old Notes directly from the Company
for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that the Eligible Holder is acquiring the New Notes
in the ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in a
distribution of the New Notes. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker as a result of market
making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"The Exchange Offer -- Resales of the New Notes"
and "Plan of Distribution."
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of the New Notes will not
be entitled to Liquidated Damages and (iii) holders of the New Notes will not
be, and upon consummation of the Exchange Offer, Eligible Holders of the Old
Notes will no longer be, entitled to certain rights under the Registration
Rights Agreement intended for the holders of unregistered securities, except in
limited circumstances. See "Exchange Offer -- Termination of Certain Rights."
The Exchange Offer shall be deemed consummated upon the occurrence of the
delivery by the Company to the Registrar under the Indenture of the New Notes in
the same aggregate principal amount as the aggregate principal amount of Old
Notes that are tendered by holders thereof pursuant to the Exchange Offer. See
"The Exchange Offer -- Termination of Certain Rights" and "-- Procedures for
Tendering Old Notes" and "Description of New Notes."
Maturity................... May 15, 2006.
Interest................... 10 1/4% payable in cash semi-annually in arrears,
calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Interest Payment Dates..... May 15 and November 15, commencing on November 15,
1996.
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, on or after May
15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any,
to the date of redemption. Notwithstanding the
foregoing, prior to May 15, 1999, the Company may
redeem from time to time up to 35% of the aggregate
principal amount of the Notes originally
outstanding at a redemption price equal to 109 1/2%
of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date,
with the net proceeds of one or more Equity
Offerings (as defined herein); provided, that at
least 65% of the aggregate principal amount of the
Notes originally outstanding remains outstanding
immediately after the occurrence of such
redemption. See "Description of Notes -- Optional
Redemption."
Guarantees................. The New Notes will be guaranteed (the "Guarantees")
on an unsecured senior subordinated basis by TLC,
ARP, the Company's only existing subsidiary, and
all of the Company's future subsidiaries (other
than Unrestricted Subsidiaries) (ARP and such
future subsidiaries are collec-
12
<PAGE> 16
tively referred to as the "Subsidiary Guarantors"
and, together with TLC, collectively, as the
"Guarantors").
Ranking.................... The New Notes and the Guarantees will be general
unsecured obligations of the Company and the
Guarantors, respectively, subordinated in right of
payment to all existing and future Senior Debt of
the Company and the Guarantors, as applicable,
including borrowings under the New Credit Facility.
On a pro forma basis after giving effect to the
Transactions, as of March 31, 1996, the Company
would have had approximately $53.4 million of
outstanding Senior Debt, substantially all of which
would have been secured.
Change of Control Offer.... Upon a Change of Control, the Company will be
required to offer to repurchase all outstanding New
Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of
Notes -- Certain Covenants -- Repurchase of Notes
at the Option of the Holder Upon a Change of
Control."
Certain Covenants.......... The Indenture contains certain covenants with
respect to the Company and the Subsidiary
Guarantors that limit the ability of the Company
and the Subsidiary Guarantors to, among other
things, (i) incur additional Indebtedness (as
defined herein) and issue certain preferred stock,
(ii) pay dividends or make other distributions,
(iii) layer Indebtedness, (iv) create certain
liens, (v) sell certain assets, (vi) enter into
certain transactions with affiliates, or (vii)
enter into certain mergers or consolidations
involving the Company. See "Description of
Notes -- Certain Covenants."
Absence of a Public Market
for the New Notes.......... The New Notes are a new issue of securities with no
established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes. The Initial Purchasers
have advised the Company that they currently intend
to make a market in the New Notes. However, none of
the Initial Purchasers is obligated to do so, and
any market making with respect to the New Notes may
be discontinued at any time without notice. The
Company does not intend to apply for listing of the
New Notes on a securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK
FACTORS."
RECENT DEVELOPMENTS
On June 4, 1996, TLC filed with the Commission a registration statement on
Form S-1 (as amended, the "TLC Registration Statement") in respect of an
offering by TLC for the sale to the public (the "IPO") of shares of its common
stock, $1.00 par value. The TLC Registration Statement states that the maximum
aggregate offering price of the securities to be registered is $130,000,000.
Subsequent to the filing of the TLC Registration Statement, the name of TLC was
changed from TLG Laboratories Holding Corp. to Twinlab Corporation.
The TLC Registration Statement states that the expected use of the net
proceeds of the IPO will be to redeem all of the outstanding shares of Senior
Preferred Stock and all of the outstanding shares of Junior Preferred Stock,
which together have an aggregate liquidation preference of $67.0 million (plus
accrued and unpaid dividends thereon), and to prepay in full the $50.0 million
of remaining outstanding indebtedness under the term loan facility contained in
the New Credit Facility, plus accrued and unpaid interest thereon. The balance
of the net proceeds of the IPO will be used for general corporate purposes. See
"Description of New Credit Facility" and "Description of Capital Stock of TLC."
13
<PAGE> 17
The consummation of the proposed IPO will constitute a Public Offering
Event (as defined herein) under the terms of the Employment Agreements, the
Stockholders Agreement and the Secondary Stockholders Agreement (as defined
herein). See "Management -- Employment Agreements" and "Principal
Stockholders -- Terms of the Stockholders Agreement."
Following the consummation of the IPO, GEI and the Blechman Brothers will
together continue to control a majority of the voting control of TLC and will
thus be able to exercise significant influence over the composition of TLC's
board of directors and matters requiring the approval of the shareholders of
TLC. See "Risk Factors -- Ownership of the Company" and "Principal
Stockholders."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary information below presents historical consolidated financial
data and unaudited pro forma condensed consolidated financial data for the
periods indicated which have been derived from audited and unaudited financial
statements of the Company. The results for the interim periods are not
necessarily indicative of the results for the full fiscal year. The summary
unaudited pro forma condensed consolidated operating data for the year ended
December 31, 1995 and the latest twelve months ("LTM") ended March 31, 1996 give
effect to the Transactions as if each of the Transactions had been consummated
as of January 1, 1995. The pro forma balance sheet data give effect to the
Transactions as if each of the Transactions had been consummated on March 31,
1996. See "Unaudited Pro Forma Condensed Consolidated Financial Data" and the
notes thereto. The pro forma financial data set forth below may not necessarily
be indicative of the results that would have been achieved had the Transactions
been consummated as of the dates indicated or that may be achieved in the
future. The summary historical and pro forma financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical Financial Data" and the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................... $70,165 $83,014 $99,897 $117,342 $148,735 $36,128 $43,984
Gross profit................ 25,501 31,800 37,766 47,095 58,803 13,970 17,622
Operating expenses.......... 14,570 17,463 21,125 23,022 27,191 7,501 7,299
Income from operations...... 10,931 14,337 16,641 24,073 31,612 6,469 10,323
Net income.................. 10,162 13,435 16,676 21,693 30,224 6,338 9,779
PRO FORMA:(A)
Historical income before
provision for income
taxes.................... $10,331 $14,010 $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for
income taxes............. 4,017 5,436 6,644 9,087 12,060 2,529 3,906
------- ------- ------- -------- -------- ------- -------
Pro forma net income........ $ 6,314 $ 8,574 $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======= ======= ======== ======== ======= =======
OTHER DATA:
EBITDA(b)................... $11,734 $15,229 $17,446 $ 25,023 $ 33,516 $ 6,684 $11,125
Capital expenditures........ 1,472 1,304 4,904 1,786 2,641 489 224
Depreciation................ 783 806 710 851 909 194 271
Amortization................ 20 86 95 99 102 21 31
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED LTM ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
PRO FORMA DATA:
Net sales................................................. $ 148,735 $156,591
EBITDA(b)................................................. 33,516 37,957
Income from operations.................................... 31,212 35,066
Cash interest expense(c).................................. 14,735 14,733
Ratio of EBITDA to cash interest expense.................. -- 2.6x
Ratio of EBITDA less capital expenditures to cash interest
expense................................................ -- 2.4x
Ratio of net debt to EBITDA(d)............................ -- 3.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities.................. $ 15,273 $ 4,429
Net working capital (excluding cash and cash equivalents, marketable
securities and current debt)....................................... 39,236 42,703
Total assets......................................................... 85,151 140,626
Total debt (including current debt).................................. 8,673 153,773
Senior redeemable cumulative Preferred Stock......................... -- 30,000
Junior redeemable cumulative Preferred Stock......................... -- 37,000
Shareholders' equity (deficit)....................................... 62,456 (95,733)
</TABLE>
- ---------------
(a) The Company consisted of S corporations and, accordingly, federal and state
taxes were generally paid at the shareholder level only. Upon consummation
of the Transactions, the Company eliminated its S corporation status and,
accordingly, became subject to federal and state income taxes.
(b) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to
a limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee (as defined herein).
While EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP") and should not
be considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(c) Represents total interest expense less amortization of deferred financing
fees.
(d) Net debt represents total debt less cash and cash equivalents and
marketable securities.
15
<PAGE> 19
RISK FACTORS
Holders of Notes should carefully consider the following risk factors, as
well as other information contained, and incorporated by reference, in this
Prospectus, affecting the business of the Company. Information contained or
incorporated by reference in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. See, e.g., "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Prospectus Summary -- Business
Strategy" and "Business -- Business Strategy." No assurance can be given that
the future results covered by the forward-looking statements will be achieved.
The following matters constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
LEVERAGE
The Company is highly leveraged. On a pro forma basis after giving effect
to the Transactions, as of March 31, 1996, the Company would have had (i)
approximately $153.8 million of outstanding debt, of which approximately $53.4
million would have been Senior Debt, substantially all of which Senior Debt
would have been secured and (ii) shareholders' deficit of $95.7 million. See
"Capitalization." This leverage, together with restrictions in the New Credit
Facility and the Indenture, may limit the Company's ability to obtain additional
debt financing in the future and to respond to changing business and economic
conditions and could adversely affect its ability to effect its business
strategies. See "Description of New Notes" and "Description of New Credit
Facility." Required payments of principal and interest on the Company's
long-term debt are expected to be financed from operating cash flow, thus
limiting the availability of such cash flow for other corporate purposes. The
Company's ability to generate sufficient cash to meet its obligations is subject
to many factors, certain of which are beyond its control, including economic
conditions, regulatory factors and competition. While the Company believes that,
based on current levels of operations and anticipated growth, its cash flow from
operations, together with other sources of liquidity, will be adequate to meet
its obligations, there can be no assurance that its actual cash flow will in
fact be sufficient to service its debt. The Company's ability to grow is
dependent on prevailing economic conditions and financial, business and other
factors beyond its control. In the event the Company's operating cash flow and
working capital are not sufficient to fund the Company's expenditures or to
service its debt, including the Notes, the Company would be required to raise
additional funds through capital contributions, the refinancing of all or part
of its debt or the sale of assets. There can be no assurance that any of these
sources of funds would be available in amounts sufficient for the Company to
meet its obligations.
SUBORDINATION OF THE NOTES
The Notes are subordinated in right of payment to all Senior Debt of the
Company, including indebtedness under the New Credit Facility. Further, the New
Credit Facility is secured by substantially all of the assets of the Company and
its subsidiaries as well as by TLC's interest in the capital stock of the
Company. In addition, the Guarantees are subordinated in right of payment to all
Senior Debt of the Guarantors, including the guarantee of indebtedness under the
New Credit Facility. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company or the Guarantors, the assets
of the Company and the Guarantors will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. On a pro forma basis after giving effect to the Transactions, the
aggregate principal amount of Senior Debt to which the Notes would have been
subordinated as of March 31, 1996 would have been approximately $53.4 million.
Additional Senior Debt may be incurred by the Company and the Guarantors from
time to time, subject to certain restrictions. See "Description of New Credit
Facility" and "Description of New Notes -- Subordination."
16
<PAGE> 20
FRAUDULENT CONVEYANCE CONSIDERATIONS
The obligations of the Company under the Notes may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy case
or a lawsuit (including in circumstances where bankruptcy is not involved) is
commenced by or on behalf of any unpaid creditor of the Company or a
representative of the Company's creditors. If a court in such a lawsuit were to
find that, at the time the Company issued the Notes, or as a consequence of the
Acquisition, the Company (i) intended to hinder, delay or defraud any existing
or future creditor or contemplated insolvency with a design to prefer one or
more creditors to the exclusion in whole or in part of others or (ii) did not
receive fair consideration or reasonably equivalent value for issuing such Notes
and the Company (a) was insolvent, (b) was rendered insolvent, (c) was engaged
or about to engage in a business or transaction for which its remaining assets
constituted unreasonably small capital to carry on its business or (d) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court could void the Notes and the Company's
obligations thereunder, and direct the return of any amounts paid thereunder to
the Company or to a fund for the benefit of its creditors. Alternatively, in
such event, claims of the holders of such Notes could be subordinated to claims
of the other creditors of the Company. The Company's obligations under the Notes
will be guaranteed by the Guarantors, and the Guarantees may also be subject to
review under federal and state fraudulent transfer laws. If a court were to
determine that at the time a Guarantor became liable under its Guarantee, it
satisfied either of clauses (i) or (ii) in the foregoing paragraph, the court
could void the Guarantee and direct the repayment of amounts paid thereunder.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction that is being applied. Generally, however, a
company would be considered insolvent if the sum of its debts, including
contingent liabilities, is greater than all of its property at a fair valuation
or if the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and mature. The obligations of each Guarantor under its
guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Description of New
Notes."
The Company believes that based upon forecasts and other financial
information, including the pro forma financial statements reflecting the
Transactions, the Company is and will continue to be solvent, that it will have
sufficient capital to carry on its business and will be and will continue to be
able to pay its debts as they mature.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture and the New Credit Facility impose upon the Company certain
financial and operating covenants, including, among others, requirements that
the Company maintain certain financial ratios and satisfy certain financial
tests, limitations on capital expenditures and restrictions on the ability of
the Company to incur debt, pay dividends or take certain other corporate
actions, all of which may restrict the Company's ability to expand or to pursue
its business strategies. Changes in economic or business conditions, results of
operations or other factors could in the future cause a violation of one or more
covenants in the Company's debt instruments. See "Description of New
Notes -- Certain Covenants" and "Description of New Credit Facility."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management and other skills of Brian Blechman, Dean Blechman, Neil
Blechman, Ross Blechman and Steve Blechman (the "Blechman Brothers"), 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. The loss or unavailability of
the services of one or more of the Blechman Brothers could have a material
adverse effect on the Company. The Company has entered into long-term employment
agreements with each of the Blechman Brothers and, as of June 15, 1996, each of
the Blechman Brothers owns approximately 9% of the outstanding common stock of
TLC. See "Management" and "Prospectus Summary -- The Acquisition."
17
<PAGE> 21
LEGAL MATTERS
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in injury.
The Company currently has $75 million of product liability insurance (which does
not cover matters relating to L-Tryptophan) with a $25,000 self-insurance
retention per occurrence and $100,000 self-insurance retention in the aggregate.
However, there can be no assurance that such insurance will continue to be
available at a reasonable cost or if available will be adequate to cover
liabilities.
Twin Laboratories Inc. and other encapsulators, and various manufacturers,
distributors, suppliers, importers and retailers of manufactured L-Tryptophan or
products containing manufactured L-Tryptophan are or were defendants in various
legal 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. As of June
1, 1996, Twin Laboratories Inc. was a named defendant in three of these actions.
Although the Company believes that few new lawsuits are likely to be brought
because of applicable statutes of limitations, the possibility of future such
actions cannot be excluded. Twin Laboratories Inc. and certain other companies
in the industry (the "Indemnified Group") have each entered into a Defense and
Indemnification Agreement with Showa Denko America, Inc. ("SDA") (the
"Indemnification Agreement"), under which SDA has agreed to assume the defense
of all claims against any of the Indemnified Group arising out of the ingestion
of L-Tryptophan products and to pay all legal fees incurred and indemnify the
Company against liability in any action if it is determined that a proximate
cause of the injury sustained by the plaintiff was a constituent of the raw
material sold by SDA to Twin Laboratories Inc. or was a factor for which SDA or
any of its affiliates was responsible, except to the extent that action by Twin
Laboratories Inc. proximately contributed to the injury, and except for certain
claims relating to punitive damages. SDA appears to have been the supplier of
all of the allegedly contaminated L-Tryptophan. SDA has posted a revolving
irrevocable letter of credit for the benefit of the Indemnified Group if SDA is
unable or unwilling to satisfy any claims or judgments. Showa Denko, K.K.
("SDK"), the Japanese parent of SDA and manufacturer of the relevant
L-Tryptophan, has unconditionally guaranteed the payment obligations of SDA
under the Indemnification Agreement. As of June 1, 1996, 129 lawsuits in which
the Company was a named defendant had been dismissed or settled by SDA at no
cost to the Company.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against the Company alone and ignoring the existence of the
Indemnification Agreement, would exceed the Company's available product
liability insurance coverage of $3 million for L-Tryptophan matters in respect
of claims made prior to December 31, 1993, and would have a material adverse
effect on the Company's results of operations and financial condition. However,
the Indemnification Agreement, the defense and resolution to date of numerous
lawsuits by SDA without cost to the Company, the multitude of defendants and the
possibility that liability could be assessed against or paid by other parties or
by insurance carriers have led management of the Company, after consultation
with outside legal counsel, to believe that the prospect for a material adverse
effect on the Company's results of operations or financial condition is remote
and no provision in the Company's financial statements has been made for any
loss that may result from these actions.
The Company and others are defendants in a wrongful death action originally
commenced in July 1995 with respect to one of the Company's products containing
Ma Huang and with respect to a product that does not contain Ma Huang
manufactured by another defendant. See "-- Government Regulation" and
"Business -- Regulatory Matters."
The Company is presently engaged in various other legal actions, 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 the lawsuit described in the preceding paragraph, after
taking into consideration the Company's insurance coverage, will not have a
material adverse effect on its results of operations and financial condition.
18
<PAGE> 22
GOVERNMENT REGULATION
The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product 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.
On October 25, 1994, the President signed into law the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). This new law revises the provisions
of the Federal Food, Drug, and Cosmetic Act ("FFDC Act") concerning the
composition and labeling of dietary supplements and, in the judgment of the
Company, is favorable to the dietary supplement industry. The legislation
creates a new statutory class of "dietary supplements." This new class includes
vitamins, minerals, herbs, amino acids and other dietary substances for human
use to supplement the diet, and the legislation grandfathers, with certain
limitations, dietary ingredients on the market before October 15, 1994. A
dietary supplement which contains a new dietary ingredient, one not on the
market before October 15, 1994, will require evidence of a history of use or
other evidence of safety establishing that it will reasonably be expected to be
safe, such evidence to be provided by the manufacturer or distributor to the FDA
before it may be marketed. The DSHEA also invalidates the FDA's prior
enforcement theory that dietary supplements are food additives requiring
pre-market approval.
The Nutritional Labeling and Education Act of 1990 ("NLEA") prohibits the
use of any health claim for foods, including dietary supplements, unless the
health claim is supported by significant scientific agreement and is
pre-approved by the FDA. To date, the FDA has approved the use of health claims
for dietary supplements only in connection with calcium for osteoporosis, and
folic acid for neural tube defects. However, among other things, the DSHEA
amends, for dietary supplements, the NLEA by providing that "statements of
nutritional support" may be used in labeling for dietary supplements without FDA
pre-approval if certain requirements, including prominent disclosure on the
label of the lack of FDA review of the relevant statement, possession by the
marketer of substantiating evidence for the statement and post-use notification
to the FDA, are met. Such statements may describe how particular nutritional
supplements affect the structure, function, or general well-being of the body
(e.g. "promotes your cardiovascular health").
In December 1995, the FDA issued proposed regulations to govern the
labeling of dietary supplements. These regulations, which are subject to
revision in response to comments from interested parties, are expected to become
final later in 1996 and would require the Company to revise the labels for all
of its dietary supplement products before 1997. The FDA has proposed, subject to
its receipt of comments from the public, to withhold enforcement of the
relabeling regulations until January 1, 1998.
In 1989, Twin Laboratories Inc. received an informal inquiry from the New
York Regional Office of the FTC seeking substantiation for certain advertising
claims made for a segment of its "Fuel" bodybuilding/sports nutrition lines of
products. In response, Twin Laboratories Inc. submitted scientific
substantiation and financial information to the FTC. The Company is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of the Company's weight
control, bodybuilding and sports nutrition products. In addition, the Decree
seeks payment of $200,000. The Company believes that it has adequate scientific
substantiation for the claims at issue and intends to vigorously defend the
matter if a settlement is not reached. There can be no assurance that the
injunctive provisions of any eventual resolution of this matter will not have a
material adverse effect on the Company or that any eventual monetary payment
will be limited to the amount sought in the Decree.
Certain of the Company's products include a Chinese herb known as "Ma
Huang," which contains naturally-occurring ephedrine. Ma Huang has been the
subject of certain adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. To the Company's knowledge, a number of states and local
governmental entities have instituted bans on sales of
19
<PAGE> 23
Ma Huang-containing products that are portrayed as apparent alternatives to
illegal street drugs. There are proposals in other states and local
jurisdictions to broaden the regulation of, or otherwise limit or prohibit, the
sale of products containing ephedrine. Ma Huang is also subject to laws or
regulation in other states and foreign jurisdictions which limit ephedrine
levels and require appropriate warnings on product labels or which prohibit the
sales of products which contain Ma Huang other than by licensed pharmacists. On
April 10, 1996, the FDA issued a statement warning consumers not to purchase or
consume dietary supplements containing ephedrine with labels that portray the
products as apparent alternatives to illegal street drugs because these products
pose significant health risks to consumers. None of the Company's products which
contain Ma Huang are marketed for such purpose. The FDA, through a National Food
Advisory Committee, is currently considering whether the FDA should prohibit,
limit potencies or place other restrictions on the sale of products containing
Ma Huang. There can be no assurance that the FDA will not seek to impose
additional regulations on products which contain Ma Huang, including those
marketed by the Company.
There is a risk that the Company's products containing Ma Huang may become
subject to further federal, state, local or foreign laws or regulation, which
could require the Company to: (i) reformulate its products with reduced
ephedrine levels or with a substitute for Ma Huang and/or (ii) relabel its
products with different warnings or revised directions for use. Even in the
absence of further laws or regulation, the Company may elect to reformulate
and/or relabel its products which contain Ma Huang. While the Company believes
that its Ma Huang products could be reformulated and relabeled, there can be no
assurance in that regard or that reformulation and/or relabeling would not have
an adverse effect on sales of such products. The Company and others are
defendants in a wrongful death action originally commenced in July 1995 with
respect to one of the Company's products containing Ma Huang and with respect to
a product that does not contain Ma Huang manufactured by another defendant.
There can be no assurance that the Company will not be subject to further
private civil actions with respect to its products which contain Ma Huang.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales 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 distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control.
The Company cannot determine 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, additional recordkeeping, 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.
COMPETITION
The business of developing, manufacturing and selling vitamins, minerals,
sports nutrition products and other nutritional supplements is highly
competitive. Certain of the Company's competitors are substantially larger and
have greater financial resources than the Company. See
"Business -- Competition."
ABSENCE OF CLINICAL STUDIES AND SCIENTIFIC REVIEW; EFFECT OF PUBLICITY
The Company generally 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 suggested by the
Company. 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
any of the Company's products or any similar products distributed by other
companies should prove or be asserted to be 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 suggested by the Company or other
misuse or abuse
20
<PAGE> 24
of the Company's products or any similar products distributed by other companies
could have a material adverse effect on the Company's results of operations and
financial condition.
Furthermore, the Company believes the recent growth experienced by the
nutritional supplement market is based in part on national media attention
regarding recent scientific research suggesting potential health benefits from
regular consumption of certain vitamins and other nutritional products. Such
research has been described in major medical journals, magazines, newspapers and
television programs. The scientific research to date is preliminary, and there
can be no assurance of future favorable scientific results and media attention
or of the absence of unfavorable or inconsistent findings.
DEPENDENCE ON DISTRIBUTORS AND SIGNIFICANT CUSTOMER
The Company's success depends in part upon its ability to attract, retain
and motivate a large base of distributors, and its ability to maintain a
satisfactory relationship with GNC. Tree of Life, the Company's largest
distributor, and GNC accounted for approximately 28% and 22%, respectively, of
the Company's net sales in 1995. The loss of Tree of Life as a distributor or
GNC as a customer, or the loss of a significant number of other distributors, or
a significant reduction in purchase volume by Tree of Life, GNC or such other
distributors, for any reason, would have a material adverse effect on the
Company's results of operations and financial condition. See "Business -- Sales
and Distribution."
AVAILABILITY OF RAW MATERIALS
Substantially all of the Company's herbal supplements and herb teas contain
ingredients that are harvested by and obtained from third-party suppliers, and
many of those ingredients are harvested internationally and only once per year
or on a seasonal basis. An unexpected interruption of supply, such as a harvest
failure, could cause the Company's results of operations derived from such
products to be adversely affected. Although the Company has generally been able
to raise its prices in response to significant increases in the cost of such
ingredients, the Company has not always in the past been, and may not in the
future always be, able to raise prices quickly enough to offset the effects of
such increased raw material costs.
INTELLECTUAL PROPERTY PROTECTION
The Company's trademarks are valuable assets which are very important to
the marketing of its products. The Company's policy is to pursue registrations
for all of the trademarks associated with its key products. The Company has
approximately 250 trademark registrations with the United States Patent and
Trademark Office. The Company relies on common law trademark rights to protect
its unregistered 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 U.S. federal
registration prohibits the use of the trademark by any third party anywhere in
the United States.
OWNERSHIP OF THE COMPANY
As of June 15, 1996, GEI owns 48%, the Continuing Stockholders own 45% and
other investors own 7% of the common stock of TLC, which in turn owns 100% of
the common stock of the Company. Although the initial board of directors of each
of TLC and the Company consists of the Blechman Brothers and three GEI
representatives, a majority of TLC's stockholders have the ability to effect the
election of a majority of the members of such boards of directors. However,
regardless of the composition of such boards of directors, pursuant to the terms
of the Stockholders Agreement (as defined herein), a wide range of actions to be
taken by TLC will generally require approval of a majority of each of the GEI
and the Blechman director groups. In addition, certain fundamental corporate
actions generally require an affirmative vote of holders of at least 80% of the
issued and outstanding shares of common stock of TLC. These super majority
provisions are generally only effective until the occurrence of a Public
Offering Event (as defined herein). See "Principal Stockholders -- Terms of the
Stockholders Agreement." Thus, if the representatives of GEI and the Blechman
Brothers
21
<PAGE> 25
are not able to reach consensus on matters requiring such super majority
approval, the operations and growth of the Company could be adversely affected.
See "Prospectus Summary -- Recent Developments."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Company or any Guarantor within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such Notes. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that, by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented form time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the effective date of this Prospectus, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes will be adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Company does not intend to list
the New Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation system. Although the New Notes are expected to be eligible for trading
in the PORTAL market, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of or the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may be discontinued at any time. If a public trading
market develops for the New Notes, future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other facts, including the financial condition of the Company,
the New Notes may trade at a discount from their principal amount.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on May 7,
1996, pursuant to the Purchase Agreement. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A
22
<PAGE> 26
under the Securities Act and certain other exemptions under the Securities Act.
The Company and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed, with respect to the Old Notes
and subject to the Company's determination that the Exchange Offer is permitted
under applicable law, to (i) cause to be filed, on or prior to July 6, 1996, a
registration statement with the Commission under the Securities Act concerning
the Exchange Offer, (ii) use its reasonable best efforts to cause such
registration statement to be declared effective by the Commission on or prior to
September 19, 1996 and (iii) to cause the Exchange Offer to remain open for a
period of not less than 30 days. This Exchange Offer is intended to satisfy the
Company's exchange offer obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the conditions, terms
and provisions of the Registration Rights Agreement. See "Conditions of the
Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Eligible Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $100.0 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. As of , 1996, there were two registered
holders of the Old Notes, including Cede, which held $ of aggregate
principal amount of the Old Notes for of its participants. Solely for
reasons of administration (and for no other purpose), the Company has fixed the
close of business on , 1996, as the record date (the "Record Date")
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially. Only an Eligible Holder of the Old
Notes (or such Eligible Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Eligible Holders of the Old Notes entitled to participate in the
Exchange Offer. The Company believes that, as of the date of this Prospectus, no
such Eligible Holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible
Holders of Old Notes and for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1996 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
23
<PAGE> 27
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, notwithstanding any other
provisions of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue the New Notes in exchange for, any Old Notes, if the
Exchange Offer violates any applicable law or interpretation of the staff of the
Commission. The Company expects that the foregoing conditions will be satisfied.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), Eligible
Holders of Old Notes are entitled to receive Liquidated Damages of $0.05 per
week per $1,000 principal amount of Old Notes held by such holders (up to a
maximum of $0.30 per week per $1,000 principal amount of Old Notes). A
"Registration Default" with respect to the Exchange Offer shall generally occur
if: (i) the registration statement concerning the exchange offer (the
"Registration Statement") has not been filed with the Commission on or prior to
July 6, 1996; (ii) the Registration Statement is not declared effective on or
prior to September 19, 1996 (the "Effectiveness Target Date") or (iii) the
Exchange Offer is not consummated within 45 days after the earlier of the
effectiveness of the Registration Statement and the Effectiveness Target Date.
Holders of New Notes will not be and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be, entitled to (i) the right to
receive the Liquidated Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders of Transfer Restricted
Securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Registrar under the Indenture of New Notes
in the same aggregate principal amount as the aggregate principal amount of Old
Notes that are tendered by holders thereof pursuant to the Exchange Offer.
ACCRUED INTEREST ON THE OLD NOTES
The New Notes will bear interest at a rate equal to 10 1/4% per annum from
and including their date of issuance. Eligible Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange, which interest accrued at the
rate of 10 1/4% per annum, will cease to accrue on the day prior to the issuance
of the New Notes. See "Description of New Notes -- Principal, Maturity and
Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Eligible Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit such Old
Notes, together with a properly completed and duly
24
<PAGE> 28
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth on the
back cover page of this Prospectus prior to 5:00 p.m., New York City time, on
the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii) by
an Eligible Institution (as defined). In the event that a signature on a Letter
of Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the Letter of Transmittal is signed by a person other than
the registered holder of the Old Notes, the Old Notes surrendered for exchange
must either (i) be endorsed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution or (ii) be accompanied by a bond power, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution. The term "registered holder" as used herein with respect
to the Old Notes means any person in whose name the Old Notes are registered on
the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
25
<PAGE> 29
By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes
are being acquired by the Eligible Holder and each Beneficial Owner in the
ordinary course of business of the Eligible Holder and each Beneficial Owner,
(ii) the Eligible Holder and each Beneficial Owner are not participating, do not
intend to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes, (iii) the Eligible Holder
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the New Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in no-action letters that are discussed herein under "Resales of New
Notes," (iv) that if the Eligible Holder is a broker-dealer that acquired Old
Notes as a result of market making or other trading activities, it will deliver
a prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the Eligible Holder and each Beneficial Owner understand that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission and (vi)
neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing. In connection with a book-entry transfer,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
Guaranteed Delivery Procedures. Eligible Holders who wish to tender their
Old Notes and (i) whose Old Notes are not immediately available or (ii) who
cannot deliver their Old Notes or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date (or complete the
procedure for book-entry transfer on a timely basis), may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed Delivery (as defined
in the Letter of Transmittal) must be signed by such Eligible Holder, (ii) on or
prior to the Expiration Date, the Exchange Agent must have received from the
Eligible Holder and the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Eligible Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within three (3) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within three (3) business days after the Expiration Date. Any
Eligible Holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Book-Entry Delivery. The Exchange Agent will establish an account with
respect to the Old Notes at the DTC ("Book-Entry Transfer Facility") for
purposes of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Old Notes by causing such
facility to transfer Old Notes into the Exchange Agent's account in accordance
with such facility's procedure for such transfer. Even though delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer, and other documents required by the
Letter of Transmittal, must, in any case, be transmitted to and received by the
Exchange Agent at one of its addresses set forth on the back cover of this
Prospectus before the Expiration Date, or the guaranteed delivery procedure set
forth above must be followed. Delivery of the Letter of Transmittal and any
other required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent. The term "Agent's Message" means a
26
<PAGE> 30
message transmitted by the Book-Entry Transfer Facility to, and received by, the
Exchange Agent and forming a part of a book-entry Confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the Old
Notes that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that the Company may enforce such agreement
against such participant.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Eligible Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Eligible Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by a bond power in the name of
the person withdrawing the tender, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the Eligible Holder thereof without cost to
such Eligible Holder as soon as practicable after withdrawal. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
"The Exchange Offer -- Procedures for Tendering Old Notes" at any time on or
prior to the Expiration Date.
27
<PAGE> 31
THE EXCHANGE AGENT; ASSISTANCE
Fleet National Bank is the Exchange Agent. All tendered Old Notes, executed
Letters of Transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand/Overnight Express: Facsimile Transmission:
Fleet National Bank Fleet National Bank (860) 986-7908
777 Main Street 777 Main Street To confirm receipt:
MSN CT/MO/0224 MSN CT/MO/0224 Tel. (860) 986-1271
Hartford, Connecticut 06115 Hartford, Connecticut 06115
Attention: Corporate Trust Attention: Corporate Trust
Operations Operations
</TABLE>
SOLICITATION OF TENDERS; FEES AND EXPENSES
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will offers be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Notes in
such jurisdiction.
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation: (i) all registration and filing fees
(including, without limitation, fees and expenses of compliance with state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for the New Notes in a form
eligible for deposit with DTC and of printing Prospectuses), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and the Guarantors, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, (vii) internal expenses of the
Company and the Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Company and the Guarantors performing
legal or accounting duties), and (ix) fees and expenses, if any, incurred in
connection with the listing of the New Notes on a securities exchange.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
28
<PAGE> 32
RESALES OF THE NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Eligible Holder is acquiring
the New Notes in the ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes. The Company has not requested or obtained an
interpretive letter from the Commission staff with respect to this Exchange
Offer, and the Company and the Eligible Holders are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any Eligible Holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such Eligible Holder cannot
rely on the position of the staff of the Commission enunciated in Morgan Stanley
& Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), or interpreted in the Commission's letters
to Shearman and Sterling (available July 2, 1993) and K-III Communications
Corporation (available May 14, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exception from, or in a transaction not subject to, the
Securities Act and applicable states securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors -- Consequences of Failure to Exchange."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisers in making their own decisions
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Notes and will be entitled to all the
rights, and limitations applicable thereto, under the Indenture, except for any
such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of New Notes." All untendered Old Notes
will continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
29
<PAGE> 33
CAPITALIZATION
The following tables set forth the actual capitalization of TLC and its
direct and indirect subsidiaries as of March 31, 1996 and the capitalization of
Twin Laboratories Inc. and its subsidiary, ARP, at that date after giving effect
to: (i) the issuance and sale of the Old Notes and the application of the net
proceeds therefrom, (ii) the effectiveness of the New Credit Facility
(consisting of a six-year term loan facility in the amount of $53.0 million and
a six-year revolving credit facility in the amount of $15.0 million) and the
application of the proceeds therefrom, and (iii) the consummation of the
Acquisition, including the Company's conversion of tax status from an "S"
corporation to a "C" corporation and other tax consequences related to the
Acquisition. This table should be read in conjunction with "Unaudited Pro Forma
Condensed Consolidated Financial Data" and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
CAPITALIZATION OF TLC
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents and marketable securities.................... $15,273 $ 4,429
======= =========
Long-term debt (including current portion)
New Credit Facility.................................................. $ -- $ 53,000
Notes................................................................ -- 100,000
Existing debt........................................................ 8,267 367
Capital lease obligations............................................ 406 406
------- -----------
Total long-term debt......................................... 8,673 153,773
------- -----------
Senior redeemable cumulative Preferred Stock........................... -- 30,000
------- -----------
Junior redeemable cumulative Preferred Stock........................... -- 37,000
------- -----------
Shareholders' equity (deficit)
Capital stock........................................................ 450 1,000
Additional paid-in capital........................................... 68 82,063
Retained earnings (deficit).......................................... 61,938 (178,796)
------- -----------
Total shareholders' equity (deficit)......................... 62,456 (95,733)
------- -----------
Total capitalization......................................... $71,129 $ 125,040
======= =========
</TABLE>
CAPITALIZATION OF TWIN LABORATORIES INC.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents and marketable securities.................... $15,273 $ 4,429
======= =========
Long-term debt (including current portion)
New Credit Facility.................................................. $ -- $ 53,000
Notes................................................................ -- 100,000
Existing debt........................................................ 8,267 367
Capital lease obligations............................................ 406 406
------- -----------
Total long-term debt......................................... 8,673 153,773
------- -----------
Shareholders' equity (deficit)
Capital stock........................................................ 432 253
Additional paid-in capital........................................... 86 130,370
Retained earnings (deficit).......................................... 61,938 (159,356)
------- -----------
Total shareholders' equity (deficit)......................... 62,456 (28,733)
------- -----------
Total capitalization......................................... $71,129 $ 125,040
======= =========
</TABLE>
30
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma financial data have been prepared by the
Company's management from the Consolidated Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus. The unaudited pro
forma condensed consolidated statements of income for the year ended December
31, 1995, the three months ended March 31, 1995 and 1996 and the latest twelve
months ended March 31, 1996 reflect adjustments as if the Transactions had been
consummated and were effective as of January 1, 1995. The unaudited pro forma
condensed consolidated balance sheet as of March 31, 1996 gives effect to the
Transactions as if each had occurred on such date. See "Prospectus
Summary -- The Acquisition."
The financial effects of the Transactions as presented in the pro forma
financial data are not necessarily indicative of either the Company's financial
position or the results of its operations which would have been obtained had the
Transactions actually occurred on the dates described above, nor are they
necessarily indicative of the results of future operations. The pro forma
financial data should be read in conjunction with the notes thereto, which are
an integral part thereof, and with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
31
<PAGE> 35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LATEST TWELVE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA
-------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Net sales.................................................. $156,591 $ -- $156,591
Cost of sales.............................................. 94,136 -- 94,136
-------- -------- --------
Gross profit............................................... 62,455 -- 62,455
Operating expenses......................................... 26,989 400(a) 27,389
-------- -------- --------
Income from operations..................................... 35,466 (400) 35,066
-------- -------- --------
Other (expense) income:
Interest income.......................................... 398 (398)(b) --
Interest expense......................................... (922) (15,086)(c) (16,008)
Transaction expenses..................................... (1,056) 1,056(d) --
Other.................................................... 55 -- 55
-------- -------- --------
(1,525) (14,428) (15,953)
-------- -------- --------
Income before provision for income taxes................... 33,941 (14,828) 19,113
Provision for income taxes................................. 276 7,300(e) 7,576
-------- -------- --------
Net income................................................. $ 33,665 $(22,128) $ 11,537
======== ======== ========
EBITDA(f).................................................. $ 37,957 $ -- $ 37,957
Ratio of earnings to fixed charges(g)...................... 25.6x 2.2x
</TABLE>
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA
-------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Net sales.................................................. $148,735 $ -- $148,735
Cost of sales.............................................. 89,932 -- 89,932
-------- -------- --------
Gross profit............................................... 58,803 -- 58,803
Operating expenses......................................... 27,191 400(a) 27,591
-------- -------- --------
Income from operations..................................... 31,612 (400) 31,212
-------- -------- --------
Other (expense) income:
Interest income.......................................... 313 (313)(b) --
Interest expense......................................... (866) (15,144)(c) (16,010)
Transaction expenses..................................... (656) 656(d) --
Other.................................................... 61 -- 61
-------- -------- --------
(1,148) (14,801) (15,949)
-------- -------- --------
Income before provision for income taxes................... 30,464 (15,201) 15,263
Provision for income taxes................................. 240 5,812(e) 6,052
-------- -------- --------
Net income................................................. $ 30,224 $(21,013) $ 9,211
======== ======== ========
EBITDA(f).................................................. $ 33,516 $ -- $ 33,516
Ratio of earnings to fixed charges(g)...................... 24.1x 1.9x
</TABLE>
32
<PAGE> 36
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Net sales.................................................. $ 43,984 $ -- $43,984
Cost of sales.............................................. 26,362 -- 26,362
---------- ----------- ---------
Gross profit............................................... 17,622 -- 17,622
Operating expenses......................................... 7,299 100(a) 7,399
---------- ----------- ---------
Income from operations..................................... 10,323 (100) 10,223
---------- ----------- ---------
Other (expense) income:
Interest income.......................................... 167 (167)(b) --
Interest expense......................................... (224) (3,778)(c) (4,002)
Transaction expenses..................................... (400) 400(d) --
Other.................................................... (1) -- (1)
---------- ----------- ---------
(458) (3,545) (4,003)
---------- ----------- ---------
Income before provision for income taxes................... 9,865 (3,645) 6,220
Provision for income taxes................................. 86 2,380(e) 2,466
---------- ----------- ---------
Net income................................................. $ 9,779 $(6,025) $ 3,754
======= ========= ========
EBITDA(f).................................................. $ 11,125 $ -- $11,125
Ratio of earnings to fixed charges(g)...................... 29.2x 2.5x
</TABLE>
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Net sales.................................................. $ 36,128 $ -- $36,128
Cost of sales.............................................. 22,158 -- 22,158
---------- ----------- ---------
Gross profit............................................... 13,970 -- 13,970
Operating expenses......................................... 7,501 100(a) 7,601
---------- ----------- ---------
Income from operations..................................... 6,469 (100) 6,369
---------- ----------- ---------
Other (expense) income:
Interest income.......................................... 82 (82)(b) --
Interest expense......................................... (168) (3,836)(c) (4,004)
Other.................................................... 5 -- 5
---------- ----------- ---------
(81) (3,918) (3,999)
---------- ----------- ---------
Income before provision for income taxes................... 6,388 (4,018) 2,370
Provision for income taxes................................. 50 892(e) 942
---------- ----------- ---------
Net income................................................. $ 6,338 $(4,910) $ 1,428
======= ========= ========
EBITDA(f).................................................. $ 6,684 $ -- $ 6,684
Ratio of earnings to fixed charges(g)...................... 23.0x 1.6x
</TABLE>
33
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
- ---------------
(a) Represents the LGP Management Fee (as defined herein). See "Certain
Relationships and Related Transactions -- Transactions with LGP."
(b) Represents a reduction in interest income on cash and cash equivalents.
(c) The interest expense adjustment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS LTM
YEAR ENDED ENDED MARCH 31, ENDED
DECEMBER 31, --------------- MARCH 31,
1995 1995 1996 1996
------------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest expense on the Notes and the New Credit
Facility at a composite interest rate of 9.5%,
including revolving credit commitment and
administration fees........................... $ 14,676 $3,669 $3,669 $14,676
Interest expense on refinanced debt............. (807) (152) (210) (865)
------------ ------ ------ ---------
13,869 3,517 3,459 13,811
Amortization of deferred financing costs........ 1,275 319 319 1,275
------------ ------ ------ ---------
Interest expense adjustment..................... $ 15,144 $3,836 $3,778 $15,086
========== ====== ====== =======
</TABLE>
(d) Represents a reduction in nonrecurring expenses incurred which are directly
attributable to the Transactions.
(e) Reflects (i) the net increase in the provision for income taxes assuming the
Company was a "C" corporation, and (ii) the increase in net expenses
described in notes a, b, c and d above.
(f) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to a
limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee. While EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity, it
is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditures
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(g) The ratio of earnings to fixed charges is computed by adding fixed charges
(interest and one-third of rental expenses, representing that portion of
rental expenses attributable to interest) to income before provision for
income taxes and dividing that sum by the sum of the fixed charges.
34
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $15,049 $ (10,844) $ 4,205
Marketable securities....................................... 224 -- 224
Accounts receivable, net of allowance for bad debts......... 23,669 -- 23,669
Inventories................................................. 28,110 -- 28,110
Prepaid expenses and other current assets................... 1,479 -- 1,479
Deferred tax assets......................................... -- 5,031 5,031
------- ----------- ---------
Total current assets................................ 68,531 (5,813) 62,718
Property, plant and equipment, net............................ 12,989 -- 12,989
Deferred tax assets........................................... -- 52,969 52,969
Other assets.................................................. 3,631 8,319 11,950
------- ----------- ---------
Total assets........................................ $85,151 $ 55,475 $ 140,626
======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of term loan facility....................... $ -- $ 2,915 $ 2,915
Current portion of long-term debt........................... 1,471 (1,384) 87
Current portion of capital lease obligations................ 138 -- 138
Loan payable -- bank........................................ 660 (660) --
Notes payable -- shareholders............................... 846 (846) --
Accounts payable............................................ 9,814 -- 9,814
Accrued expenses and other current liabilities.............. 4,208 1,564 5,772
------- ----------- ---------
Total current liabilities........................... 17,137 1,589 18,726
Term loan facility............................................ -- 50,085 50,085
Notes......................................................... -- 100,000 100,000
Long-term debt, less current portion.......................... 5,290 (5,010) 280
Capital lease obligations, less current portion............... 268 -- 268
------- ----------- ---------
Total liabilities................................... 22,695 146,664 169,359
------- ----------- ---------
Senior redeemable cumulative Preferred Stock.................. -- 30,000 30,000
------- ----------- ---------
Junior redeemable cumulative Preferred Stock.................. -- 37,000 37,000
------- ----------- ---------
Shareholders' equity (deficit):
Common stock................................................ 450 550 1,000
Additional paid-in capital.................................. 68 81,995 82,063
Retained earnings (deficit)................................. 61,938 (240,734) (178,796)
------- ----------- ---------
Total shareholders' equity (deficit)................ 62,456 (158,189) (95,733)
------- ----------- ---------
Total liabilities and shareholders' equity
(deficit)......................................... $85,151 $ 55,475 $ 140,626
======= ========= =========
</TABLE>
35
<PAGE> 39
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
Data are summarized (in thousands) in the following table and are fully
described in the notes that follow:
<TABLE>
<CAPTION>
REPURCHASE
OF THE CONVERSION
STOCKHOLDERS' OF TAX
COMMON STOCK PAYMENT OF STATUS FROM TERMINATION
DEBT AND TRANSACTION INCOME "S" TO "C" OF INSURANCE
FINANCING REFINANCED RECAPITALIZATION FEES TAXES CORPORATION POLICY NET
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- ---------- ---------------- ----------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents..... $ 225,500 $ (7,900) $ (212,500) $ (12,330) $(5,400) $ 1,786 $ (10,844)
Current deferred
tax asset....... 5,031 5,031
Long-term deferred
tax assets...... 52,969 52,969
Other assets...... 10,105 (1,786) 8,319
Current portion of
term loan
facility........ 2,915 2,915
Current portion of
long-term
debt............ (1,384) (1,384)
Loan
payable -- bank... (660) (660)
Notes payable --
shareholders.... (846) (846)
Accrued expenses
and other
current
liabilities..... 500 (236) 1,300 1,564
Term loan
facility........ 50,085 50,085
Notes............. 100,000 100,000
Long-term debt,
less current
portion......... (5,010) (5,010)
Senior redeemable
cumulative
Preferred
Stock........... 30,000 30,000
Junior redeemable
cumulative
Preferred
Stock........... 37,000 37,000
Common stock...... 550 550
Additional paid-in
capital......... 4,950 (27,380) (1,989) 56,700 $ 49,714 81,995
Retained
earnings........ (185,620) (5,400) (49,714) (240,734)
</TABLE>
- ---------------
(a) The sources of financing to effect the Acquisition are as follows:
<TABLE>
<S> <C>
Gross proceeds of the Offering............................................ $100,000
Borrowings under the New Credit Facility.................................. 53,000
Issuance of Preferred Stock............................................... 67,000
Issuance of Common Stock.................................................. 5,500
--------
Total sources of financing...................................... $225,500
========
</TABLE>
(b) Represents the amount of debt refinanced by the Company in connection with
the Transactions.
(c) Represents the purchase price for the Stockholders' common stock in the
Company. The total purchase price includes approximately $15,000,
representing consideration for the Non-Competition Agreements, which was
recognized as a non-recurring expense upon the consummation of the
Acquisition.
(d) Represents allocation of fees paid in connection with the issuance of the
Notes, the New Credit Facility and the issuance of the Preferred Stock and
the common stock of TLC.
36
<PAGE> 40
(e) The Natur-Pharma Merger was treated as taxable asset purchases for federal
and state income tax purposes and as a recapitalization for financial
accounting purposes. For federal and state income tax purposes, the purchase
price was allocated among the various corporations and their respective
assets and liabilities based on the respective fair values as of the closing
of the Acquisition. This resulted in different book and tax asset bases for
the assets of these companies, which will result in deferred tax assets of
approximately $58,000. The calculation of the deferred tax asset and the
classification of such asset between current and long-term are preliminary
and subject to change based upon the final determination of fair values as
of the closing of the Acquisition.
As the Natur-Pharma Merger was treated as taxable asset purchases for
federal and state income tax purposes, New York State imposes an
entity-level tax on the related gain. Such tax, which is estimated to be
$1,300, will be paid by the Company.
Also represents a distribution of approximately $5,400 to the Stockholders
for income taxes paid for "S" corporation earnings through March 31, 1996.
(f) Represents a constructive distribution of undistributed "S" corporation
earnings and subsequent contribution to the capital of the Company in
connection with the termination of "S" corporation status.
(g) Represents the termination of the split dollar life insurance policy on the
lives of certain of the Stockholders and collection of the receivable from
the trust related thereto.
37
<PAGE> 41
SELECTED HISTORICAL FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1991
and for the year then ended and as of March 31, 1995 and 1996 and for the three
month periods ended March 31, 1995 and 1996 are derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the 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 operations for such
periods. The results for the interim periods are not necessarily indicative of
the results for the related full fiscal year. The selected consolidated
financial data as of December 31, 1992, 1993, 1994 and 1995 and for each of the
years then ended has been derived from the audited consolidated financial
statements of the Company. The report of Deloitte & Touche LLP, independent
auditors, on the consolidated financial statements as of December 31, 1994 and
1995, and for each of the three years in the period ended December 31, 1995 is
included elsewhere herein. The selected consolidated financial data should be
read in conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements of the Company and the notes thereto and the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................... $70,165 $83,014 $99,897 $117,342 $148,735 $36,128 $43,984
Cost of sales................ 44,664 51,214 62,131 70,247 89,932 22,158 26,362
------- ------- ------- -------- -------- ------- -------
Gross profit................. 25,501 31,800 37,766 47,095 58,803 13,970 17,622
Operating expenses........... 14,570 17,463 21,125 23,022 27,191 7,501 7,299
------- ------- ------- -------- -------- ------- -------
Income from operations....... 10,931 14,337 16,641 24,073 31,612 6,469 10,323
------- ------- ------- -------- -------- ------- -------
Other (expense) income:
Interest income........... 375 302 242 254 313 82 167
Interest expense.......... (461) (494) (487) (761) (866) (168) (224)
Transaction expenses...... -- -- -- -- (656) -- (400)
Other..................... (514) (135) 510 354 61 5 (1)
------- ------- ------- -------- -------- ------- -------
(600) (327) 265 (153) (1,148) (81) (458)
------- ------- ------- -------- -------- ------- -------
Income before unusual item,
provision for income taxes
and extraordinary item.... 10,331 14,010 16,906 23,920 30,464 6,388 9,865
Unusual item -- nonrecurring
charge for prior years'
income tax assessment..... -- -- -- 1,982 -- -- --
Provision for income taxes... 169 651 230 245 240 50 86
------- ------- ------- -------- -------- ------- -------
Income before extraordinary
item...................... 10,162 13,359 16,676 21,693 30,224 6,338 9,779
Extraordinary item........... -- 76 -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net income................... $10,162 $13,435 $16,676 $ 21,693 $ 30,224 $ 6,338 $ 9,779
======= ======= ======= ======== ======== ======= =======
PRO FORMA:(A)
Historical income before
provision for income
taxes..................... $10,331 $14,010 $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for
income taxes.............. 4,017 5,436 6,644 9,087 12,060 2,529 3,906
------- ------- ------- -------- -------- ------- -------
Pro forma net income......... $ 6,314 $ 8,574 $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======= ======= ======== ======== ======= =======
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(b).................... $11,734 $15,229 $17,446 $ 25,023 $ 33,516 $ 6,684 $11,125
Capital expenditures......... 1,472 1,304 4,904 1,786 2,641 489 224
Depreciation................. 783 806 710 851 909 194 271
Amortization................. 20 86 95 99 102 21 31
Ratio of earnings to fixed
charges(c)................ 13.7x 16.6x 19.8x 21.2x 24.1x 23.0x 29.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital
(excluding cash and cash
equivalents, marketable
securities and current
debt)..................... $14,097 $18,575 $25,437 $ 35,056 $ 39,405 $32,019 $39,236
Property, plant and
equipment, net............ 7,645 7,863 10,732 12,071 13,036 12,367 12,989
Total assets................. 36,878 44,368 55,587 64,706 75,309 66,711 85,151
Total debt (including current
debt)..................... 6,100 6,066 8,039 9,288 8,792 8,674 8,673
Shareholders' equity......... 26,587 33,180 40,543 48,671 55,405 47,816 62,456
</TABLE>
- ---------------
(a) The Company consisted of S corporations and, accordingly, federal and state
taxes were generally paid at the shareholder level only. Upon consummation
of the Transactions, the Company eliminated its S corporation status and,
accordingly, will be subject to federal and state income taxes.
(b) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to
a limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee. While EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity,
it is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(c) The ratio of earnings to fixed charges is computed by adding fixed charges
(interest and one-third of rental expenses, representing that portion of
rental expenses attributable to interest) to income before unusual item,
provision for income taxes and extraordinary item, and dividing that sum by
the sum of the fixed charges.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Data" and the audited Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. The Company consisted of "S" corporations for the three months ended
March 31, 1996 and years ended December 31, 1995, 1994 and 1993. Accordingly,
federal and state taxes were generally paid at the shareholder level only. The
provision for income taxes for the three months ended March 31, 1996 and years
ended December 31, 1995, 1994 and 1993 represented state taxes for New York,
which imposes a corporate tax for all income in excess of $0.2 million. Upon
consummation of the Transactions, the Company eliminated its "S" corporation
status and, accordingly, is subject to federal and state income taxes.
The following table sets forth, for the periods indicated, certain
historical income statement and other data for the Company and also sets forth
certain of such data as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
$ % $ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vitamins, Minerals & Amino Acids............. $ 29.1 29.1% $ 32.3 27.5% $ 37.1 24.9% $ 9.8 27.1% $ 10.1 23.0%
Sports Nutrition............................. 34.7 34.7 39.9 34.0 53.9 36.2 11.8 32.7 14.5 32.9
Special Formulas............................. 23.6 23.7 31.0 26.4 41.2 27.7 8.8 24.5 12.4 28.1
Herbal Supplements & Phytonutrients.......... 12.0 12.0 14.5 12.3 19.8 13.3 4.9 13.6 6.6 15.0
Herb Teas.................................... 3.0 3.0 4.2 3.6 5.8 3.9 2.1 5.7 2.2 5.0
Publishing................................... 2.7 2.7 3.4 3.0 4.8 3.3 1.2 3.3 1.3 3.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross Sales................................ 105.1 105.2 125.3 106.8 162.6 109.3 38.6 106.9 47.1 107.0
Discounts & Allowances..................... (5.2) (5.2) (8.0) (6.8) (13.9) (9.3) (2.5) (6.9) (3.1) (7.0)
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net Sales.................................. $ 99.9 100.0% $117.3 100.0% $148.7 100.0% $ 36.1 100.0% $ 44.0 100.0%
Gross Profit................................. 37.8 37.8 47.1 40.1 58.8 39.5 14.0 38.7 17.6 40.1
Operating Expenses........................... 21.1 21.1 23.0 19.6 27.2 18.3 7.5 20.8 7.3 16.6
Income From Operations....................... 16.6 16.7 24.1 20.5 31.6 21.3 6.5 17.9 10.3 23.5
EBITDA....................................... 17.4 17.5 25.0 21.3 33.5 22.5 6.7 18.5 11.1 25.3
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 ("FIRST QUARTER 1996") COMPARED TO
THREE MONTHS ENDED MARCH 31, 1995 ("FIRST QUARTER 1995")
Net Sales. Net sales for first quarter 1996 was $44.0 million, an increase
of $7.9 million, or 21.7%, as compared to net sales of $36.1 million in first
quarter 1995. The 21.7% increase was attributable to increases in gross sales in
each of the Company's six product categories, partially offset by an increase in
discounts and allowances which was due to the Company's increased sales volume.
Vitamins, minerals and amino acids contributed $10.1 million, an increase of
$0.3 million, or 3.1%, as compared to $9.8 million in first quarter 1995. The
increase in gross sales of vitamins, minerals and amino acids was primarily due
to continued strong consumer interest in these products. Sports nutrition
products contributed $14.5 million, an increase of $2.7 million, or 22.3%, as
compared to $11.8 million in first quarter 1995, primarily due to the increased
demand for a variety of these products. Special formulas contributed $12.4
million, an increase of $3.6 million, or 40.1%, as compared to $8.8 million in
first quarter 1995. The increase in gross sales of special formulas was
primarily due to the successful introduction of a variety of new product
formulations. Herbal supplements and phytonutrients contributed $6.6 million, an
increase of $1.7 million, or 34.1%, as compared to $4.9 million in first quarter
1995, and herb teas contributed $2.2 million, an increase of $0.1 million, or
7.0%, as compared to $2.1 million in first quarter 1995. The gross sales
increase in both herbal supplements and phytonutrients and herb teas is
primarily due to new product introductions, continued strong consumer interest
in existing products and increased penetration of Nature's Herbs and Alvita
products into domestic health food stores.
40
<PAGE> 44
Publishing contributed $1.3 million, an increase of $0.1 million, or 9.5%, as
compared to $1.2 million in first quarter 1995.
Gross Profit. Gross profit for first quarter 1996 was $17.6 million, which
represented an increase of $3.6 million, or 26.1%, as compared to $14.0 million
for first quarter 1995. Gross profit margin was 40.1% for first quarter 1996 as
compared to 38.7% for first quarter 1995. The overall increase in gross profit
dollars was attributable to the Company's higher sales volume in first quarter
1996. The increase in gross profit margin in first quarter 1996 as compared to
first quarter 1995 was due primarily to a more favorable product mix and to
higher gross profit margins on recently introduced new product formulations and
product line extensions.
Operating Expenses. Operating expenses were $7.3 million for first quarter
1996, representing a decrease of $0.2 million, or 2.7%, as compared to $7.5
million for first quarter 1995. As a percent of net sales, operating expenses
declined from 20.8% in first quarter 1995 to 16.6% in first quarter 1996. The
decrease in operating expenses was primarily attributable to advertising
expenses which were lower by approximately $1.0 million than the Company's
advertising expenses in first quarter 1995 due to reduced television advertising
pending completion of new television commercials and reduced print advertising.
The Company expects that its advertising expenses in respect of fiscal 1996 will
exceed its advertising expenditures in fiscal 1995. The decline in operating
expenses as a percent of net sales is due to the Company's ability to maintain
its expenditures at approximately the same level as in first quarter 1995, while
substantially increasing the Company's sales volume.
EBITDA. EBITDA was $11.1 million in first quarter 1996, representing an
increase of $4.4 million, or 66.4%, as compared to $6.7 million for first
quarter 1995. EBITDA margin increased to 25.3% of net sales in first quarter
1996 as compared to 18.5% of net sales in first quarter 1995. The increase in
EBITDA and EBITDA margin was primarily due to the Company's higher sales volume
in first quarter 1996 and a reduction in the Company's operating expenses as a
percent of net sales.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales for fiscal 1995 was $148.7 million, an increase of
$31.4 million, or 26.8%, as compared to net sales of $117.3 million in fiscal
1994. The 26.8% increase was attributable to increases in gross sales in each of
the Company's six product categories, partially offset by an increase in
discounts and allowances due to the Company's increased sales volume. Vitamins,
minerals and amino acids contributed $37.1 million, an increase of $4.8 million,
or 14.7%, as compared to $32.3 million in fiscal 1994, primarily due to
continued strong consumer interest in these products. Sports nutrition
contributed $53.9 million, an increase of $14.0 million, or 34.9%, as compared
to $39.9 million in fiscal 1994, primarily due to the increased demand for a
variety of these products. Special formulas contributed $41.2 million, an
increase of $10.2 million, or 33.2%, as compared to $31.0 million in fiscal
1994, primarily due to the successful introduction of new product formulations
and strong growth in existing product lines. Herbal supplements and
phytonutrients contributed $19.8 million, an increase of $5.3 million, or 37.2%,
as compared to $14.5 million in fiscal 1994, and herb teas contributed $5.8
million, an increase of $1.6 million, or 37.4%, as compared to $4.2 million in
fiscal 1994. The gross sales increase in both herbal supplements and
phytonutrients and herb teas is primarily due to new product introductions,
continued strong consumer interest in existing products and increased
penetration of Alvita and Nature's Herbs products into domestic health food
stores. Publishing contributed $4.8 million, an increase of $1.4 million, or
39.1%, as compared to $3.4 million in fiscal 1994.
Gross Profit. Gross profit for fiscal 1995 was $58.8 million, which
represented an increase of $11.7 million or 24.9%, as compared to $47.1 million
for fiscal 1994. Gross margin was 39.5% for fiscal 1995 as compared to 40.1% for
fiscal 1994. The overall increase in gross profit dollars was attributable to
the Company's higher sales volume in fiscal 1995. The decrease in gross margin
for fiscal 1995 as compared to fiscal 1994 was due primarily to lower gross
margins on the Company's Nature's Herbs products due to certain raw materials
price increases and an increase in sales discounts and allowances offered on
certain TWINLAB and Nature's Herbs products under certain sales incentive
programs introduced in 1995, which programs are expected to be continued in
1996. Such decreases in gross margin were partially offset by increased sales
from
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<PAGE> 45
a more favorable product mix and increases in the Company's gross margins for
TWINLAB sports nutrition products, special formulas and Alvita herb tea
products.
Operating Expenses. Operating expenses were $27.2 million for fiscal 1995,
representing an increase of $4.2 million, as compared to $23.0 million for
fiscal 1994. As a percent of net sales, operating expenses declined from 19.6%
in fiscal 1994 to 18.3% in fiscal 1995. The increase in operating expenses was
primarily attributable to increased selling and advertising expenses and higher
operating expenses resulting from the Company's increased level of sales in
fiscal 1995. The decline in operating expenses as a percent of net sales is due
to the Company's ability to maintain its expenditures for research and
development and certain general and administrative functions at approximately
the same level as in fiscal 1994, while substantially increasing the Company's
sales volume.
EBITDA. EBITDA was $33.5 million in fiscal 1995, representing an increase
of $8.5 million, or 33.9%, compared to $25.0 million for fiscal 1994. EBITDA
margin increased to 22.5% of net sales in fiscal 1995, as compared to 21.3% of
net sales in fiscal 1994. The increase in EBITDA was primarily due to the
Company's higher sales volume in fiscal 1995 and a reduction in the Company's
operating expenses as a percent of net sales.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. Net sales for fiscal 1994 was $117.3 million, an increase of
$17.4 million, or 17.5%, as compared to net sales of $99.9 million in fiscal
1993. The 17.5% increase was attributable to increases in gross sales in each of
the Company's six product categories, partially offset by an increase in
discounts and allowances due to the Company's increased sales volume. Vitamins,
minerals and amino acids contributed $32.3 million, an increase of $3.2 million,
or 11.2%, as compared to $29.1 million in fiscal 1993, primarily due to
continued strong consumer interest in these products. Sports nutrition
contributed $39.9 million, an increase of $5.2 million, or 15.2%, as compared to
$34.7 million in fiscal 1993, primarily due to the increased demand for a
variety of these products. Special formulas contributed $31.0 million, an
increase of $7.4 million, or 30.9%, as compared to $23.6 million in fiscal 1993,
primarily due to the successful introduction of 18 new product formulations and
strong growth of existing product lines. Herbal supplements and phytonutrients
contributed $14.5 million, an increase of $2.5 million, or 20.8%, as compared to
$12.0 million in fiscal 1993 and herb teas contributed $4.2 million, an increase
of $1.2 million, or 40.6%, as compared to $3.0 million in fiscal 1993. The gross
sales increase in both herbal supplements and phytonutrients and herb teas is
primarily due to new product introductions, continued strong consumer interest
in existing products and increased penetration of Nature's Herbs and Alvita
products into domestic health food stores. Publishing contributed $3.4 million,
an increase of $0.7 million, or 27.4%, as compared to $2.7 million in fiscal
1993.
Gross Profit. Gross profit for fiscal 1994 was $47.1 million compared to
$37.8 million in fiscal 1993. As a percent of net sales, gross profit was 40.1%
for fiscal 1994 compared to 37.8% for fiscal 1993. The gross profit dollar
increase in fiscal 1994 compared to fiscal 1993 was due to the Company's higher
sales volumes and higher gross margins in fiscal 1994. The increase in gross
margin in fiscal 1994 compared to fiscal 1993 was attributable to a more
favorable product sales mix and higher gross margins on certain of the Company's
TWINLAB vitamins, minerals, amino acids, sports nutrition products and special
formulas. This increase in gross margin was partially offset by lower gross
margins for certain of the Company's Alvita herb tea products, which was due to
the relocation of Alvita Products, Inc.'s operations from Ronkonkoma, New York
to American Fork, Utah.
Operating Expenses. Operating expenses increased by $1.9 million, or 9.0%,
from $21.1 million in fiscal 1993 to $23.0 million in fiscal 1994. As a percent
of net sales, operating expenses declined to 19.6% in fiscal 1994 from 21.1% in
fiscal 1993. The dollar increase in operating expenses is primarily due to
higher selling, advertising and delivery expenses. The decline in operating
expenses as a percent of net sales is due partially to the Company's ability to
limit the increase in general and administrative expenses while achieving a
higher level of sales volume.
EBITDA. EBITDA was $25.0 million in fiscal 1994, an increase of $7.6
million, or 43.4%, compared to $17.4 million for fiscal 1993. EBITDA margin
increased to 21.3% of net sales in 1994 as compared to 17.5% of
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<PAGE> 46
net sales in fiscal 1993. The increase in EBITDA and EBITDA margin was due to
increased sales volumes together with higher gross margins and lower operating
expenses as a percent of net sales.
LIQUIDITY AND CAPITAL RESOURCES
For first quarter 1996, cash provided by operating activities was $10.3
million, and during fiscal 1995 cash provided by operating activities was $26.8
million, compared to $12.9 million in fiscal 1994 and $10.6 million in fiscal
1993. The increase in fiscal 1995 compared to fiscal 1994 and fiscal 1993 was
primarily due to higher net income and reflects higher levels of accounts
payable and accrued liabilities, partially offset by higher accounts receivable
and inventory balances due to higher levels of sales volume at the Company. Cash
used in financing activities was $2.8 million in first quarter 1996, $24.0
million in fiscal 1995, $13.0 million in fiscal 1994 and $7.3 million in fiscal
1993 and primarily consisted of distributions to shareholders of $2.7 million,
$23.5 million, $13.6 million and $9.4 million for first quarter 1996, fiscal
1995, fiscal 1994 and fiscal 1993, respectively.
Capital expenditures, including purchases under capital leases, were $0.2
million, $2.6 million, $2.5 million and $4.9 million for first quarter 1996,
fiscal 1995, fiscal 1994 and fiscal 1993, respectively. The higher level of
capital expenditures in fiscal 1993 reflects the construction of the Company's
manufacturing facility in American Fork, Utah, which commenced operations in the
last quarter of fiscal 1993. Historical capital expenditures were primarily used
to purchase production equipment, expand capacity and improve manufacturing
efficiency. Capital expenditures are expected to be approximately $3.4 million
in fiscal 1996 and will be used to purchase manufacturing equipment and fund
plant expansion to support the Company's future growth. The Company estimates
that its historical level of maintenance capital expenditures has been
approximately $0.5 million per fiscal year. See "Business."
Management believes that the Company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and pursue its business strategy. The Company's capital resources
and liquidity are expected to be provided by the Company's cash flow from
operations and borrowings under the revolving credit facility contained in the
New Credit Facility.
From time to time, the Company evaluates acquisitions which complement the
business of the Company. Depending on the cash requirements of potential
transactions, the Company may finance transactions with its cash flow from
operations, or the Company may raise additional funds by pursuing various
financing vehicles such as additional bank financing or offerings of the
Company's securities. The Company, however, has no present understanding,
commitment or agreement with respect to any acquisition, and there can be no
assurance that funds to finance an acquisition will be available or permitted
under the Company's financing instruments. See "Description of New Credit
Facility" and "Description of New Notes -- Certain Covenants."
IMPACT OF INFLATION
Generally, the Company has been able to pass on inflation-related cost
increases; consequently, inflation has not had a material impact on the
Company's historical operations or profitability.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting For the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and SFAS No. 123,
"Accounting for Stock Based Compensation." These pronouncements are not expected
to have a material impact on the Company's financial statements.
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<PAGE> 47
BUSINESS
GENERAL
The Company is the leading manufacturer and marketer of brand name
nutritional supplements sold through domestic independent health food stores.
Since the Company's founding in 1968 by David and Jean Blechman, the Company has
emphasized the development and introduction of high-quality, unique products in
response to emerging trends in the nutritional supplement industry. The Company
produces a full line of nutritional supplements and offers the broadest product
line in the industry with more than 800 products and 1,500 SKU's. The Company's
product line includes vitamins, minerals, amino acids, fish and marine oils,
sports nutrition products and special formulas marketed under the TWINLAB(R)
trademark and a full line of herbal supplements and phytonutrients and herb teas
marketed under the Nature's Herbs(R) and Alvita(R) trademarks, respectively.
None of the Company's products individually accounted for more than 7% of total
net sales in 1995. The Company's broad product line, strong history of new
product introductions and innovations, superior marketing and advertising
programs and premium product quality have established TWINLAB, Nature's Herbs
and Alvita as leading brands in the nutritional supplement industry.
Under the management of Mr. and Mrs. Blechman's five sons, the Company has
diversified its product line through internal growth, product development and
selected acquisitions, including the acquisition in 1989 of Natur-Pharma Inc., a
leading manufacturer and marketer of herbal supplements and phytonutrients under
the Nature's Herbs brand name, and the acquisition in 1991 of Alvita Products,
Inc., a leading marketer of herb teas. The Company has achieved increased net
sales and EBITDA every year since 1990. In particular, during the three-year
period from 1993 through 1995, the Company achieved a compound annual growth
rate in net sales and EBITDA of 22.0% and 38.6%, respectively. For the fiscal
year ended December 31, 1995, the Company achieved net sales growth of 26.8% to
$148.7 million and EBITDA growth of 33.9% to $33.5 million, as compared to
fiscal year 1994. For the quarter ended March 31, 1996, the Company achieved net
sales of $44.0 million and EBITDA of $11.1 million, representing an increase of
21.7% and 66.4%, respectively, as compared to the quarter ended March 31, 1995.
The Company's products target consumers who utilize nutritional supplements
in their daily diet and who demand premium quality ingredients in a broad
variety of dosages and delivery methods. The Company's products compete
primarily in the health food store market, where the dominant competitive
factors include product attributes such as quality, potency and the uniqueness
of the product formulation. The Company sells its products domestically through
a network of approximately 60 distributors, who service approximately 11,000
health food stores and other selected retail outlets. The Company believes that
its products are available in over 90% of the health food stores in the United
States. The health food store channel of distribution has expanded significantly
in recent years and is expected to grow further as national chains such as GNC,
Whole Foods Market, Wild Oats Markets, Fresh Fields and other industry
participants continue to add stores in new and existing markets. The health food
store market differs significantly from the mass market for vitamin and other
nutritional supplements where price and convenience constitute the primary bases
of competition. The nutritional supplement products sold in grocery stores, drug
stores and mass merchandisers are typically manufactured by large pharmaceutical
companies and private label manufacturers. The Company's products are also
offered in Europe, Asia, South America and other international markets through
arrangements with overseas distributors.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates contained in the Packaged
Facts Survey, the retail market for vitamins, minerals and other nutritional
supplements has grown at a compound annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. Furthermore, the Company's rate of
sales growth has exceeded the industry's growth rate for each year during this
period. Packaged Facts forecasts approximately 7% annual industry growth through
the end of the decade in vitamins, minerals and supplements, which management
believes will be fueled by (i) favorable demographic trends towards older
Americans, who are more likely to consume nutritional supplements; (ii) product
introductions in response to new scientific research findings; (iii) the
nationwide trend toward preventive medicine in response to rising health care
costs; and (iv) the heightened understanding and awareness of the connection
between diet and health. Moreover, although the
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<PAGE> 48
industry has grown dramatically in recent years, there is still a large untapped
domestic market as only an estimated 50% of Americans currently consume
vitamins, minerals and herbal supplements on a regular basis.
Twin Laboratories Inc. was incorporated in 1989 under the laws of the State
of Utah and maintains its principal executive offices at 2120 Smithtown Avenue,
Ronkonkoma, New York 11779. Its telephone number is (516) 467-3140. In
connection with the consummation of the Acquisition, the name of the Company was
changed from Natur-Pharma Inc. to Twin Laboratories Inc.
BUSINESS STRATEGY
The Company's strategy is to continue to enhance its leadership position in
the domestic sale of vitamins, minerals and other nutritional supplements in
health food stores and to increase its market share and sales while continuing
to improve its overall operating efficiency and financial performance. The
Company intends to capitalize on the TWINLAB brand name by growing market share
domestically, increasing penetration of the Company's other brands, continuing
to introduce new products and product extensions, and expanding internationally.
Specifically, the Company seeks to:
Capitalize on Powerful Brand Name Recognition. The Company's recognized
product quality, broad product line, strong history of new product introductions
and innovations, and superior marketing and advertising programs have
established TWINLAB, Nature's Herbs and Alvita as leading brands in the
nutritional supplement industry. Each of the Company's product categories,
including vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas, have posted
double digit sales growth in each of the last three years. The Company's
extensive marketing and advertising programs have been critical components of
its products' strong brand name recognition, and management believes that the
Company offers its customers the strongest marketing and advertising support
programs in the industry. In fiscal 1995 the Company invested $11.1 million, an
increase of 27% over fiscal 1994, on marketing and advertising to promote its
products. Furthermore, since quality is a critical factor in consumer purchase
decisions, the Company believes that its premium quality ingredients, modern
manufacturing facilities and comprehensive quality control procedures have
enabled the Company to establish a competitive advantage based on the quality of
its products.
Increase Penetration in the Growing Health Food Market. Management
believes that the expansion of retail distribution channels and the strong
growth characteristics of the nutritional supplement industry provide the
Company with significant opportunities to increase sales. Management further
believes that the established brand name recognition of the Company's products
positions it to increase its penetration of shelf space as health food retailers
seek to align themselves with companies who possess strong brand names, offer a
wide range of products, demonstrate continued marketing and advertising support
and provide consistently high levels of customer service. Since Nature's Herbs
and Alvita products currently are available in only an estimated 60% and 50%,
respectively, of domestic health food stores, compared to an estimated 90% for
TWINLAB products, the Company believes that it will be able to capitalize on
health food retailers' success with the TWINLAB product line in order to
significantly increase shelf space for the Company's herbal supplements,
phytonutrients and herb teas.
Continue to Introduce New Products and Product Innovations. A cornerstone
of the Company's success has been its ability to rapidly utilize recent
scientific and medical findings in its new product development efforts. The
Company has consistently been among the first in its industry to introduce new
products and product innovations which anticipate and meet customer demands for
newly identified nutritional supplement benefits. Furthermore, the Company's
geographically diverse network of more than 60 distributors allows the Company
to achieve immediate and broad distribution for new product launches. As part of
its ongoing research and development effort, the Company maintains an extensive
database and actively researches and monitors a wide variety of publications
containing scientific and medical research. From 1991 through 1995, the Company
introduced over 350 products, with over 90 new products introduced in 1995
alone. Gross sales during 1995 from new products introduced in 1995 were $18.4
million, or approximately 11% of gross sales. The Company intends to build upon
its historical success by continuing to introduce new and innovative products
not previously available in health food stores.
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<PAGE> 49
Build Upon Established Customer Relationships. The Company's established
relationships with distributors and health food store retailers are based upon
the Company's long-standing commitment to a high level of customer service. In
order to ensure that its customers receive prompt and reliable service, the
Company has designed a flexible and responsive manufacturing process and has
achieved a 98% fill rate for customer orders. In addition, the Company's sales
force consists of 30 dedicated sales professionals who operate in sales
territories which cover the entire continental United States and Alaska. The
primary functions of the Company's sales force are to gain better placement and
additional shelf space for the Company's products and to stay abreast of
customer needs. The sales force personnel work with direct accounts,
distributors and individual retailers to enhance knowledge of TWINLAB, Nature's
Herbs and Alvita products and to achieve maximum exposure for these products.
Increase Penetration of Foreign Markets. Management believes that there
are substantial opportunities for the Company to expand its presence in foreign
markets. The Company has a department, headed by a senior sales professional,
dedicated to increasing sales in such markets. The Company's foreign marketing
effort is primarily focused on establishing additional relationships with
leading overseas distributor organizations as a cost-effective method of
increasing international sales. The Company presently has distribution
agreements covering over 45 foreign countries and has agreements for another
seven countries currently in negotiation. In 1995, the Company had net sales of
$8.3 million to foreign markets.
Supplement Internal Growth Through Strategic 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 strategically positioned to participate in the consolidation of the
industry due to its established brand name, broad distribution capabilities and
proven ability to generate sales of its products through successful marketing
programs. Since 1989 the Company has acquired two businesses, Natur-Pharma Inc.
(Nature's Herbs) and Alvita Products, Inc., and in each case has embarked on
successful expansion programs which resulted in substantially higher sales and
EBITDA for the acquired companies. Net sales for Natur-Pharma Inc. increased
from $5.2 million in 1990 (the first full year after its acquisition) to $17.9
million in 1995, and net sales for Alvita Products, Inc. increased from $1.7
million in 1992 (the first full year after its acquisition) to $5.6 million in
1995. The Company regularly evaluates acquisition opportunities, including
product line acquisitions, that complement its existing products or are
compatible with its business philosophy and strategic goals.
INDUSTRY
Based on estimates in the Packaged Facts Survey, the retail market for
vitamins, minerals and other supplements has grown over 12% annually from $3.3
billion in 1991 to $4.6 billion in 1994. The herbal supplements and herb tea
market has grown at a compound annual growth rate of over 10% since 1991 to
approximately $1.1 billion in 1995. Sports nutrition products have grown 9%
annually since 1991 to over $1.2 billion in 1994. The Company believes that
these market segments will continue to experience strong growth due to recent
scientific research suggesting potential health benefits from regular
consumption of vitamins and other nutritional supplement products, increasing
national interest in preventive health measures and favorable demographic trends
that indicate increased usage of vitamins and other nutritional supplements.
Packaged Facts estimates compound annual growth rates in the market for
vitamins, minerals and other supplements of approximately 7% from 1994 through
1999. The market for herbal supplements and herb teas is projected to grow over
11% annually from 1994 through 1999, while sports nutrition sales are projected
to increase 8% annually from 1994 through 1999.
The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventive health measures,
will result in increased demand for nutritional supplement products. According
to Congressional findings that accompanied the Dietary Supplement Health and
Education Act of 1994, national surveys reveal that almost 50% of Americans
regularly consume vitamins, minerals and herbal supplements. The 35-and-older
age group of consumers, which represent 78% of regular users of vitamin and
mineral supplements, is expected to grow dramatically over the next two decades.
Specifically, based on data provided by the U.S. Bureau of the Census, from 1990
to 2010, the 35-44 and 45-and-older age groups are projected to grow at rates
175% and 225% faster than the general U.S. population, respectively. In
addition, the "baby boom echo" (the children of baby boomers) is projected to
result in
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substantial growth in the 16-21 age group, the largest segment of consumers of
sports nutrition products. The Company expects that growth in this age group
will result in increased demand for its sports nutrition products.
Vitamins and other nutritional supplements are sold primarily through six
channels of distribution: health food stores, drug stores, supermarkets and
other grocery stores, discount stores, mail order and direct sales
organizations. Mass market retailers (drug stores, grocery stores and discount
stores) account for approximately 60% of sales, while health food stores, mail
order and direct selling account for approximately 40% of sales.
The United States health food store market is comprised of approximately
11,000 stores, which are generally either independently owned or associated with
one of several regional or national chains, including GNC and Whole Foods
Market. According to a 1994 retail survey, nutritional supplements account for
over 41% of a typical health food store's sales. Moreover, 54% of health food
retailers state that these products are their primary product. The health food
store channel of distribution has grown significantly in recent years and is
expected to continue to grow as GNC, Whole Foods Market, Wild Oats Markets,
Fresh Fields and other industry participants continue to add stores in new and
existing markets. The growth in the health food channel of distribution is
partially attributable to the general growth in natural product sales. Natural
products are defined as products that are minimally processed, environmentally
friendly, largely or wholly free from artificial chemicals and, in general, as
close to their natural states as possible. Natural product industry sales have
consistently grown at nearly 10% per year since 1988, even during the recession
of the early 1990s. During 1994, natural products industry sales rose 23% to
$7.6 billion. The rate of growth accelerated from 7% in 1990 to 10%, 14% and 18%
in 1991, 1992 and 1993, respectively.
PRODUCTS
The Company has a highly diversified array of products and product
categories, each of which achieves strong gross margins. The Company
manufactures and markets over 800 products and over 1,500 SKU's in five product
categories: vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas. The Company also
operates a subsidiary which publishes health, fitness and nutrition-related
publications.
The following table sets forth certain information concerning each of the
Company's product categories in fiscal 1995.
<TABLE>
<CAPTION>
THREE-YEAR
COMPOUND ANNUAL
NUMBER OF PERCENTAGE OF GROSS SALES
PRODUCT CATEGORY SKU'S TOTAL GROSS SALES GROWTH
--------------------------------------------- --------- ----------------- ---------------
<S> <C> <C> <C>
Vitamins, Minerals and Amino Acids........... 315 22.8% 12.9%
Sports Nutrition............................. 285 33.1 24.6
Special Formulas............................. 309 25.4 32.0
Herbal Supplements and Phytonutrients........ 465 12.2 28.7
Herb Teas.................................... 143 3.5 39.0
Publishing................................... N/A 3.0 33.1
----- ----- ----
1,517 100.0% 24.4%
===== ===== ====
</TABLE>
Vitamins, Minerals and Amino Acids. The vitamins, minerals and amino acids
category is comprised of a complete line of vitamins, minerals and amino acids
marketed under the TWINLAB brand name, including multivitamins and single-entity
vitamins (such as B-complex, C and E), minerals (such as calcium and magnesium)
and amino acids (such as glutamine and carnitine). These products are available
in a variety of delivery forms, including liquid, powder, capsule and tablet to
accommodate a variety of consumer preferences. This category targets a broad
array of health conscious consumers, with particular emphasis on consumers who
utilize nutritional supplements in their daily diet and who demand premium
quality ingredients in a broad variety of dosages and delivery methods.
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<PAGE> 51
Sports Nutrition. The sports nutrition category includes a wide variety of
nutritional supplements designed for and targeted to athletes. Sports nutrition
products include Hydra Fuel and Ultra Fuel drinks, which replenish glucose and
electrolytes depleted during strenuous exercise; and DietFuel, RxFuel, and
Ripped Fuel, which are marketed, as part of a low fat diet and exercise program,
for the preservation of lean body mass and the building of muscle mass. The
Company's sports nutrition products are utilized by both amateur and
professional athletes in a variety of competitive sports. The Company believes
that its strong sports nutrition business serves to increase the Company's brand
awareness among customers who, as they grow older, will shift their buying
patterns to include vitamins, minerals and herbal products, and who, based on
their positive experiences with the Company's brand name, are more likely to
purchase products from the Company's other product categories.
Special Formulas. The special formulas category consists of a broad
assortment of products formulated with specific health conditions or objectives
in mind. Special formulas are primarily targeted to sophisticated users of
health related products, including regular customers of health food stores.
Examples include OcuGuard, which is formulated for nutritional support of the
eyes, MaxiLIFE, which offers an advanced antioxidant formula, and Coenzyme
Q(10), which is designed for cardiovascular health. In addition, the Company
sells a variety of fish and marine oils in a number of different delivery forms
which offer a multitude of nutritional benefits, including favorable effects on
cardiovascular health.
Herbal Supplements and Phytonutrients. Herbal supplements and
phytonutrients (nutrients from botanical sources that are considered to have
medicinal properties) have become increasingly important categories in health
food stores. Through its Nature's Herbs product line, the Company produces a
full line of herbal supplements and phytonutrients which offer natural
alternatives to over-the-counter ("OTC") medications. The Company manufactures
and markets approximately 400 herbal and botanical supplements which are
produced at Natur-Pharma Inc.'s modern FDA registered manufacturing facility in
American Fork, Utah and sold under the Nature's Herbs brand name. Nature's Herbs
products include single herbs, such as saw palmetto, garlic, gingko, ginseng and
golden seal; traditional combinations, such as echinacea-golden seal;
standardized extracts, such as Bilberry Power and Milk Thistle Power sold under
the POWER HERBS(R) brand name; and natural HealthCare product formulations, such
as Allerin and Coldrin. Nature's Herbs products are packaged using the
innovative FRESH CARE(R) System developed by the Company. The FRESH CARE System
is the first all-glass and antioxidant-protected herbal packaging system that
helps remove oxygen while locking out air, moisture and light in order to
maintain potency and to extend freshness. Management believes that the
association of the Nature's Herbs product line with TWINLAB's strong name brand
recognition and reputation for premium quality and service, combined with the
increased penetration of herbal supplements and phytonutrients in the growing
health food store channel of distribution, have contributed to the rapid growth
experienced by this product line.
Herb Teas. Through its Alvita Products, Inc. ("Alvita") product line, the
Company offers approximately 100 herb teas in both single use bags and bulk.
Alvita is a leading brand of herb teas and is one of the most recognizable tea
brands sold through health food stores. Alvita was founded in 1922 and is one of
the nation's oldest herb tea companies. Alvita purchases tea in bulk form,
formulates blends of natural herb teas and designs the packaging for its
products. Alvita's teas are currently blended and packaged by an independent
contractor. Representative Alvita teas include Peppermint Leaf, Chamomile,
Echinacea, Golden Seal, Ginger and Senna Leaf, as well as new-age blends such as
Chinese Green Tea, available in a choice of citrus flavors, and TrimTime
Thermogenic Diet Tea. Alvita markets its products with an environmentally
conscious theme by packaging bulk tea and tea bags in paper and by not utilizing
shrink wrap for either its outer boxes or tea bags. Alvita recently launched a
new line of herbal tea blends named Herbal Remeteas, including Highland Lullaby,
Manchurian Brain Blend, Jamaica Digesti Brew, and Canadian Natur-Tussin. The
Company believes that significant opportunities for product line expansion exist
in combining Alvita teas and other nutritional supplements to create a new
delivery form for traditional herbal supplements and phytonutrients.
Publishing. Through Advanced Research Press, Inc., the Company publishes
Muscular Development, Fitness & Health, a high-quality bodybuilding and fitness
magazine featuring a scientific advisory board and contributors considered to be
among the most accomplished and knowledgeable in their respective fields. The
magazine covers recent developments and provides innovative information in the
fields of training and
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nutrition research, supplements, health, fitness and diet. This publication
serves as a useful vehicle to increase public awareness of the Company's
products and as an outlet for a portion of the Company's advertising program.
Muscular Development, Fitness & Health currently has a monthly paid circulation
of approximately 113,000 readers. The Company also publishes health and fitness
related books and is exploring the introduction of new health and fitness
related products.
PRODUCT DEVELOPMENT
The Company is recognized as an industry leader in new product development.
The Company closely monitors consumer trends and scientific research, and has
consistently introduced innovative products and programs in response thereto.
The Company's product development staff regularly studies over 50 different
health and nutrition periodicals, including the New England Journal of Medicine
and the Journal of the American Medical Association, in order to generate ideas
for new product formulations. Management believes that the Company's
introduction of new products has increased market share for both the Company and
its retail customers, and the Company intends to continue developing new
products and programs in the future. The Company was the first major nutritional
supplement manufacturer to introduce such industry-wide innovations as: an
all-capsule vitamin and mineral line that is well tolerated by allergy-prone
individuals; a complete line of amino acids and fish and marine oils; the most
advanced and complete array of antioxidants, including beta carotene,
L-glutathione, L-cysteine, N-acetyl cysteine (NAC) and an entirely new class of
antioxidants, including polyphenols, flavonoids and isoflavones; concentrated
Coenzyme Q(10); high potency phosphatidyl choline and patented GTF Chromium;
pioneering thermogenic products; standardized herbal extracts guaranteeing
potency (Certified Potency); the FRESH CARE packaging system, designed to
preserve potency and freshness; a full line of Ayurvedic Indian herbal products;
and a complete line of herb teas in single use bag and bulk form. From 1991
through 1995, the Company introduced over 350 products with over 90 new products
introduced in 1995 alone.
The Company's research and development expenses were $1.1 million in 1995,
$1.0 million in 1994 and $0.9 million in 1993, including the support of
scientific research at independent research centers located at major
universities and medical centers.
SALES AND DISTRIBUTION
The Company believes that its TWINLAB products are available in
approximately 90% of domestic health food stores. The Company sells its products
primarily through a network of approximately 60 distributors, which service
approximately 11,000 health food stores throughout the country and selected
retail outlets. Sales to domestic distributors represented approximately 88% of
the Company's gross sales in 1995. The Company's distributor customers include
GNC, Tree of Life, Cornucopia, Stow Mills, Nature's Best and other distributors
that supply retailers of vitamins, minerals and other nutritional supplements.
Management believes that it sells its products to every major nutritional
supplement distributor servicing health food stores and is generally the largest
independent supplier of nutritional supplements to each such distributor. The
Company is also currently expanding distribution into domestic military
exchanges.
Several of the Company's distributors, such as GNC, Cornucopia and Tree of
Life, are national in scope, but most are regional in nature and operate one or
more localized distribution centers. Generally, the Company enters into
nonexclusive area rights agreements with its domestic distributors, who are also
responsible for new account development. Retailers typically place orders with
and are supplied directly by the Company's distributors. In the past ten years,
the Company has not lost a major distributor customer other than through
consolidation with an existing customer of the Company. The breadth and depth of
the products manufactured and the ability to manufacture with minimal throughput
times enables the Company to maintain extremely high order fill rates, which
management believes are among the highest in the industry, with its customer
base.
Tree of Life and GNC accounted for approximately 28% and 22%, respectively,
of the Company's net sales in 1995. No other single customer accounted for more
than 10% of the Company's net sales in 1995. The
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largest retail organization which sells the Company's products is GNC, which
operates approximately 2,400 stores.
Approximately 6%, or $8.3 million, of the Company's net sales in 1995 were
derived from international sales which originate from overseas distributor
organizations. The Company presently has distribution agreements for fifteen
European countries, including Great Britain, The Benelux Countries and the
Scandinavian countries; fourteen Latin American countries, including Mexico,
Brazil and Paraguay; eight Middle Eastern countries, including Israel and Saudi
Arabia; and various other countries in the Far East and the Caribbean. The
Company also has agreements for another seven countries currently in
negotiation.
MARKETING AND CUSTOMER SALES SUPPORT
The Company's marketing strategy, which centers around an extensive
advertising and promotion program, together with the Company's customer sales
support services have been critical components of the Company's growth, strong
brand name recognition and leading position within the nutritional supplement
industry. Management believes that the levels of its advertising and promotional
support and of its customer service rank among the highest in the industry.
The Company's marketing and advertising expenditures were approximately
$11.1 million in 1995, $8.7 million in 1994 and $7.1 million in 1993. Of the
Company's $8.4 million in 1995 advertising expenditures, approximately $5.5
million, or 65%, was spent on print advertising, approximately $2.0 million, or
24%, was spent on television and radio advertising and approximately $0.9
million, or 11%, was spent on production of advertising materials. As the
Company's customers align themselves with fewer vendors of brand name products,
the Company believes that its strong commitment to advertising and promotion
will continue to constitute a significant competitive advantage. The Company's
advertising strategy stresses brand awareness of the Company's various product
segments in order to generate purchases by customers and also communicates the
points-of-difference between the Company's products and those of its
competitors.
A significant portion of the Company's advertising budget is focused on
advertisements in magazines. The Company regularly advertises in consumer
magazines such as Better Nutrition, Delicious, Vegetarian Times, Let's Live,
Natural Health, New Age Journal, Bicycling, VeloNews, Triathlete, Runner's
World, Muscle & Fitness, Flex, and Ironman, as well as trade magazines such as
Natural Foods Merchandiser, Vitamin Retailer, Nutrition Science News, Health
Foods Business and Whole Foods.
Other marketing and advertising programs conducted by the Company include
participation in or sponsorship of sporting events such as running competitions,
including the Boston Marathon and the Los Angeles Marathon, and bodybuilding
competitions, including the Arnold Classic and the NPC National Bodybuilding
Championships, and sponsorship of health-oriented television and radio programs.
In addition, the Company promotes its products at major industry trade shows and
through in-store point of sale materials. The Company also engages elite
athletes, including Shelly Beattie, Michael Mentzer and John Romano, and
nutritional experts such as Dr. James Duke, to communicate on the Company's
behalf with the trade and the public and to promote the Company's products.
The Company's established customer relationships are based upon the
Company's long-standing commitment to a high level of customer service. The
Company's sales force currently consists of 30 dedicated sales professionals
whose primary functions are to gain better placement and additional shelf space
for TWINLAB, Nature's Herbs and Alvita products and to stay abreast of customer
needs. These sales representatives are assigned to specific territories covering
the entire continental United States and Alaska. These personnel work with
direct accounts, distributors and individual retailers to enhance knowledge of
the Company's products and to maximize exposure for TWINLAB, Nature's Herbs and
Alvita products. An additional three person sales and marketing staff supports
Nature's Herbs products and the servicing of customer needs. The Company also
designs and supplies marketing literature to help educate retailers and
consumers as to the benefits of the Company's products.
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The Company operates an in-house customer service department to respond to
inquiries requesting information concerning product applications, background
data, ingredient compositions and the efficacy of products. The department is
currently staffed by three nutrition experts.
MANUFACTURING AND PRODUCT QUALITY
Virtually all of the Company's TWINLAB products are manufactured at the
Company's 80,000 square foot manufacturing facility located in Ronkonkoma, New
York. Herbal supplements and phytonutrients are manufactured at the Company's
48,000 square foot FDA registered manufacturing facility in American Fork, Utah.
Herb teas are currently packaged by an independent contractor and are warehoused
at the American Fork, Utah, facility. The Company's two modern manufacturing
facilities provide the Company with the capability to meet customers' sales
demands with a prompt response time and to maintain the highest level of quality
control. The Company is continuously upgrading its facilities and enhancing its
manufacturing capabilities through new equipment purchases and technological
improvements. Management believes that the Company's manufacturing facilities
are among the most advanced in the nutritional supplement industry. In 1995, the
Company acquired additional property adjacent to its American Fork, Utah,
facility to provide additional plant capacity for the operations of the
Natur-Pharma (Nature's Herbs) and the Alvita Divisions of the Company. The
Company is constructing an 8,500 square foot addition to its Utah facility at a
cost of approximately $700,000. Management believes that the Company's Utah
facility will be sufficient to enable the Company to meet sales demand for the
foreseeable future and that its New York facility will be sufficient to meet
sales demand for TWINLAB products for approximately three years. Management
believes that it will have the option to lease additional space or to construct
a new facility at such time.
The Company's modern manufacturing operations feature pharmaceutical
quality blending, filling and packaging capabilities, which enable the Company
to offer quality and consistency in formulation and delivery. The Company
operates flexible manufacturing lines which enables it to efficiently and
effectively shift output among various products as dictated by customer demand.
The Company is capable of producing over 25 million capsules and tablets, over
100,000 pounds of blended powder and up to 2,500 gallons of liquid preparations
per day. The Company has six high-speed capsule and tablet packaging lines, two
high-speed liquid filling lines, two powder filling lines and one chewable
tablet packaging line which are capable of operating simultaneously, at its
Ronkonkoma, New York, and American Fork, Utah, facilities. The Company
manufactures the powders used in its line of single-serving sports drink
products but utilizes a contract bottler for the hydration and bottling of these
products. The Company operates on a 24-hour work day that includes two
production shifts and a third shift dedicated solely to cleaning, maintenance
and equipment set-up.
The Company sources its raw material needs from over 200 different
suppliers, including some of the largest pharmaceutical and chemical companies
in the world. The Company's raw materials and packaging supplies are readily
available from multiple suppliers, and the Company is not dependent on any
single supplier for its needs. No single supplier accounted for more than 10% of
the Company's total purchases in 1995.
The Company's quality standards are a critical factor in consumer purchase
decisions, and the Company believes it has established a competitive advantage
based on the quality of its products. All of the Company's capsule and tablet
products are visually inspected before being packaged in virtually light-proof
amber glass for better product freshness and stability. Moreover, each of the
Company's products undergoes comprehensive quality control testing procedures
from the receipt of raw materials to the release of the packaged product. The
Company utilizes real-time computerized monitoring of its manufacturing
processes to ensure proper product weights and measures. In addition, the
Company maintains two in-house laboratories with state-of-the-art testing and
analysis equipment where the Company performs most of its testing, including
stability tests, active component characterization utilizing thin-layer and
high-pressure liquid chromatography, and UV visible and infrared spectrometry.
The Company contracts with independent laboratories to perform the balance of
its testing requirements. A team of 50 full-time quality assurance professionals
regularly conducts a wide variety of visual and scientific tests on all
manufactured products, and samples of raw materials and finished products are
retained for quality control purposes for up to four years.
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The Company has a strong commitment to maintaining the quality of the
environment. All of the Company's plastic containers are recyclable and,
wherever possible, the Company uses recyclable glass. The Company was also one
of the first companies in the industry to use biodegradable starch pellets for
packing materials. In addition, the Company has removed most solvents from its
production processes (using natural, environmentally-safe alternatives) and
helped develop a special glue, for manufacturing purposes, that contains
virtually no harmful hydrocarbons. The Company believes it is in material
compliance with all applicable environmental regulations.
COMPETITION
Within the nutritional supplement industry, suppliers can be divided into
three major categories: specialty firms, like the Company, which focus on
vitamins, minerals and other nutritional supplements targeted to health food
store retailers; major pharmaceutical companies and private label contractors,
which sell vitamins and other nutritional supplements that are targeted to mass
market retailers; and direct sale and mail order companies.
The domestic nutritional supplement industry that targets products to the
health food store market is highly fragmented, with a number of small
competitors involved in manufacturing and marketing vitamin and other
nutritional supplement products to health food retailers and distributors. Most
of these companies are relatively small businesses operating on a local or
regional level. Although most companies are privately held, resulting in the
Company's inability to precisely assess the size of its competitors, management
believes that the Company is substantially larger than the next largest firm
that targets independently-owned health food stores and that, among competitors
which sell through independent distributors, it is the largest company which
manufactures a majority of its own products.
The Company's principal competitors in the health food store market include
Nutraceuticals, Weider/ Schiff, Nature's Way, Solgar and Nature's Plus. Private
label products of the Company's customers also provide competition to the
Company's products. For example, a substantial portion of GNC's vitamin and
mineral supplement offerings are products offered under GNC's own brand names.
Many of the Company's competitors in markets other than the health food store
market, including the major pharmaceutical companies, have substantially greater
financial and other resources than the Company.
The Company believes that the growing number of health food retailers are
increasingly likely to align themselves with those companies which offer a wide
variety of high quality products, have a loyal customer base, support their
brands with strong marketing and advertising programs and provide consistently
high levels of customer service. The Company believes that it competes favorably
with other nutritional supplement companies because of its comprehensive line of
products, premium brand names, commitment to quality, ability to rapidly
introduce innovative products, competitive pricing, high customer-order fill
rate, strong and effective sales force and distribution network, and
sophisticated advertising and promotional support. The wide variety and
diversity of the forms, potencies and categories of the Company's products are
important points of differentiation between the Company and many of its
competitors.
REGULATORY MATTERS
The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the FDA, the FTC, the CPSC, the USDA and the EPA.
These 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 FDA, in particular, regulates
the formulation, manufacture, and labeling of vitamin and other nutritional
supplements.
On October 25, 1994, the President signed into law the DSHEA. This new law
revises the provisions of the FFDC Act concerning the composition and labeling
of dietary supplements and, in the judgment of the Company, is favorable to the
dietary supplement industry. The legislation creates a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet, and the
legislation grandfathers, with certain limitations,
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dietary ingredients on the market before October 15, 1994. A dietary supplement
which contains a new dietary ingredient, one not on the market before October
15, 1994, will require evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe, such evidence to be
provided by the manufacturer or distributor to the FDA before it may be
marketed. The DSHEA also invalidates the FDA's prior enforcement theory that
dietary supplements are food additives requiring pre-market approval.
The NLEA prohibits the use of any health claim for foods, including dietary
supplements, unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims for dietary supplements only in connection with calcium for
osteoporosis, and folic acid for neural tube defects. However, among other
things, the DSHEA amends, for dietary supplements, the NLEA by providing that
"statements of nutritional support" may be used in labeling for dietary
supplements without FDA pre-approval if certain requirements, including
prominent disclosure on the label of the lack of FDA review of the relevant
statement, possession by the marketer of substantiating evidence for the
statement and post-use notification to the FDA, are met. Such statements may
describe how particular nutritional supplements affect the structure, function,
or general well-being of the body (e.g. "promotes your cardiovascular health").
In December 1995, the FDA issued proposed regulations to govern the
labeling of dietary supplements. These regulations, which are subject to
revision in response to comments from interested parties, are expected to become
final later in 1996 and would require the Company to revise the labels for all
of its dietary supplement products before 1997. The FDA has proposed, subject to
its receipt of comments from the public, to withhold enforcement of the
relabeling regulations until January 1, 1998.
In 1989, Twin Laboratories Inc. received an informal inquiry from the New
York Regional Office of the FTC seeking substantiation for certain advertising
claims made for a segment of its "Fuel" bodybuilding/sports nutrition lines of
products. In response, Twin Laboratories Inc. submitted scientific
substantiation and financial information to the FTC. The Company is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of the Company's weight
control, bodybuilding and sports nutrition products. In addition, the Decree
seeks payment of $200,000. The Company believes that it has adequate scientific
substantiation for the claims at issue and intends to vigorously defend the
matter if a settlement is not reached. There can be no assurance that the
injunctive provisions of any eventual resolution of this matter will not have a
material adverse effect on the Company or that any eventual monetary payment
will be limited to the amount sought in the Decree.
Certain of the Company's products include a Chinese herb known as "Ma
Huang," which contains naturally-occurring ephedrine. Ma Huang has been the
subject of certain adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. To the Company's knowledge, a number of states and local
governmental entities have instituted a ban on sales of Ma Huang-containing
products that are portrayed as apparent alternatives to illegal street drugs.
There are also proposals in other states and local jurisdictions to broaden the
regulation of, or otherwise limit or prohibit, the sale of products containing
ephedrine. Ma Huang is also subject to laws or regulation in states and foreign
jurisdictions which limit ephedrine levels and require appropriate warnings on
product labels or which prohibit the sales of products which contain Ma Huang
other than by licensed pharmacists. On April 10, 1996, the FDA issued a
statement warning consumers not to purchase or consume dietary supplements
containing ephedrine with labels that portray the products as apparent
alternatives to illegal street drugs because these products pose significant
health risks to consumers. None of the Company's products which contain Ma Huang
are marketed for such purpose. The FDA, through a National Food Advisory
Committee, is currently considering whether the FDA should prohibit, limit
potencies or place other restrictions on the sale of products containing Ma
Huang. There can be no assurance that the FDA will not seek to impose additional
regulations on products which contain Ma Huang, including those marketed by the
Company.
There is a risk that the Company's products containing Ma Huang may become
subject to further federal, state, local or foreign laws or regulation, which
could require the Company to: (i) reformulate its products
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with reduced ephedrine levels or with a substitute for Ma Huang and/or (ii)
relabel its products with different warnings or revised directions for use. Even
in the absence of further laws or regulation, the Company may elect to
reformulate and/or relabel its products which contain Ma Huang. While the
Company believes that its Ma Huang products could be reformulated and relabeled,
there can be no assurance in that regard or that reformulation and/or relabeling
would not have an adverse effect on sales of such products. The Company and
others are defendants in a wrongful death action originally commenced in July
1995 with respect to one of the Company's products containing Ma Huang and with
respect to a product that does not contain Ma Huang manufactured by another
defendant. There can be no assurance that the Company will not be subject to
further private civil actions with respect to its products which contain Ma
Huang.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales 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 distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control.
As a result of the Company's efforts to comply with applicable statutes and
regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its sales
and marketing program. Compliance with the provisions of national, state and
local environmental laws and regulations has not had a material adverse effect
upon the capital expenditures, earnings, financial position, liquidity or
competitive position of the Company.
The Company cannot determine 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 capable of reformulation, additional recordkeeping, 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.
The Company's American Fork, Utah, facility is registered with the FDA as a
manufacturer of OTC drugs and is subject to periodic inspection by the FDA.
EMPLOYEES
At March 31, 1996, the Company employed 546 persons, of which 112 were
involved in executive, sales and administrative activities. The balance of the
Company's employees were engaged in production, packaging and shipping
activities. None of the Company's employees are covered by a collective
bargaining agreement, and management considers relations with its employees to
be good.
PROPERTIES
The Company owns a modern vitamin, mineral and nutritional supplement
manufacturing facility in Ronkonkoma, New York. This 80,000 square foot facility
also houses the Company's executive offices. The Company leases 26,300 square
feet of warehouse space in Ronkonkoma, 50,000 square feet of warehouse space in
Hauppauge, New York, and 5,000 square feet of office space in Ronkonkoma. In
addition, the Company owns a modern FDA-registered 48,000 square foot
manufacturing facility in American Fork, Utah. This facility, which was
constructed in 1993, houses office, manufacturing and warehousing facilities for
the operations of the Natur-Pharma (Nature's Herbs) Division of the Company, and
office and warehousing facilities for the operations of the Alvita Division of
the Company.
The Company believes that its facilities and equipment generally are well
maintained and in good operating condition. In 1995, the Company acquired
additional property adjacent to its American Fork, Utah, facility to provide
additional plant capacity for the operations of the Natur-Pharma and the Alvita
Divisions of the Company. The Company is constructing an 8,500 square foot
addition to its Utah facility at a cost of approximately $700,000. Management
believes that the Company's Utah facility will be sufficient to enable the
Company to meet sales demand for the foreseeable future and that its New York
facility will be sufficient to meet sales demand for TWINLAB products for
approximately three years. Management believes that it will have the option to
lease additional space or to construct a new facility at such time.
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TRADEMARKS
The Company owns trademarks registered with the United States Patent and
Trademark Office and/or similar regulatory authorities in many other countries
for its TWINLAB, Nature's Herbs, Alvita and Fuel family of trademarks, and has
rights to use other names material to its business. In addition, the Company has
obtained trademarks for various of its products and has approximately 250
trademark registrations with the United States Patent and Trademark Office for
TWINLAB, Nature's Herbs and Alvita brands. Federally registered trademarks have
perpetual life, provided they are renewed on a timely basis and used properly as
trademarks, subject to the rights of third parties to seek cancellation of the
marks. The Company regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. The Company vigorously protects its trademarks against
infringement.
LEGAL MATTERS
Twin Laboratories Inc. and other encapsulators, and various distributors,
manufacturers, and retailers of manufactured L-Tryptophan are defendants in
actions in federal and state courts seeking compensatory and, in some cases,
punitive damages for alleged personal injuries resulting from the ingestion of
products containing manufactured L-Tryptophan. As of June 1, 1996, Twin
Laboratories Inc. was a named defendant in three of these actions. The Company
believes that few new lawsuits are likely to be brought in view of the statutes
of limitations. Twin Laboratories Inc. has entered into the Indemnification
Agreement with SDA, a U.S. subsidiary of a Japanese corporation, SDK. Under the
Indemnification Agreement, SDA agrees to assume the defense of all claims
arising out of the ingestion of L-Tryptophan products and to pay all legal fees
and indemnify Twin Laboratories Inc. against liability in any action if it is
determined that a proximate cause of the injury sustained by the plaintiff in
the action was a constituent of the raw material sold by SDA to Twin
Laboratories Inc. or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that action by Twin Laboratories Inc.
proximately contributed to the injury, and except for certain claims relating to
punitive damages. SDA appears to have been the supplier of all the allegedly
contaminated L-Tryptophan. SDA has posted a revolving irrevocable letter of
credit for the benefit of the Indemnified Group if SDA is unable or unwilling to
satisfy any claims or judgement. SDK has unconditionally guaranteed the payment
obligations of SDA under the Indemnification Agreement. As of June 1, 1996, 129
suits in which the Company was a named defendant have been dismissed or settled
by SDA at no cost to the Company.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against the Company alone and ignoring the existence of the
Indemnification Agreement, would exceed the Company's available product
liability insurance coverage of $3 million for L-Tryptophan matters in respect
of claims made prior to December 31, 1993, and would have a material adverse
impact upon the financial condition and results of operations of the Company.
However, the Indemnification Agreement, the defense and resolution to date of
numerous lawsuits by SDA without cost to the Company, the multitude of
defendants and the possibility that liability could be assessed against or paid
by other parties or by insurance carriers, have led management of the Company,
after consultation with outside legal counsel, to believe that the prospect for
a material adverse effect on the Company's results of operations or financial
condition is remote and no provision in the Company's financial statements has
been made for any loss that may result from these actions.
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability insurance coverage, the
Company currently has $75 million of product liability insurance (which does not
cover matters relating to L-Tryptophan) with a $25,000 self-insurance retention
per occurrence and $100,000 self-insurance retention in the aggregate. There can
be no assurance that such insurance will continue to be available at a
reasonable cost, or if available will be adequate to cover liabilities.
The Company and others are defendants in a wrongful death action originally
commenced in July 1995 with respect to one of the Company's products containing
Ma Huang and with respect to a product that does not contain Ma Huang
manufactured by another defendant. See "Risk Factors -- Government Regulation"
and "-- Regulatory Matters."
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The Company is presently engaged in various other legal actions, 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 the lawsuit described in the preceding paragraph, after
taking into consideration the Company's insurance coverage, will not have a
material adverse effect on its results of operations and financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Brian Blechman................... 45 Executive Vice President, Treasurer and Director
Dean Blechman.................... 39 Executive Vice President and Director
Neil Blechman.................... 45 Executive Vice President, Secretary and Director
Ross Blechman.................... 43 Chairman of the Board, Chief Executive Officer and
President
Steve Blechman................... 43 Executive Vice President and Director; Chairman of
the Board, Chief Executive Officer and President of
ARP
Stephen Welling.................. 42 President of Natur-Pharma Division of Twin
Laboratories Inc.
John G. Danhakl.................. 40 Director
Jennifer Holden Dunbar........... 33 Director
Jonathan D. Sokoloff............. 38 Director
</TABLE>
Brian Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1972 and served as Vice President, Purchasing & Quality Control of the Company
prior to the Acquisition. He is responsible for the purchasing of all raw
materials and has final responsibility for all quality control and management of
the plant facilities. He is also responsible for capital expenditures for plant
and equipment and for product formulations.
Dean Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1979 and served as Vice President, Sales of the Company prior to the
Acquisition. He has responsibility for overseeing the national sales force and
distributor network. Mr. Blechman is on the board of directors of the National
Nutritional Foods Association, a leading trade organization that governs the
industry's retailers, distributors and manufacturers.
Neil Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1972 and served as Vice President, Marketing & Advertising of the Company prior
to the Acquisition. He is primarily responsible for directing marketing and
advertising strategies, the design of product packaging and point of sale
materials, the production and creation of merchandising displays, advertising,
promotional activities and trade show activities.
Ross Blechman, became Chairman of the Board, Chief Executive Officer and
President of the Company upon consummation of the Acquisition. Mr. Blechman
jointed Twin Laboratories Inc. in 1974 and served as Vice President, Production
of the Company prior to the Acquisition. He is primarily responsible for plant
operations, shipping, warehouse management, and for assuring that quality
standards are maintained. He is also responsible for MIS and human resource
functions. Mr. Blechman also directs the operations of the Alvita Products
division of Twin Laboratories Inc.
Steve Blechman, became an Executive Vice President of the Company and
Chairman of the Board, Chief Executive Officer and President of ARP upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1974 and served as Vice President, Product Development & Marketing of the
Company prior to the Acquisition. He is involved in product development and
marketing, and is primarily responsible for developing new products for the
TWINLAB, Nature's Herbs and Alvita brands. Mr. Blechman also directs the
operations of ARP and the customer service department of Twin Laboratories Inc.
Stephen Welling, became the President of the Natur-Pharma Division of Twin
Laboratories Inc. upon consummation of the Acquisition. Mr. Welling joined
Natur-Pharma Inc. in 1977 as the controller and served
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<PAGE> 61
as President of Natur-Pharma Inc. prior to the Acquisition. Prior to his
promotion to President, Mr. Welling served as Vice President of Operations with
responsibility for manufacturing, personnel, quality management, legal affairs
and finance.
John G. Danhakl became a director of the Company upon consummation of the
Acquisition. He has been an executive officer and an equity owner of Leonard
Green & Partners, L.P. ("LGP"), a merchant banking firm which manages GEI, since
1995. Mr. Danhakl had previously been a Managing Director at Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and had been with DLJ since 1990. Prior
to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert
Incorporated. Mr. Danhakl is also a director of The Arden Group, Inc. and Kash
n' Karry Food Stores, Inc.
Jennifer Holden Dunbar became a director of the Company upon consummation
of the Acquisition. She joined Leonard Green & Associates, L.P. ("LGA"), a
merchant banking firm, as an associate in 1989, became a principal in 1993, and
through a corporation became a partner in 1994. Since 1994, Ms. Holden Dunbar
has also been an executive officer and equity owner of LGP. Ms. Holden Dunbar
previously was an associate with the merchant banking firm of Gibbons, Green,
van Amerongen and a financial analyst in mergers and acquisitions with Morgan
Stanley & Co. Ms. Holden Dunbar is also a director of Thrifty PayLess Holdings,
Inc., Thrifty PayLess, Inc., Kash n' Karry Food Stores, Inc. and several private
companies.
Jonathan D. Sokoloff became a director of the Company upon consummation of
the Acquisition. He joined LGA as a partner in 1990. Mr. Sokoloff has also been
an executive officer and equity owner of LGP since its formation in 1994. Mr.
Sokoloff was previously a Managing Director at Drexel Burnham Lambert
Incorporated. Mr. Sokoloff is also a director of Thrifty PayLess Holdings, Inc.,
Thrifty PayLess, Inc., Carr-Gottstein Foods Co. and several private companies.
The Company's By-laws and Certificate of Incorporation provide for the
Company's Board of Directors to be comprised of between eight and eleven
members, as determined from time to time by the stockholders. The Board is
currently comprised of eight members. Each Director holds office until the next
annual meeting of stockholders and until his successor is duty elected and
qualified, or until his earlier death, resignation or removal.
All of the Company's current Directors were nominated and elected to the
Company's Board of Directors in accordance with the Stockholder Agreement (as
hereinafter defined) as designees of GEI and the Continuing Stockholders,
respectively. See "Principal Stockholders -- Terms of the Stockholders
Agreement." Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors. Except for the Blechman Brothers'
familial relationships, there are no family relationships among the executive
officers or Directors of the Company.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the compensation
paid by the Company during the year ended December 31, 1995 ("Fiscal Year 1995")
to the five most highly compensated executive officers of the Company, who
collectively acted in a similar capacity to a chief executive officer, serving
as such at the end of Fiscal Year 1995 (the "Named Executive Officers").
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<PAGE> 62
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(A) COMPENSATION($)(B)
- ------------------------------------------------- ------ --------- ----------- ------------------
<S> <C> <C> <C> <C>
Ross Blechman.................................... 1995 402,461 368,145 9,527
Vice President
Brian Blechman................................... 1995 401,523 368,145 9,822
Vice President
Dean Blechman.................................... 1995 402,545 368,145 9,235
Vice President
Neil Blechman.................................... 1995 402,545 368,145 9,822
Vice President
Steve Blechman................................... 1995 402,548 368,145 9,527
Vice President
</TABLE>
- ---------------
(a) Bonuses are reported in the fiscal year earned and paid.
(b) (i) payment of premiums for term life insurance policies of $1,365 for Ross
Blechman; $1,660 for Brian Blechman; $1,073 for Dean Blechman; $1,660 for
Neil Blechman and $1,365 for Steve Blechman, for 1995; (ii) payment of
premiums for executive medical insurance policies for each of Ross
Blechman, Brian Blechman, Dean Blechman, Neil Blechman and Steve Blechman,
of $1,250 for 1995 and (iii) payments under the Company's Profit Sharing
Plan of $6,912 for each of Ross Blechman, Brian Blechman, Dean Blechman,
Neil Blechman and Steve Blechman, for 1995. The amount set forth in this
column does not include "S" corporation dividend distributions sufficient
to pay income taxes on the earnings of the Company that were treated as
having been earned by the individual as a shareholder of the Company.
EMPLOYMENT AGREEMENTS
Upon consummation of the Acquisition, the Company entered into employment
agreements with each of the Blechman Brothers (each an "Employment Agreement").
The Employment Agreement provides that, unless a Public Offering Event (as
defined below, see "Principal Stockholders -- Terms of the Stockholders
Agreement") has occurred, the relevant individual will be employed as an
executive of the Company for a term of five years, renewable for terms of one
year thereafter. From and after the occurrence of a Public Offering Event, the
employment term is deemed to end on the third anniversary of such event;
provided that, the employment term will be automatically extended so as to
establish a three year remaining term of employment upon a termination of
employment for the purposes of the noncompetition and severance provisions of
the Employment Agreement. The Employment Agreement provides for a base salary of
$400,000 (as adjusted for inflation), in addition to other customary perquisites
and benefits. In addition to receiving a base salary, the executive is also
eligible to participate in the TLC's Bonus Plan which entitles such individual
to a bonus payment of up to 128% of his base salary for the relevant calendar
year based on annual increases in EBITDA (as defined therein) realized by the
Company for each year of the employment term. The Employment Agreement also
provides, subject to certain exceptions, that upon a termination of the
individual's employment during the term thereof (other than for "cause" as
defined therein), the Company is generally obligated to pay the individual an
amount equal to his base salary for the remaining term under the Employment
Agreement.
Upon consummation of the Acquisition, the Company entered into an
employment agreement with Stephen Welling to serve as President of the
Natur-Pharma Division of the Company (the "Division") (the "Welling Employment
Agreement"). The Welling Employment Agreement provides that Mr. Welling will be
employed as an executive of the Company for a term of three years, renewable for
terms of one year thereafter. The Welling Employment Agreement provides for a
base salary of $135,000 (as adjusted for inflation), in addition to other
customary perquisites and benefits. In addition to receiving a base salary, Mr.
Welling is also eligible to participate in the Division Bonus Plan which
entitles him to a bonus payment up to 202.5% of his base salary for the relevant
calendar year based on annual increases in EBITDA (as defined therein) realized
by the Division for each year of the employment term. The Welling Employment
Agreement also provides, subject to certain exceptions, that upon a termination
of Mr. Welling's employment during the term thereof
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<PAGE> 63
(other than for "cause" as defined therein), the Company is generally obligated
to pay Mr. Welling an amount equal to his base salary for the remaining term
under the Welling Employment Agreement.
Upon consummation of the Acquisition, the Company entered into consulting
agreements with each of David and Jean Blechman (each a "Consulting Agreement").
The Consulting Agreement provides that the relevant individual be engaged as an
independent consultant to the Company for a term of five years. As consideration
for such consulting services, the Company is obligated to pay the individual an
annual consulting fee of $100,000, in addition to certain limited perquisites
and benefits.
Upon consummation of the Acquisition, the Company and TLC also entered into
non-competition agreements with each of the Stockholders (each a
"Non-Competition Agreement"). The term of the Non-Competition Agreement is equal
to the initial term of the relevant individual's employment or consulting
agreement, as the case may be. The Non-Competition Agreement generally prevents
the individual from participating in any manner in the management, operation
and/or ownership of any entity, anywhere in the world, which is engaged in
similar lines of business to those of the Company.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors are reimbursed for
their out-of-pocket expenses in attending Board meetings. Messrs. Danhakl and
Sokoloff and Ms. Holden Dunbar receive no fees in their capacities as directors,
but see "Certain Relationships and Related Transactions -- Transactions with
LGP" for a description of certain other arrangements pursuant to which LGP, of
which they (or corporations owned by them) are partners, receives compensation
from the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE ACQUISITION
The Acquisition Agreement contains provisions customary for transactions of
similar size and type, including representations and warranties, which generally
will expire at the end of the fourteenth month following the month in which the
Acquisition Agreement was consummated. However, those representations and
warranties that are related to tax and environmental matters will expire,
respectively, at the date on which the applicable statute of limitations has
expired and the third anniversary of the consummation of the Acquisition
Agreement. Subject to the limitations set forth in the Acquisition Agreement
(which include, subject to certain exceptions, a $2,000,000 deductible on
liability and a maximum liability of $25,000,000), the Stockholders have agreed
to indemnify GEI, its permitted assigns and the Company against any liabilities
arising out of the breach of such representations and warranties while such
representations and warranties are still in effect. Pursuant to the Acquisition
Agreement, the Stockholders received, in addition to certain payments described
elsewhere in this Prospectus, a payment in respect of their estimated liability
for taxes on the Company's income prior to the consummation of the Transactions,
when the Company had "S" corporation status for federal income tax purposes.
This payment is subject to adjustment based on the actual tax liability as
calculated for the relevant period. In addition, certain fees, taxes and
expenses of parties to the Acquisition Agreement were or will be paid by the
Company in connection with the consummation of the Acquisition. See "Prospectus
Summary -- The Acquisition."
EMPLOYMENT AND CONSULTING AGREEMENTS
Upon consummation of the Acquisition, the Company entered into employment
agreements with each of the Continuing Stockholders and consulting agreements
with each of David and Jean Blechman. See "Management -- Employment Agreements."
TRANSACTIONS WITH DAVID BLECHMAN AND JEAN BLECHMAN
During the period from 1989 to 1992, Twin Laboratories Inc. assigned to
David and Jean Blechman
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certain promissory notes of Natur-Pharma Inc., representing inter-company
payables, in the aggregate principal amount of $1,500,000. These promissory
notes bore interest at a rate of 10% per annum, and $1,000,000 of the principal
was repaid in 1994 and the remainder was repaid on May 2, 1996. In June and July
of 1991, Alvita Products, Inc. issued four promissory notes payable to David
Blechman and Jean Blechman in the aggregate principal amount of $250,000. Such
promissory notes bore interest at a rate of 9% per annum and were repaid in
April 1994. In 1988 and 1989, ARP borrowed funds from David Blechman and Jean
Blechman in the aggregate principal amount of $545,500. These loans were
non-interest bearing, and $200,000 of the principal was repaid in 1994 and the
remainder was repaid on May 3, 1996.
TRANSACTIONS WITH LGP
LGP is the investment advisor to and an affiliate of the general partner of
GEI, which after consummation of the Acquisition owns 48% of the outstanding
shares of common stock of TLC. Following consummation of the Acquisition,
Messrs. Danhakl and Sokoloff and Ms. Holden Dunbar, stockholders and directors
of the general partner of LGP, became directors of the Company. See
"Management -- Directors and Executive Officers."
Upon the consummation of the Acquisition, LGP received a fee of $1 million
for its services in arranging and structuring the Acquisition, including, among
other things, structuring and negotiating the Acquisition Agreement and the
Stockholders Agreement, arranging and negotiating the terms of the New Credit
Facility and related documents, assistance with the Offering, financial and
market analyses, and other similar consulting and investment banking services.
The majority of such services were performed on behalf of LGP by Messrs. Danhakl
and Sokoloff and Ms. Holden Dunbar.
In connection with the Acquisition, the Company entered into a Management
Services Agreement with LGP pursuant to which LGP will receive an annual
retainer fee of up to $400,000 plus reasonable expenses for providing certain
management, consulting and financial planning services (the "LGP Management
Fee"). The Company believes that the contacts and expertise provided by LGP in
these areas enhance the Company's opportunities and management's expertise in
these matters and that the fees to be paid to LGP fairly reflect the value of
the services to be provided by LGP. The specialized consulting services provided
by LGP overlap to some extent with the role of Messrs. Danhakl and Sokoloff and
Ms. Holden Dunbar as directors of the Company, for which they do not receive any
additional compensation. See "Management -- Director Compensation." In addition
to the LGP Management Fee, the Management Services Agreement provides that LGP
may receive reasonable and customary fees and reasonable expenses from time to
time for providing financial advisory and investment banking services in
connection with major financial transactions that may be undertaken in the
future; provided, however, that if the Continuing Stockholders maintain
ownership of more than 30% of the shares of common stock of TLC, then the
retention of LGP in connection with such major financial transactions is subject
to the approval of a majority of the Blechman Brothers then serving as directors
of the Company. The Management Services Agreement will terminate on the earlier
of its seventh anniversary or such time as GEI no longer owns two-thirds of the
shares of common stock of TLC issued to GEI pursuant to the Acquisition
Agreement.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The shares of common stock of the Company are wholly owned by TLC.
The information in the following table sets forth certain information with
respect to the beneficial ownership of the common stock of TLC as of May 31,
1996 by (i) each person who beneficially owns more than 5% of the outstanding
shares of TLC's common stock, (ii) each executive officer of the Company, (iii)
each director of the Company and (iv) all directors and executive officers of
the Company as a group. Except as noted below, each person or entity has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME AND ADDRESS SHARES OWNERSHIP
- ------------------------------------ --------- ---------
<S> <C> <C>
Green Equity Investors II, L.P. ......................................... 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
John G. Danhakl(a)....................................................... 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Jennifer Holden Dunbar(a)................................................ 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Jonathan D. Sokoloff(a).................................................. 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Brian Blechman........................................................... 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Dean Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Neil Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Ross Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Steve Blechman........................................................... 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME AND ADDRESS SHARES OWNERSHIP
- ------------------------------------ --------- ---------
<S> <C> <C>
Stephen Welling.......................................................... 1,555 *
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
All directors and executive officers as a group (9 persons)(b)........... 930,000 93%
</TABLE>
- ---------------
(a) The shares shown as beneficially owned by Messrs. Danhakl and Sokoloff and
Ms. Holden Dunbar represent 480,000 shares owned of record by GEI. GEI is a
Delaware limited partnership managed by LGP, which is an affiliate of the
general partner of GEI. Each of Leonard I. Green, Jonathan D. Sokoloff,
John G. Danhakl, Gregory J. Annick and Jennifer Holden Dunbar, either
directly (whether through ownership interest or position) or through one or
more intermediaries, may be deemed to control LGP and such general partner.
LGP and such general partner may be deemed to control the voting and
disposition of the shares of common stock of TLC owned by GEI. As such,
Messrs. Sokoloff and Danhakl and Ms. Holden Dunbar may be deemed to have
shared voting and investment power with respect to all shares held by GEI.
However, such individuals disclaim beneficial ownership of the securities
held by GEI except to the extent of their respective pecuniary interests
therein.
(b) Includes the shares referred to in Note (a) above.
* Less than 1%.
TERMS OF THE STOCKHOLDERS AGREEMENT
Upon consummation of the Acquisition, GEI, the Continuing Stockholders and
TLC entered into a Stockholders Agreement (the "Stockholders Agreement") in
respect of their holdings of shares of common stock of TLC. Pursuant to such
Stockholders Agreement, certain transfers of such stock by the parties to the
agreement are subject to tag-along rights of the other party and, for the five
years subsequent to the date of the agreement, the reasonable consent of the
other party. Such rights are generally effective until such time as the common
stock of TLC is publicly held (a "Public Offering Event"). In addition, such
consent rights of each party are contingent upon that party maintaining
ownership of two-thirds of the shares of common stock of TLC issued to such
party pursuant to the Acquisition Agreement.
Pursuant to the Stockholders Agreement, each of GEI and the Continuing
Stockholders is granted certain demand registration rights which commence on the
earlier of nine months after a Public Offering Event and the second anniversary
of the date of the agreement. The Stockholders Agreement also contains certain
"piggyback" registration rights arising in the event that TLC registers its
securities under the Securities Act.
Under the Stockholders Agreement, each of GEI and the Continuing
Stockholders are granted certain preemptive rights in the event that TLC issues
to the other party any equity or debt securities of TLC. These rights are
generally effective (i) until a Public Offering Event and (ii) provided that the
preempting party maintains ownership of two-thirds of the shares of common stock
of TLC issued to such party pursuant to the Acquisition Agreement.
Pursuant to the Stockholders Agreement, each of GEI and the Continuing
Stockholders agreed to vote their shares in favor of five nominees of the
Continuing Stockholders and three nominees of GEI to the Board of Directors of
TLC and the Company. The agreement provides that a wide range of actions to be
taken by TLC, including but not limited to the payment of certain dividends,
engagement in new businesses, and the acquisition of other businesses, require
the affirmative approval of a majority of each of the Continuing Stockholders
nominees and the GEI nominees to the Board of Directors. Generally, such rights
of each party are contingent upon that party maintaining ownership of two-thirds
of the shares of common stock of TLC issued to such party pursuant to the
Acquisition Agreement. Certain fundamental corporate actions, including but not
limited to, amendments to the Certificate of Incorporation, the sale of
substantially all of the assets of the Company, and the merger or combination of
the Company with another entity, additionally require an affirmative vote of
holders of at least 80% of the issued and outstanding common stock of TLC.
Generally,
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<PAGE> 67
such requirements for a super-majority stockholder vote are contingent upon the
Continuing Stockholders maintaining ownership of two-thirds of the shares of
common stock of TLC issued to them pursuant to the Acquisition Agreement. In
addition, all of these rights and requirements are generally only effective
until the occurrence of a Public Offering Event. See "Risk Factors -- Ownership
of the Company."
Subject to the early termination of certain provisions of the Stockholders
Agreement upon the occurrence of a Public Offering Event, the Stockholders
Agreement terminates on the tenth anniversary of the date thereof.
Shares of common stock and Preferred Stock of TLC were issued to various
institutional investors (the "Senior Preferred Holders") pursuant to a Stock
Subscription Agreement among each such investor and TLC.
Upon consummation of the Acquisition, GEI, the Continuing Stockholders, the
Senior Preferred Holders and TLC entered into a secondary stockholders agreement
(the "Secondary Stockholders Agreement") in respect of their holdings of shares
of stock of TLC. Pursuant to such Secondary Stockholders Agreement, the Senior
Preferred Holders will have tag-along rights with respect to certain transfers
of common stock of TLC by GEI and/or the Continuing Stockholders. In addition,
on a sale of all or substantially all of the common stock of TLC by GEI and/or
the Continuing Stockholders, such sellers will have drag-along rights with
respect to shares of common stock of TLC held by the Senior Preferred Holders.
Further, GEI, the Company and the other Senior Preferred Holders will have
certain first option rights on sales by a Senior Preferred Holder of shares of
common stock of TLC. All of the above rights will terminate on the occurrence of
a Public Offering Event.
In addition, commencing on the fifth anniversary of the Secondary
Stockholders Agreement, the Senior Preferred Holders will be entitled to
exercise one demand registration right with respect to their shares of common
stock of TLC. Finally, the Senior Preferred Holders will have certain
"piggyback" registration rights on other registrations of equity securities of
TLC.
Subject to the early termination of certain provisions of the Secondary
Stockholders Agreement upon the occurrence of a Public Offering Event, the
Secondary Stockholders Agreement terminates on the tenth anniversary of the date
thereof.
DESCRIPTION OF NEW NOTES
Set forth below is a summary of certain provisions of the New Notes. The
New Notes will be issued pursuant to an indenture dated May 7, 1996, by and
among the Company, TLC, the Subsidiary Guarantors (as defined below) and Fleet
National Bank as trustee (the "Trustee"). Except as otherwise indicated below,
the following summary applies to both the Old Notes and the New Notes. As used
herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes (i) will be registered
under the Securities Act, (ii) will not provide for payment of penalty interest
as Liquidated Damages, which terminate upon consummation of the Exchange Offer,
and (iii) will not bear any legends restricting transfer thereof. The New Notes
will be issued solely in exchange for an equal principal amount of Old Notes. As
of the date hereof, $100 million aggregate principal amount of Old Notes is
outstanding. See "The Exchange Offer."
The following summaries of certain provisions of the New Notes, the
Indenture and the Registration Rights Agreement are summaries only, do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Indenture and the Registration Rights Agreement,
including the definitions therein. Copies of the Indenture and the Registration
Rights Agreement can be obtained from the Initial Purchasers upon request.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Indenture or the Registration Rights Agreement, as
appropriate. As used in this section, the "Company" refers to the entity which
survived the Natur-Pharma Merger, and shall not refer to the subsidiaries of the
Company. Wherever particular provisions of the Indenture are referred to in this
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<PAGE> 68
summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
GENERAL
The New Notes will be unsecured, general obligations of the Company,
subordinate in right of payment to all Senior Debt of the Company, and senior or
pari passu in right of payment to all existing and future subordinated
Indebtedness of the Company. The New Notes will be limited in aggregate
principal amount to $100 million. The Notes will be jointly and severally
guaranteed (the "Guarantees") on a senior subordinated basis by ARP, the
Company's sole existing Subsidiary, and by each of the Company's future
Subsidiaries (the "Subsidiary Guarantors") and by TLC (together with the
Subsidiary Guarantors, the "Guarantors"). The obligations of each Guarantor
under its guarantee, however, will be limited in a manner intended to avoid it
being deemed a fraudulent conveyance under applicable law. The term
"Subsidiaries" as used herein or in the Indenture, however, does not include any
Unrestricted Subsidiaries. The New Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof.
The Notes will mature on May 15, 2006. The Notes will bear interest at
10 1/4% per annum from the date of issuance or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1996, to the persons in whose names such Notes are registered at the close of
business on the May 1 or November 1 immediately preceding such Interest Payment
Date. Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York. At
the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at the addresses set forth upon the registry books of
the Company. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at 14 Wall
Street, New York, New York 10005.
SUBORDINATION
The New Notes and the Guarantees will be general, unsecured obligations of
the Company and the Guarantors, respectively, subordinated in right of payment
to all Senior Debt of the Company and the Guarantors, as applicable. On a pro
forma basis, as of March 31, 1996, after giving effect to the Transactions, the
Company would have had approximately $53.4 million of outstanding Senior Debt,
substantially all of which would have been secured.
The Indenture provides that no payment (by set-off or otherwise) may be
made by or on behalf of the Company or a Guarantor, as applicable, on account of
the principal of, premium, if any, or interest on the Notes (including any
repurchases of Notes), or on account of the redemption provisions of the Notes
or any Obligation in respect of the Notes, for cash or property, (i) upon the
maturity of any Senior Debt of the Company or such Guarantor, as applicable, by
lapse of time, acceleration (unless waived) or otherwise, unless and until all
principal of, premium, if any, and the interest on and fees in respect of such
Senior Debt are first paid in full in cash or Cash Equivalents (or such payment
is duly provided for) or otherwise to the extent holders of Senior Debt accept
satisfaction of amounts due by settlement in other than cash or Cash
Equivalents, or (ii) in the event of default in the payment of any principal of,
premium, if any, or interest on or fee in respect of Senior Debt of the Company
or such Guarantor, as applicable, when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt to declare such Senior Debt to
be due and payable and (ii) written notice of such event of
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<PAGE> 69
default is given to the Company and the Trustee by the Senior Bank
Representative or the holders of an aggregate of at least $20 million principal
amount outstanding of any other Senior Debt or their representative (a "Payment
Notice"), then, unless and until such event of default has been cured or waived
or otherwise has ceased to exist, no payment (by set-off or otherwise) may be
made by or on behalf of the Company, if the Company is an obligor on such Senior
Debt, or any Guarantor which is an obligor under such Senior Debt on account of
the principal of, premium, if any, or interest on the Notes (including any
repurchases of any of the New Notes), or on account of the redemption provisions
of the Notes or any Obligation in respect of the Notes, in any such case.
Notwithstanding the foregoing, unless the Senior Debt in respect of which such
event of default exists has been declared due and payable in its entirety within
179 days after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, the Company and the Guarantors shall be
required to pay all sums not paid to the Holders of the Notes during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Notes. Any number of Payment Notices may be
given; provided, however, that (i) not more than one Payment Notice shall be
given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default is on the same issue of
Senior Debt) shall be made the basis for the commencement of any other Payment
Blockage Period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor shall be received by the
Trustee or the Holders at a time when such payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in trust
for the benefit of the holders of such Senior Debt, and shall be paid or
delivered by the Trustee or such Holders, as the case may be, to the holders of
such Senior Debt remaining unpaid or unprovided for or to their representative
or representatives, or to the trustee or trustees under any indenture pursuant
to which any instruments evidencing any of such Senior Debt may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Debt held or represented by each, for application to the
payment of all such Senior Debt remaining unpaid, to the extent necessary to pay
or to provide for the payment of all such Senior Debt in full in cash or Cash
Equivalents or otherwise to the extent holders of Senior Debt accept
satisfaction of amounts due by settlement in other than cash or Cash Equivalents
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
Upon any distribution of assets of the Company or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities, (i) the
holders of all Senior Debt of the Company or such Guarantor, as applicable, will
first be entitled to receive payment in full in cash or Cash Equivalents (or
have such payment duly provided for) or otherwise to the extent holders of
Senior Debt accept satisfaction of amounts due by settlement in other than cash
or Cash Equivalents before the Holders are entitled to receive any payment on
account of the principal of, premium, if any, and interest on the Notes or any
Obligation in respect of the Notes (other than Junior Securities) and (ii) any
payment or distribution of assets of the Company or such Guarantor of any kind
or character from any source, whether in cash, property or securities (other
than Junior Securities) to which the Holders or the Trustee on behalf of the
Holders would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full (or have such payment duly
provided for) on all such Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior Debt.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company and the Guarantors, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
the New Notes. The subordination provisions of the Indenture and the Notes will
not prevent the occurrence of any Default or Event of Default under the
Indenture or limit the rights of the Trustee or any Holder, subject to the four
immediately preceding paragraphs, to pursue any other rights or remedies with
respect to the New Notes.
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As a result of the subordination provisions contained in the Indenture, in
the event of the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the benefit of the
creditors of the Company or a marshalling of assets or liabilities of the
Company, Holders of the New Notes may receive less, ratably, and holders of
Senior Debt may receive more, ratably, than other creditors of the Company or
the Guarantors.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to May 15,
2001, except as provided in the immediately following paragraph. The Notes will
be redeemable at the option of the Company, in whole or in part, at any time on
or after May 15, 2001, upon not less than 30 days nor more than 60 days notice
to each Holder of Notes, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing May 15, of the years indicated below, together with accrued and
unpaid interest thereon to the Redemption Date (subject to the right of Holders
of record on a Record Date to receive interest due on an Interest Payment Date
that is on or prior to such Redemption Date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001...................................................................... 105.125%
2002...................................................................... 102.562%
2003...................................................................... 101.281%
2004 and thereafter....................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to May 15, 1999, the Company may
redeem from time to time up to 35% of the aggregate principal amount of the
Notes originally outstanding at a redemption price of 109 1/2% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings;
provided, that at least 65% of the aggregate principal amount of the New Notes
originally outstanding remain outstanding immediately after the occurrence of
such redemption; provided, further, that such notice of redemption shall be sent
within 30 days after the date of closing of any such Equity Offering, and such
redemption shall occur within 60 days after the date such notice is sent.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The New Notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a different Note or New Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On and
after the date of redemption, interest will cease to accrue on the Notes or
portions thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
The New Credit Facility limits, and any agreements governing Senior Debt
incurred after the closing of the Acquisition (the "Closing Date") may limit or
prohibit, the optional redemption of the Notes until all such Senior Debt has
been paid in full.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part of such
Holder's Notes
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(provided, that the principal amount of such Notes must be $1,000 or an integral
multiple thereof) on a date (the "Change of Control Purchase Date") that is no
later than 45 Business Days after the occurrence of such Change of Control, at a
cash price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof, together with accrued interest to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 15
Business Days following a Change of Control and shall remain open for not less
than 20 Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, the Company
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company or TLC with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of either the Company or TLC, on a consolidated basis, in one transaction
or a series of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group," (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), whether or not applicable), other than any Excluded Person or Excluded
Persons or TLC, is or becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) any "person" or "group," other than any
Excluded Person or Excluded Persons or TLC, is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, provided that any "person"
or "group" will be deemed to be the Beneficial Owner of any Capital Stock of the
Company held by TLC so long as such person or group is the Beneficial Owner of,
directly or indirectly, in the aggregate a majority of the Capital Stock of TLC
then outstanding normally entitled to vote in elections of directors, or (iii)
during any period of 12 consecutive months after May 7, 1996, individuals who at
the beginning of any such 12-month period constituted the Board of Directors of
either the Company or TLC (together, in each case, with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by LGP or a Related Party of LGP or by the Excluded
Persons or by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or TLC then in
office, as applicable.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all New Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
the Holders of Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Initial Purchasers.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other
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<PAGE> 72
applicable Federal and state securities laws and any provisions of the Indenture
which conflict with such laws shall be deemed to be superseded by the provisions
of such laws.
The New Credit Facility prohibits, and any agreements governing Senior Debt
incurred after the Closing Date may prohibit, the purchase of Notes in response
to a Change in Control Offer, unless all such Senior Debt has been paid in full.
Furthermore, a Change in Control will constitute an event of default under the
New Credit Facility. In addition, the Company's ability to purchase Notes upon a
Change in Control will be limited by its then available financial resources and,
if those resources are insufficient, its ability to arrange financing to effect
those purchases. There can be no assurance that the Company will have sufficient
funds to repurchase the Notes upon a Change in Control or that it will be able
to arrange financing for that purpose. Nevertheless, the Company's failure to
make a Change in Control Offer or to purchase all Notes properly tendered
pursuant to a Change in Control Offer will constitute an Event of Default under
the Indenture.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "Incur" or, as appropriate, an "Incurrence"), any Indebtedness
or any Disqualified Capital Stock (including Acquired Indebtedness), except for
Permitted Indebtedness.
Notwithstanding the foregoing, if (i) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect on a pro forma basis to, such Incurrence of Indebtedness (including
without duplication guarantees of Indebtedness of the Company and the Subsidiary
Guarantors otherwise permitted by the Indenture) or Disqualified Capital Stock
and (ii) on the date of such Incurrence (the "Incurrence Date"), the
Consolidated Interest Coverage Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such Incurrence of such Indebtedness (without duplication) or
Disqualified Capital Stock and, to the extent set forth in the definition of
Consolidated Interest Coverage Ratio, the use of proceeds thereof, would be at
least 2.00 to 1 (the "Debt Incurrence Ratio"), then the Company and the
Subsidiary Guarantors may Incur such Indebtedness or Disqualified Capital Stock.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Subsidiary of the Company shall be deemed to have been
Incurred at the time such Person becomes such a Subsidiary of the Company or is
merged with or into or consolidated with the Company or a Subsidiary of the
Company, as applicable.
Notwithstanding anything to the contrary contained in the Indenture, the
Subsidiary Guarantors each may guaranty Indebtedness of the Company or any other
Subsidiary Guarantor that is permitted to be Incurred hereunder, either at the
time such Subsidiary Guarantor becomes a Guarantor of the New Notes or if later
the time the Company or such other Subsidiary Guarantor Incurs such
Indebtedness.
Limitation on Restricted Payments
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, make any Restricted Payment if, after giving effect
to such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not permitted
to Incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio in the second paragraph of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (3)
the aggregate amount of all Restricted Payments made by the Company and its
Subsidiaries, including after giving effect to such proposed Restricted Payment,
from and after May 7, 1996, would exceed the sum of (a) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one accounting
period), commencing on the first day after May 7, 1996, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company as a capital contribution or from the sale of
its Qualified Capital
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Stock (other than (i) from or to a Subsidiary of the Company, (ii) to the extent
applied in connection with a Qualified Exchange and (iii) to the extent applied
to repurchase Capital Stock pursuant to clause (d) of the definition of
Permitted Payments), after May 7, 1996.
The foregoing provisions will not prohibit or be violated by (A) a
Qualified Exchange; (B) the payment or making of any Restricted Payment within
60 days after the date of declaration thereof or the making of any binding
commitment in respect thereof, if at said date of declaration or commitment,
such Restricted Payment would have complied with the provisions contained in
clauses (1), (2) and (3) of the first paragraph hereof; (C) Permitted Payments;
(D) Restricted Investments, provided, that, after giving pro forma effect to
such Restricted Investment, the aggregate amount of all such Restricted
Investments made on or after May 7, 1996 pursuant to this subclause (D) that are
outstanding (after giving effect to (x) the amount of such Restricted
Investments returned in cash to the Company or a Subsidiary Guarantor, the
payment of cash dividends or the repayment in cash of the principal of loans or
the cash return on any Restricted Investment to the Company or the Subsidiary
Guarantor that made such Restricted Investment and (y) the release of any
guarantee that constituted a Restricted Investment, to the extent it has been
released, in each case on or prior to the date of such calculation) at any time
does not exceed $10 million; and (E) Restricted Payments in an amount not to
exceed $5 million minus (x) the amount of any Restricted Payments made (other
than pursuant to subclauses (A), (C) and (D) above) since May 7, 1996 and (y)
(1) 100% of the amount of any deficit in Consolidated Net Income for the period
(taken as one accounting period) commencing on the first day after May 7, 1996
to the date of such Restricted Payment plus (2) the aggregate Net Cash Proceeds
received by the Company as a capital contribution or from the sale of its
Qualified Capital Stock (other than (i) from or to a Subsidiary of the Company,
(ii) to the extent applied in connection with a Qualified Exchange, and (iii) to
the extent applied to repurchase Capital Stock pursuant to clause (d) of the
definition of Permitted Payments), after May 7, 1996, up to the amount of the
deficit, if any, applied pursuant to clause (y) (1) above. The full amount of
any Restricted Payment made pursuant to the foregoing clauses (B) and (D) (but
not pursuant to clauses (A), (C) or (E)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, create, assume or suffer to exist any consensual
restriction on the ability of any Subsidiary of the Company: (i) (a) to pay
dividends or make other distributions to the Company or any of its Subsidiaries
(1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) to pay any Indebtedness
owed to the Company or any of its Subsidiaries, (ii) to make loans or advances
to the Company or any of its Subsidiaries or (iii) to transfer any of its
properties or assets to the Company or any of its Subsidiaries, except (a)
restrictions imposed by the Notes or the Indenture, (b) restrictions imposed by
applicable law and regulation, (c) existing restrictions under Indebtedness
outstanding on May 7, 1996 or under any Acquired Indebtedness not incurred in
violation of the Indenture or any agreement relating to any property, asset, or
business acquired by the Company or any of its Subsidiaries, which restrictions
in each case existed at the time of acquisition, were not put in place in
connection with or in anticipation of such acquisition and are not applicable to
any person, other than the person acquired, or to any property, asset or
business, other than the property, assets and business so acquired, (d) any such
restriction or requirement imposed by Indebtedness Incurred under clause (b)
under the definition of "Permitted Indebtedness," provided such restriction or
requirement is not materially more restrictive than that imposed by the Credit
Agreement as of May 7, 1996, (e) restrictions with respect to a Subsidiary of
the Company imposed pursuant to a binding agreement which has been entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, provided such restrictions apply solely to the
Capital Stock or assets of such Subsidiary which are being sold, (f)
restrictions on transfer contained in Purchase Money Indebtedness Incurred
pursuant to paragraph (e) of the definition of Permitted Indebtedness, provided
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, (g) customary restrictions imposed
on the transfer of copyrighted or patented materials and customary provisions in
agreements that restrict the assignment of such agreements or any rights
thereunder, and (h) in
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connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clause (c) or (f) of this paragraph that are
not materially more restrictive than those being replaced and do not apply to
any other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, nor (b) Liens not
prohibited by the terms of the Indenture shall be considered a restriction on
the ability of the applicable Subsidiary to transfer such lease or any assets,
as the case may be.
Limitations on Layering Indebtedness
The Indenture provides that the Company and the Guarantors will not,
directly or indirectly, Incur, or suffer to exist any Indebtedness that is
subordinate in right of payment to any other Indebtedness of the Company or a
Guarantor unless, by its terms, such Indebtedness (i) has a maturity date
subsequent to the Stated Maturity of the Notes and an Average Life longer than
that of the Notes and (ii) is subordinate in right of payment to, or ranks pari
passu with, the New Notes or the Guarantee, as applicable. For purposes of this
provision, no Indebtedness shall be deemed to be subordinated in right of
payment to any other Indebtedness solely by reason of the fact that such other
Indebtedness is secured by any Lien.
Limitation on Liens
The Indenture provides that the Company and the Subsidiary Guarantors will
not, create, incur, assume or suffer to exist, to secure any Indebtedness other
than Senior Debt, any Lien, other than Permitted Liens, upon any of their
respective assets now owned or acquired on or after the date of the Indenture or
upon any income or profits therefrom unless the Company or such Subsidiary
Guarantor provides, concurrently or immediately thereafter, that the Notes are
equally and ratably secured, provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes or the Guarantee, as
applicable, with the same relative priority as such Subordinated Indebtedness
shall have with respect to the Notes or the Guarantee, as applicable, provided,
further, that, in the case of Indebtedness of a Subsidiary Guarantor, if such
Subsidiary Guarantor shall cease to be a Subsidiary Guarantor in accordance with
the provisions of the Indenture, such equal and ratable Lien to secure the Notes
shall, without any further action, cease to exist.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company and the Subsidiary Guarantors will
not, in one transaction or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of their
respective property, business or assets (other than cash or Cash Equivalents),
including by merger or consolidation (in the case of a Subsidiary Guarantor),
and including any sale or other transfer or issuance of any Capital Stock (other
than directors qualifying shares) of any Subsidiary of the Company, whether by
the Company or a Subsidiary (an "Asset Sale"), unless within 360 days following
such Asset Sale (1)(a) the Net Cash Proceeds received from such Asset Sale are
(i) (x) used to purchase one or more businesses or to purchase more than 50% of
the Capital Stock of a person operating one or more businesses, (y) used to make
capital expenditures or (z) used to acquire other long-term assets, in each
case, so long as such business or businesses, capital expenditures or long-term
assets will constitute, be a part of or be used in a Related Business or (ii)
used to retire Senior Debt and to permanently reduce the amount of such
Indebtedness outstanding (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so permanently
reduced by such amount) and (b) the Net Cash Proceeds of such Asset Sale not
applied as provided in clause (a) (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture or to the repurchase of the Notes pursuant to an irrevocable,
unconditional cash offer (the "Asset Sale Offer") to repurchase Notes at a
purchase price (the "Asset Sale Offer Price") of 100% of the principal amount,
plus accrued interest to the date of payment, (2) at least 75% of the
consideration for such Asset Sale consists of cash or Cash Equivalents; provided
that (x) the amount of any liabilities (as shown on the Company's most recent
consolidated balance sheet) of the Company or any Subsidiary that are assumed by
the transferee in such Asset Sale and (y) any notes or other
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obligations received by the Company or any such Subsidiary Guarantor from such
transferee that are immediately (but in no event more than 30 days after
receipt) converted by the Company or such Subsidiary Guarantor into cash or Cash
Equivalents (to the extent of the cash or Cash Equivalents, as the case may be,
received), shall be deemed to be cash or Cash Equivalents, as the case may be,
for purposes of this provision and, provided, further, this clause (2) shall not
apply to the sale or disposition of assets or as a result of a foreclosure (or a
secured party taking ownership of such assets in lieu of foreclosure) or as a
result of an involuntary proceeding in which the Company cannot, directly or
through its Subsidiaries, direct the type of proceeds received; (3) no Default
or Event of Default would occur after giving effect, on a pro forma basis, to,
such Asset Sale, and (4) with respect to any Asset Sale or series of related
Asset Sales, the Net Cash Proceeds of which exceed $500,000, the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives Fair Market Value for such Asset Sale. The
Indenture will provide that an Asset Sale Offer may be deferred until the
accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth
in clause (l)(a) above exceeds $10 million and that each Asset Sale Offer shall
remain open for not less than 20 Business Days following its commencement (the
"Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Company shall apply the Asset Sale Offer Amount plus an amount equal to accrued
interest to the purchase of all Notes properly tendered (on a pro rata basis if
the Asset Sale Offer Amount is insufficient to purchase all Notes so tendered)
at the Asset Sale Offer Price (together with accrued interest). To the extent
Holders of Notes do not tender Notes in connection with any such Asset Sale
Offer, the remaining Net Cash Proceeds may be applied in any manner not
prohibited by the Indenture.
Notwithstanding the foregoing provisions of the prior paragraph, the
following transactions shall not be deemed Asset Sales:
(i) the Company and the Subsidiary Guarantors may in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of property in the ordinary course of business;
(ii) the Company and the Subsidiary Guarantors may (x) convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the limitation on mergers, sales or consolidations
provisions in the Indenture, (y) make Restricted Payments permitted by the
Restricted Payment covenant in the Indenture and (z) engage in Exempted
Affiliate Transactions;
(iii) the Company and the Subsidiary Guarantors may convey, sell,
lease, transfer, assign or otherwise dispose of assets or issue Capital
Stock to the Company or any of the Subsidiary Guarantors;
(iv) the Company and the Subsidiary Guarantors may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary Guarantor, as
applicable;
(v) the Company and the Subsidiary Guarantors may exchange assets held
by the Company or a Subsidiary Guarantor for assets held by any person or
entity; provided, that the assets received in such exchange in the good
faith reasonable judgment of the Board will immediately constitute, be a
part of, or be used in, a Related Business; provided, further, that the
Board has determined that the terms of any exchange are fair and
reasonable;
(vi) the Company and the Subsidiary Guarantors may enter into Sale and
Leaseback Transactions with respect to property acquired or completed after
the Issue Date;
(vii) the Company and the Subsidiary Guarantors may liquidate Cash
Equivalents in the ordinary course of business;
(viii) the Company and the Subsidiary Guarantors may create or assume
Liens (or permit any foreclosure thereon) securing Indebtedness to the
extent that such Lien does not violate the "-- Liens" covenant above; and
(ix) the Subsidiary Guarantors may consummate any sale or series of
related sales of assets or properties of the Company and the Subsidiary
Guarantors having an aggregate Fair Market Value of less than $2 million in
any fiscal year.
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Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws, and any provisions of the Indenture which conflict
with such laws shall be deemed to be superseded by the provisions of such laws.
The New Credit Facility prohibits, and any agreements governing Senior
Indebtedness incurred after the Closing Date may prohibit or restrict, the
purchase of Notes in response to an Asset Sale Offer unless all such Senior
Indebtedness has been paid in full.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of the Subsidiary
Guarantors will be permitted after May 7, 1996 to enter into any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions (other than
Exempted Affiliate Transactions), unless the terms of such Affiliate Transaction
are fair and reasonable to the Company or such Subsidiary, as the case may be,
and are at least as favorable as the terms which could reasonably be expected to
be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis with persons who are not
Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1 million, the Company must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company, and no less favorable to the Company than could reasonably be
expected to have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of $5
million, the Company must also, prior to the consummation thereof, obtain a
written favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation, provided, that this sentence shall not apply to the sale of
the products of the Company or its Subsidiaries to any Affiliate of LGP or any
Related Party thereof, which sale is in the ordinary course of business and in
accordance with industry practice.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons or adopt a Plan of Liquidation,
unless (i) either (a) the Company is the continuing entity or (b) the resulting,
surviving or transferee entity or, in the case of a Plan of Liquidation, the
entity which receives the greatest value from such Plan of Liquidation, is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and the Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity or, in the case of a
Plan of Liquidation, the entity which receives the greatest value from such Plan
of Liquidation, is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the consolidated resulting, surviving
or transferee entity or, in the case of a Plan of Liquidation, the entity which
receives the greatest value from such Plan of Liquidation, would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a Plan of Liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a
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Plan of Liquidation, the entity which receives the greatest value from such Plan
of Liquidation, shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture with the same effect as if
such successor corporation had been named therein as the Company, and the
Company shall be released from all obligations under the Notes and the
Indenture.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not sell, and the Subsidiary
Guarantors will not issue or sell, any shares of Capital Stock (other than
directors qualifying shares) of any Subsidiary of the Company to any person
other than the Company or a wholly owned Subsidiary of the Company, except for
shares of common stock with no preferences or special rights or privileges and
with no redemption or prepayment provisions. Notwithstanding the foregoing, (a)
the Company and the Subsidiary Guarantors may consummate an Asset Sale of all of
the Capital Stock owned by the Company and the Subsidiary Guarantors of any
Subsidiary and (b) the Company or any Subsidiary Guarantor may pledge,
hypothecate or otherwise grant a Lien on any Capital Stock of any Subsidiary to
the extent not prohibited under the "-- Liens" covenant.
Future Subsidiary Guarantors
The Indenture provides that all present and future Subsidiaries of the
Company jointly and severally will guaranty irrevocably and unconditionally all
principal, premium, if any, and interest on the Notes on a senior subordinated
basis. The term Subsidiary does not include Unrestricted Subsidiaries.
Release of Guarantors
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor (or all or substantially all of the
assets of any such Subsidiary Guarantor or 50% or more of the Capital Stock of
any such Subsidiary Guarantor) to an entity which is not a Subsidiary of the
Company, which transaction is otherwise in compliance with the Indenture, such
Subsidiary Guarantor shall be deemed released from all its obligations under its
guarantee of the Notes; provided, however, that any such termination shall occur
only to the extent that all obligations of such Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, any Indebtedness of the Company shall also terminate
upon such release, sale or transfer. Upon the release of any Subsidiary
Guarantor from its Guarantee pursuant to the provisions of the Indenture, each
other Subsidiary Guarantor not so released shall remain liable for the full
amount of principal of, and interest on, the Notes as and to the extent provided
in the Indenture.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended).
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder and to
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prospective holders of New Notes identified to the Company by an Initial
Purchaser, within 15 days after it is or would have been required to file such
with the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the Commission, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required. In addition,
from and after the effectiveness of the Exchange Offer Registration Statement or
the Shelf Registration Statement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure to pay any
installment of interest on the Notes as and when the same becomes due and
payable and the continuance of any such failure for 30 days, (ii) the failure to
pay all or any part of the principal, or premium, if any, on the Notes when and
as the same becomes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise, (iii) the failure by
the Company or any Subsidiary Guarantor to observe or perform any other covenant
or agreement on the part of the Company or any Subsidiary Guarantor contained in
the Notes or the Indenture and, subject to certain exceptions, the continuance
of such failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding,
specifying such Default and requiring that it be remedied, (iv) certain events
of bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries, (v) a default in any Indebtedness of the Company
or any of its Subsidiaries with an aggregate principal amount in excess of $10
million (a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity, and (vi) final unsatisfied judgments not covered by
insurance aggregating in excess of $10 million, at any one time rendered against
the Company or any of its Subsidiaries and not stayed, bonded or discharged
within 60 days. The Indenture provides that if an Event of Default occurs and is
continuing, generally the Trustee must, within 90 days after the occurrence of
such default, give to the Holders notice of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any
Significant Subsidiary) then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest thereon
to be due and payable immediately, provided such acceleration shall not be
effective until five (5) Business Days after the Senior Bank Representative
shall have been notified of such acceleration. If an Event of Default specified
in clause (iv), above, relating to the Company or any Significant Subsidiary
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the Holders. The Holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default (other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by such
acceleration) have been cured or waived, except a default with respect to any
provision requiring supermajority approval to amend, which default may only be
waived by such supermajority.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all of the Holders any default, except a
default with respect to any provision requiring supermajority approval to amend,
which default may only be waived by such supermajority, except a default in the
payment of principal of, premium
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on, or interest on any Note not yet cured, and except a default with respect to
any covenant or provision which cannot be modified or amended without the
consent of the Holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time
elect to have its obligations and the obligations of the Guarantors discharged
with respect to the outstanding Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by, and the Indenture shall cease to be of
further effect as to, all outstanding Notes and Guarantees, except as to (i)
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
funds described below; (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust; (iii) the rights, powers, trust,
duties, and immunities of the Trustee, and the Company's and the Guarantor's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors released with
respect to certain covenants that are set forth in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Notes, and the
Holders of Notes must have a valid, perfected, exclusive security interest in
such trust; (ii) in the case of Legal Defeasance before the date that is one
year prior to the Stated Maturity, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance before the date that is one
year prior to the Stated Maturity, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to such
Trustee confirming that the Holders of such Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or, insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is
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bound; (vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of such Notes over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and (vii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that the conditions precedent provided for in, in the case of the Officers'
Certificate, clauses (i) through (vi) and, in the case of the opinion of
counsel, clauses (i), (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with. Upon Legal Defeasance as provided in the Indenture, the Guarantee of each
Guarantor shall be fully released and discharged and the Trustee shall promptly
execute and deliver to the Company any documents reasonably requested by the
Company to evidence or effect the foregoing.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, the Guarantors and the Trustee are permitted to amend
or supplement the Indenture or any supplemental indenture or modify the rights
of the Holders; except that any amendments or supplements to the provisions
relating to the "Repurchase of Notes at the Option of the Holder Upon a Change
of Control" covenant in a manner adverse to the Holders shall require the
consent of not less than 66 2/3% of the aggregate principal amount of Notes at
the time outstanding; provided, further, that no such modification may, without
the consent of each Holder affected thereby: (i) change the Stated Maturity on
any Note, or reduce the principal amount thereof or the rate (or extend the time
for payment) of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in which,
any Note or any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or reduce the Change of Control Purchase Price or Asset Sale Offer Price
or alter the redemption provisions of the Indenture in a manner adverse to the
Holders, (ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture, (iii) modify any
of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby, or (iv) make the Notes further subordinated in right of payment to any
extent or under any circumstances to any other Indebtedness (it being understood
that amendments to the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" which may have the effect of
increasing the amount of Senior Indebtedness that the Company and the Subsidiary
Guarantors may Incur shall not, for purposes of this clause (iv), be deemed to
make the Notes further subordinated in right of payment to any extent or under
any circumstances to any other Indebtedness).
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of the Company or the Guarantors under the Indenture or the
New Notes by reason of his or its status as such stockholder, employee, officer
or director.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company
or is merged or consolidated into or with the Company or one of its
Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, stock purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
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"Affiliate" means any person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, a Beneficial Owner of 10% or more of the total
voting power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a) the
product of the number of years from the date of determination to the date or
dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on May 7, 1996), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash Equivalent" means for all purposes of the Indenture other than the
provisions thereof described under the caption "Subordination" above, (a)
securities issued or directly and fully guaranteed or insured by the United
States Government, or any agency or instrumentality thereof, having maturities
of not more than one year from the date of acquisition: (b) marketable general
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition thereof, having a credit rating of "A" or better from either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c)
certificates of deposit, time deposits, eurodollar time deposits, overnight bank
deposits or bankers' acceptances having maturities of not more than one year
from the date of acquisition thereof of any domestic commercial bank, the
long-term debt of which is rated at the time of acquisition thereof at least A
or the equivalent thereof by Standard & Poor's Ratings Group, or A or the
equivalent thereof by Moody's Investors Service, Inc. and having capital and
surplus in excess of $500,000,000; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(a), (b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's
Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof, and (f) interests in any investment company which invests
solely in instruments of the type specified in clauses (a) through (e) above.
For purposes of the provisions of the Indenture described under the caption
"Subordination" above, "Cash Equivalent" means (a) securities issued or directly
and fully guaranteed or insured by the United States Government, or any agency
or instrumentality thereof, having maturities of not more than 180 days from the
date of acquisition; (b) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within 180 days from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (c) certificates of deposit, time deposits, eurodollar
time deposits, overnight bank deposits or bankers' acceptances having maturities
of not more than 180 days from the date of acquisition thereof of any domestic
commercial bank the long-term debt of which is rated at the time of acquisition
thereof at least A or the
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equivalent thereof by Standard & Poor's Ratings Group, or A or the equivalent
thereof by Moody's Investors Service, Inc. and having capital and surplus in
excess of $500,000,000; (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (a), (b)
and (c) above entered into with any bank meeting the qualifications specified in
clause (c) above; (e) commercial paper rated at the time of acquisition thereof
at least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or P-1
or the equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of investments, and in either
case maturing within 180 days after the date of acquisition thereof; and (f)
interests in any investment company which invests solely in instruments of the
type specified in clauses (a) through (e) above.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) Consolidated income tax
expense, (ii) Consolidated depreciation and amortization expense (including
amortization of debt discount and deferred financing costs in connection with
any Indebtedness of such person and its Subsidiaries), provided that
Consolidated depreciation and amortization of a Subsidiary that is less than
wholly owned shall only be added to the extent of the equity interest of the
Company in such Subsidiary, (iii) Consolidated Interest Expense, (iv) all other
non-cash items and (v) up to $13.6 million of fees and expenses actually
incurred in connection with the Transactions.
"Consolidated Interest Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Interest Expense of such
person (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Interest Expense would no longer be
obligations contributing to such person's Consolidated Interest Expense
subsequent to the Transaction Date) during the Reference Period; provided, that
for purposes of calculating each of Consolidated EBITDA and Consolidated
Interest Expense for this definition, (i) with respect to any Reference Period
commencing prior to May 7, 1996, the Transactions shall be assumed to have
occurred on the first day of such Reference Period, (ii) Acquisitions which
occurred during the Reference Period or subsequent to the Reference Period and
on or prior to the Transaction Date shall be assumed to have occurred on the
first day of the Reference Period, (iii) transactions giving rise to the need to
calculate the Consolidated Interest Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period, (iv) the incurrence of any
Indebtedness or issuance of any Disqualified Capital Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Transaction
Date (and the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness) shall be assumed to have occurred on the
first day of such Reference Period, and (v) the Consolidated Interest Expense of
such person attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate shall
be computed on a pro forma basis as if the average rate in effect from the
beginning of the Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such person or any of its
Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
provide a term including at least the 12-month period immediately following the
Transaction Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.
"Consolidated Interest Expense" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Notes or the New Credit Facility
but including (i) original issue discount and non-cash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred payment
obligations, and (iii) all commissions, discounts
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and other fees and charges owed with respect to bankers' acceptances and letters
of credit financings and currency and Interest Swap and Hedging Obligations, in
each case to the extent attributable to such period and (b) the amount of cash
dividends paid by such person or any of its Consolidated Subsidiaries in respect
of Preferred Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Company to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP, and (y)
interest expense attributable to any Indebtedness represented by the guaranty by
such person or a Subsidiary of such person of an obligation of another person
shall be deemed to be the interest expense attributable to the Indebtedness
guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain or loss from the sale or other disposition of
assets outside the ordinary course of business or from the issuance or sale of
any Capital Stock), (b) the net income, if positive, of any person, other than a
Consolidated Subsidiary but including an Unrestricted Subsidiary, in which such
person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash to
such person or a wholly owned Consolidated Subsidiary of such person during such
period, but in any case not in excess of such person's pro rata share of such
person's net income for such period, (c) the net income or loss of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary, (e) the effects of
changes in accounting principles, (f) any non-cash compensation expense in
connection with the exercise of, grant to or repurchase from officers, directors
and employees of stock, stock options or stock equivalents, (g) any one-time
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the New Credit Facility or the Notes and (h) the
amortization of the consideration for the Non-Competition Agreements entered
into in connection with the Transactions.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
consolidated stockholders' equity), (a) the amount of any such stockholders'
equity attributable to Disqualified Capital Stock or treasury stock of such
person and its Consolidated Subsidiaries and (b) all upward revaluations and
other write-ups in the book value of any asset of such person or a Consolidated
Subsidiary of such person subsequent to May 7, 1996.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the New Credit Facility) entered into by and among the
Company, certain of its subsidiaries, and certain financial institutions, which
provide for in the aggregate one or more term loans and/or revolving credit
facilities, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
agreement and/or related documents may be amended, restated, supplemented,
renewed, replaced or otherwise modified from time to time whether or not with
the same agent, trustee, representative lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any changes in the
terms and conditions thereof. Without limiting the generality of the foregoing,
the term "Credit Agreement" shall include any amendment, amendment and
restatement, renewal, extension, restructuring, supplement or modification to
any such credit agreement and all refundings, refinancings and replacements of
any such credit agreement, including any agreement (i) extending the
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maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as borrowers and
issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
Incurred thereunder or available to be borrowed thereunder, provided that on the
date such Indebtedness is Incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (iv) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms hereof.
"Disqualified Capital Stock" means (a) except as set forth in clause (b) of
this paragraph, with respect to any person, Capital Stock of such person that,
by its terms or by the terms of any security into which it is then convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased (including at
the option of the holder thereof) by such person or any of its Subsidiaries, in
whole or in part, on or prior to the Stated Maturity of the New Notes and (b)
with respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Company), any Capital Stock (i) not held by the Company or a
wholly owned Subsidiary of the Company or (ii) other than any common stock with
no preference, privileges, or redemption or repayment provisions.
"Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act,
the consequence of which is that the common stock of either the Company or TLC
is listed on a national securities exchange or quoted on the national market
system or the SmallCap Market of NASDAQ.
"Excluded Person" means collectively or individually Green Equity Investors
II, L.P., David Blechman, Jean Blechman, Brian Blechman, Dean Blechman, Neil
Blechman, Ross Blechman and Steve Blechman and their respective Related Parties.
"Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the Employment
Agreements and Consulting Agreements, or (y) for or in connection with services
actually rendered and comparable to those generally paid or made available by
entities engaged in the same or similar businesses (including reimbursement or
advancement of reasonable out-of-pocket expenses, loans to officers, directors
and employees in the ordinary course of business consistent with past practice
and directors' and officers' liability insurance), (b) certain transactions,
expenses and payments pursuant to the terms of or contemplated by the
Stockholders Agreement, the Secondary Stockholders Agreement or the Stock
Purchase Agreement, (c) any Restricted Payments or other payments or
transactions expressly permitted under the covenant discussed above under
"Limitation on Restricted Payments," (d) transactions between the Company and
any of its wholly owned Subsidiaries or among wholly owned Subsidiaries of the
Company, (e) payments to LGP for management services under the Management
Services Agreement in an amount not to exceed $1 million in any fiscal year, (f)
payments to LGP for reasonable and customary fees and expenses for financial
advisory and investment banking services provided to the Company in connection
with major financial transactions; provided, however, that to the extent that
any such Affiliate Transaction referred to in clause (f) involves payments in
excess of $2.5 million, such Affiliate Transaction must be evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
addressed and delivered to the Trustee certifying that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors, and (g) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company or TLC other than by virtue of
the direct or indirect ownership interest in such Subsidiary held (in the
aggregate) by the Company and/or one or more of its Subsidiaries.
"Existing Indebtedness" means Indebtedness of the Company or a Subsidiary
Guarantor in existence on May 7, 1996.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
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statements by such other entity as approved by a significant segment of the
accounting profession, as in effect on May 7, 1996.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced
by a letter of credit or a reimbursement obligation of such person with respect
to any letter of credit; (b) all net obligations of such person under Interest
Swap and Hedging Obligations; (c) all liabilities and obligations of others of
the kind described in the preceding clause (a) or (b) that such person has
guaranteed or which are secured by a Lien on any assets or property of such
person and all obligations to purchase, redeem or acquire any Capital Stock
which are related to a payment obligation in respect of such Indebtedness;
provided that if the liabilities or obligations which are secured by a Lien have
not been assumed in full by such person or are not such person's legal liability
in full, the amount of such Indebtedness for the purposes of this definition
shall be limited to the lesser of the amount of such Indebtedness secured by
such Lien or the Fair Market Value of the assets or property securing such Lien;
and (d) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties.
"Interest Swap and Hedging Obligation" means any monetary obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
Capital Stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable or deposits arising in the
ordinary course of business); (c) other than guarantees of Indebtedness of the
Company or any Subsidiary Guarantor to the extent permitted by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," the entering into by such person of any guarantee of, or other credit
support or contingent obligation with respect to, Indebtedness or other
liability of such other person; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. The
Company shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any Subsidiary (or, if neither the Company nor
any of its Subsidiaries has theretofore made an Investment in such Subsidiary,
in an amount equal to the Investments being made), at the time that such
Subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary shall
be deemed an Investment valued at its fair market value at the time of such
transfer. The amount of any such Investment shall be reduced by any liabilities
or obligations of the Company or any of its Subsidiaries to be assumed or
discharged in connection with such Investment by an entity other than the
Company or any of its Subsidiaries.
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"Junior Security" means, so long as the effect of any exclusion employing
this definition is not to cause the Notes to be treated in any bankruptcy case
or proceeding or similar event as part of the same class of claims as Senior
Debt or any class of claims pari passu with, or senior to, the Senior Debt, for
any payment or distribution, debt or equity securities of the Company or any
successor corporation provided for by a plan of reorganization or readjustment
that are subordinated at least to the same extent that the Notes are
subordinated to the payment of all Senior Debt then outstanding; provided that
(a) if a new corporation results from such reorganization or readjustment, such
corporation assumes any Senior Debt not paid in full in cash or Cash Equivalents
in connection with such reorganization or readjustment and (b) the rights of the
holders of such Senior Debt are not, without the consent of such holders,
altered by such reorganization or readjustment.
"LGP" means Leonard Green & Partners, L.P.
"Management Services Agreement" means the management services agreement,
dated as of the May 7, 1996, between the Company and LGP substantially as in
effect on May 7, 1996.
"Net Cash Proceeds" means the aggregate amount of Cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash after the Issue
Date, the amount of cash originally received by the Company upon the issuance of
such securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary) expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less (i) the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any of its respective Subsidiaries in connection with such Asset
Sale, (ii) the amounts of any repayments of Indebtedness secured, directly or
indirectly, by Liens on the assets which are the subject of such Asset Sale or
Indebtedness associated with such assets which is due by reason of such Asset
Sale (i.e., such disposition is permitted by the terms of the instruments
evidencing or applicable to such Indebtedness, or by the terms of a consent
granted thereunder, on the condition that the proceeds (or portion thereof) of
such disposition be applied to such Indebtedness), and other fees, expenses and
other expenditures, in each case, reasonably incurred as a consequence of such
repayment of Indebtedness (whether or not such fees, expenses or expenditures
are then due and payable or made, as the case may be); (iii) all amounts deemed
appropriate by the Company (as evidenced by a signed certificate of the Chief
Financial Officer of the Company delivered to the Trustee) to be provided as a
reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities
associated with such assets which are the subject of such Asset Sale; and (iv)
with respect to Asset Sales by Subsidiaries of the Company, the portion of such
cash payments attributable to Persons holding a minority interest in such
Subsidiary.
"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, or purchase price due by the Company or any Guarantor under
the terms of the New Notes or the Indenture, including any liquidated damages
due pursuant to the terms of the Registration Rights Agreement.
"Permitted Indebtedness" means, without duplication (a) Indebtedness
evidenced by the Notes and represented by the Indenture, (b) Indebtedness of the
Company and the Subsidiary Guarantors (without duplication) Incurred from time
to time under or in respect to the Credit Agreement up to an aggregate amount
outstanding at any time in an aggregate principal amount up to $88 million,
minus the amount of any such Indebtedness permanently reduced with Net Cash
Proceeds from any Asset Sale or assumed by a transferee in an Asset Sale; (c)
Indebtedness incurred by the Company or any Subsidiary Guarantor from time to
time in an aggregate principal amount outstanding at any time of up to $10
million (which may be Incurred pursuant to the Credit Agreement); (d)
Indebtedness incurred by the Company to any Subsidiary Guarantor, and
Indebtedness incurred by any Subsidiary Guarantor to any other Subsidiary
Guarantor or Subsidiary Guarantors or to the Company; provided, that, in the
case of Indebtedness of the Company, such
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obligations shall be unsecured and subordinated in right of payment to the
Company's obligations pursuant to the Notes; (e) Purchase Money Indebtedness
Incurred by the Company or any Subsidiary Guarantor, in an aggregate principal
amount not to exceed $20 million at any time outstanding from time to time; (f)
Indebtedness arising from tender, bid, performance or government contract bonds,
other obligations of like nature, or warranty or contractual service obligations
of like nature, or warranty or contractual service obligations, in any case,
Incurred by the Company or the Subsidiary Guarantors in the ordinary course of
business; (g) Interest Swap and Hedging Obligations that are Incurred for the
purpose of fixing or hedging interest rate or currency risk with respect to any
fixed or floating rate Indebtedness that is permitted by the Indenture to be
outstanding or any receivable or liability the payment of which is determined by
reference to a foreign currency; provided, that the notional amount of any such
Interest Swap and Hedging Obligation does not exceed the principal amount of
Indebtedness or the amount of such receivable or liability to which such
Interest Swap and Hedging Obligation relates; and (h) Indebtedness in respect of
bankers' acceptances and letters of credit, all in the ordinary course of
business in an aggregate amount outstanding at any time of up to $2.5 million;
(i) Existing Indebtedness; and (j) Refinancing Indebtedness that serves to
Refinance, without duplication, in whole or in part, the Indebtedness permitted
by this paragraph or any one or more successive Refinancings of any thereof.
"Permitted Lien" means any of the following:
(a) Liens existing on May 7, 1996;
(b) Liens imposed by governmental authorities for taxes, assessments
or other charges not yet subject to penalty or which are being contested in
good faith and by appropriate proceedings, if adequate reserves with
respect thereto are maintained on the books of the Company in accordance
with GAAP;
(c) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided that (i) the underlying obligations
are not overdue for a period of more than 30 days, or (ii) such Liens are
being contested in good faith and by appropriate proceedings and adequate
reserves with respect thereto are maintained on the books of the Company in
accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other
than borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do
not in any case materially detract from the value of the property, subject
thereto (as such property is used by the Company or any of its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(h) Liens securing the Notes;
(i) Liens securing Indebtedness of a person existing at the time such
person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided in each case that such Liens were in existence prior
to the date of such acquisition, merger or consolidation, were not incurred
in anticipation thereof, and do not extend to any other assets;
(j) Liens securing or arising from Purchase Money Indebtedness
permitted to be incurred under clause (e) of the definition of Permitted
Indebtedness, provided such Liens relate to the property (and monetary
proceeds thereof) which was acquired or constructed with such Purchase
Money Indebtedness
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and the Capital Stock of any Person formed to acquire such property and
that does not own any other material property; and
(k) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner not materially more
adverse to the Holders of the Notes than the terms of the Liens securing
such refinanced Indebtedness.
"Permitted Payments" means, without duplication, (a) payments to TLC in an
amount sufficient to permit TLC to pay reasonable and necessary operating
expenses and other general corporate expenses (including any reasonable
professional fees and expenses, but excluding all expenses payable to or to be
paid to or on behalf of an Excluded Person); (b) payments to TLC to enable TLC
to pay foreign, federal, state or local tax liabilities, not to exceed the
amount of any tax liabilities that would be otherwise payable by the Company and
its Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing
authorities if they filed separate tax returns to the extent that TLC has an
obligation to pay such tax liabilities relating to the operations, assets or
capital of the Company or its Subsidiaries and Unrestricted Subsidiaries,
provided any such payment shall either be used by TLC to pay such tax
liabilities within 90 days of TLC's receipt of such payment or refunded to the
payee; (c) payments to TLC to enable TLC to pay, or the payment by the Company
directly of, the payments provided for by clauses (a), (e) and (f) and the
transactions, expenses and payments described in clause (b) of the definition of
"Exempted Affiliated Transaction"); and (d) cash dividends paid to TLC to the
extent necessary to permit TLC to repurchase common stock, stock options and
stock equivalents of TLC held by departing or deceased directors, officers or
employees of TLC, the Company or any of the Subsidiary Guarantors, in an
aggregate amount not to exceed in any fiscal year $1,000,000 plus (x) the
cumulative amount by which (1) the product of $1,000,000 times the number of
preceding fiscal years subsequent to May 7, 1996 exceeds (2) the amount of such
payments made during such fiscal years, plus (y) the aggregate cash
consideration received by TLC, after May 7, 1996 and prior to or substantially
concurrently with the date of such repurchase, from the sale or issuance of
common stock of TLC to directors, officers and employees of TLC, the Company and
the Subsidiary Guarantors (including, to the extent not otherwise included in
the amount of such cash consideration, cash repayments of principal received by
TLC on loans made to such persons to enable them to purchase such stock) to the
extent such cash consideration was contributed, or is substantially concurrently
with such dividend contributed, to the Company as a capital contribution
(provided that the net amount of cash dividends paid under this clause (d) shall
not exceed $7.5 million).
"Purchase Money Indebtedness" means any Indebtedness of such person to any
seller or other person incurred to finance the acquisition or construction
(including in the case of a Capitalized Lease Obligation, the lease) of any
business or real or personal tangible property (or, in each case, any interest
therein) acquired or constructed after May 7, 1996 which, in the reasonable good
faith judgment of the Board of Directors of the Company, is related to a Related
Business of the Company and which is incurred concurrently with, or within 180
days of, such acquisition or the completion of such construction and, if
secured, is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
with the Net Cash Proceeds received by the Company from the substantially
concurrent sale of Qualified Capital Stock or a substantially concurrent capital
contribution to the Company, or any exchange of Qualified Capital Stock for any
Capital Stock or Indebtedness of the Company.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the New Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem,
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defease, refund, refinance, discharge or otherwise retire for value, in whole or
in part, or (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"),
any Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the principal
amount of the Indebtedness so refinanced (or if such Indebtedness provides for
an amount less than the principal amount thereof to be due and payable upon the
acceleration thereof, such lesser amount as of the date of the issuance of such
Refinancing Indebtedness) or, in the case of Disqualified Capital Stock, the
liquidation preference of the Disqualified Capital Stock so refinanced, plus, in
the case of the Credit Agreement, additional Indebtedness which on the date of
Incurrence is permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"; provided, that other than with
respect to a Refinancing of Indebtedness under the Credit Agreement, (A) such
Refinancing Indebtedness of any Subsidiary of the Company shall only be used to
refinance outstanding Indebtedness or Disqualified Capital Stock of such
Subsidiary, (B) Refinancing Indebtedness shall (x) not have an Average Life
shorter than the Indebtedness or Disqualified Capital Stock to be so refinanced
at the time of such Refinancing and (y) in all respects, be no less subordinated
or junior, if applicable, to the rights of Holders of the New Notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced and (C) such
Refinancing Indebtedness shall have no installment of principal (or redemption
payment) scheduled to come due earlier than the scheduled maturity of any
installment of principal of the Indebtedness or Disqualified Capital Stock to be
so refinanced which was scheduled to come due prior to the Stated Maturity.
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to in and being contemplated by the
Company, as described or referred to in this Prospectus) by the Company and its
Subsidiaries as of May 7, 1996 and any and all businesses that in the good faith
judgment of the Board of Directors of the Company are reasonably related
businesses, including reasonably related extensions thereof and including,
without limitation, any business related to the manufacturing or marketing of
products sold through health food stores.
"Related Party" means (i) with respect to any Excluded Person, (A) any
controlling stockholder, 80% or more owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Excluded Person or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Excluded Person and/or such other
persons referred to in the immediately preceding clause (A), and (ii) only with
respect to Green Equity Investors II, L.P. (and in addition to the persons
described in the foregoing clause (i)) any partnership or corporation which is
managed by or controlled by LGP or any affiliate thereof. For the purposes of
this definition, "control" of any individual, corporation, partnership, trust,
unincorporated organization or a government or any agency or political
subdivision thereof (a "Person"), shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in (a) Cash Equivalents, (b) the Company
or a Subsidiary Guarantor, (c) Investments in or acquisitions of Capital Stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities, including any option or warrant of or in any Person that is or
becomes, at the time of the acquisition thereof, a Subsidiary of the Company and
is or is to be primarily engaged in a Related Business; (d) Investments of such
Person existing as of the date of the Indenture and any extension, modification
or renewal of such Restricted Investment (but not increases thereof, other than
as a result of the accrual or accretion of interest or original issue discount
pursuant to the terms of such Investment), (e) transactions or arrangements with
officers or directors of the Company or any Subsidiary of the Company entered
into in the ordinary course of business (including compensation or employee
benefit arrangements with any officer or director of the Company or any
Subsidiary of the Company permitted under the covenant "Transactions with
Affiliates"); (f) investments in or acquisitions of Capital Stock or similar
interests in Persons (other than Affiliates of the Company) received in the
bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes,
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and, in each case, extensions, modifications and renewals thereof; and (g)
Investments in Persons (other than Affiliates of the Company) received by such
Person as consideration from Asset Sales to the extent not prohibited by
"Limitation on Sale of Assets and Subsidiary Stock" covenant or any exchange of
any such Investment with the issuer thereof, and extensions, modifications and
renewals thereof; provided, however, that a merger of another person with or
into the Company or a Subsidiary Guarantor shall not be deemed to be a
Restricted Investment so long as the surviving entity is the Company or a direct
wholly owned Subsidiary Guarantor.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock of
such person, (b) any payment on account of the purchase, redemption or other
acquisition or retirement for value of Capital Stock of such person or, (c)
other than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Capital Stock of a person to
the extent payable in shares of Qualified Capital Stock of such person; (ii) any
dividend, distribution or other payment to the Company, or to any of its wholly
owned Subsidiary Guarantors, by the Company or any of its Subsidiaries; or (iii)
the declaration or payment of dividends by any Subsidiary of the Company
provided such distributions are made to the Company (or a Subsidiary of the
Company, as applicable) on a pro rata basis (and in like form) to all
distributions so made to all other stockholders thereof.
"Sale and Leaseback Transaction" means any transaction by which the Company
or a Subsidiary Guarantor, directly or indirectly, becomes liable as a lessee or
as a guarantor or other surety with respect to any lease of any property
(whether real or personal or mixed), whether now owned or hereafter acquired
that the Company or any Subsidiary Guarantor has sold or transferred or is to
sell or transfer to any other Person in a substantially concurrent transaction
with such assumption of liability.
"Senior Bank Representative" means, at any time, the then-acting agent or
agents under the Credit Agreement, which shall initially be Chemical Bank.
"Senior Debt" of the Company or any Subsidiary Guarantor means Indebtedness
(including, without limitation, interest accruing after the commencement of any
bankruptcy case or proceedings whether or not allowed as a claim in such case or
proceeding) of the Company or such Guarantor arising under the Credit Agreement
or any Interest Swap and Hedging Obligation relating to such Indebtedness or
that, by the terms of the instrument creating or evidencing such Indebtedness,
is expressly designated Senior Debt and made senior in right of payment to the
New Notes or the applicable guarantee; provided, that in no event shall Senior
Debt include (a) Indebtedness to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness incurred in violation of the terms of the Indenture, (c)
Indebtedness to trade creditors, and (d) Disqualified Capital Stock.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated
pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue
Date.
"Stated Maturity," when used with respect to any New Note, means May 15,
2006.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated by its terms in right of payment to
the New Notes or such Guarantee, as applicable.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances
to elect directors, is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date
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of determination thereof has at least majority equity ownership interest, or
(iii) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner and in which such person, directly or indirectly, at
the date of determination thereof has at least a majority equity ownership
interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be
a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company
for any purpose whatsoever.
"Transactions" means the transactions contemplated by the Stock Purchase
and Sale Agreement, dated as of March 5, 1996, as amended, among TLC, the
Company, Green Equity Investors II, L.P., David Blechman, Jean Blechman, Brian
Blechman, Dean Blechman, Neil Blechman, Ross Blechman, Steve Blechman and
Stephen Welling and the related financings thereof.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or hold any Lien on any property of, the Company or
any other Subsidiary Guarantor and that, at the time of determination, shall be
an Unrestricted Subsidiary (as designated by the Board of Directors of the
Company); provided, that (i) neither immediately prior thereto nor after giving
pro forma effect to such designation would there exist a Default or Event of
Default and (ii) immediately after giving pro forma effect thereto, the Company
could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio
in the second paragraph of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Subsidiary, provided
that (i) no Default or Event of Default is existing or will occur as a
consequence thereof and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio in the second paragraph of
the covenant "Limitation of Incurrence of Additional Indebtedness and
Disqualified Capital Stock." Each such designation shall be evidenced by filing
with the Trustee a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered New Notes in global form (the "Global Notes").
Each Global Note will be deposited on the date of the closing of the sale of the
Notes (the "Closing Date") with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary. Interests in Global Notes will be available for purchase only by
"qualified institutional buyers," as defined in Rule 144A under the Securities
Act ("QIBs").
Notes that are (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not QIBs or to any other persons who are not QIBs or
(ii) issued as described below under "Certificated Securities," will be issued
in registered form without coupons (the "Certificated Securities"). Upon the
transfer to a QIB of Certificated Securities, such Certificated Securities will,
unless the Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of New Notes being transferred.
The Depositary has advised the Company that it is (i) a limited-purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs may elect to hold New
Notes purchased by them through the Depositary. QIBs who are not Participants
may beneficially own securities held by or on behalf of the
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Depositary only through Participants or Indirect Participants. Persons that are
not QIBs may not hold New Notes through the Depositary.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent. The New Notes will be subject to
certain other restrictions on transferability.
So long as the Depositary or its nominee is the registered owner of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interest, to exercise any rights of a holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
New Notes or a QIB that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depositary, as the holder of such Global
Note, is entitled to take, the Depositary would authorize the Participants to
take such action and the Participants would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instructions of
such QIBs. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such New Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depositary or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depositary or its nominee in its capacity
as the registered holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
Certificated Securities
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in definitive form
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under the Indenture, then, upon surrender by the Depositary of its Global Note,
Certificated Securities will be issued to each person that the Depositary
identifies as the beneficial owner of the New Notes represented by the Global
Note. In addition, subject to certain conditions, any person having a beneficial
interest in a Global Note may, upon request to the Trustee, exchange such
beneficial interest for Certificated Securities. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global Note (including principal, premium, if any, interest
and liquidated damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the registered holder of the Global
Note. With respect to Certificated Securities, the Company will make all
payments of principal, premium, if any, interest and liquidated damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. Secondary trading in long-term notes and
debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the New Notes represented by the Global Note are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility, agented by Chemical Bank ("Chemical") and The Bank
of New York, provides for (i) a six-year term loan facility, in the amount of
$53.0 million maturing on May 7, 2002 (the "Term Loan"), and (ii) a six-year
revolving credit facility (the "Revolving Credit Facility") of $15.0 million
expiring on May 7, 2002. The Revolving Credit Facility and the Term Loan bear
interest at an annual rate, at the Company's option, equal to the "ABR plus the
Applicable Margin" ("ABR Loans") or the "Eurodollar Rate plus Applicable Margin"
("Eurodollar Loans"). As used herein "ABR" means the highest of (i) the rate of
interest publicly announced by Chemical as its prime rate in effect at its
principal office in New York City, (ii) the secondary market rate for
certificates of deposit (grossed up for maximum statutory reserve requirements)
plus 1% and (iii) the federal funds effective rate from time to time plus 0.5%.
"Eurodollar Rate" means the rate (grossed up for maximum statutory reserve
requirements for eurocurrency liabilities) at which eurodollar deposits for one,
two, three or six months (as selected by the Company) are offered to Chemical in
the interbank eurodollar market in the approximate amount of Chemical's share of
the applicable loan. "Applicable Margin" means (a) 1.25%, in the case of ABR
Loans and (b) 2.50%, in the case of Eurodollar Loans. Interest rates on the
credit facilities are subject to reduction in the event the Company meets
certain financial tests.
The principal amount of the $53.0 million Term Loan is required to be
amortized commencing on October 31, 1996. Scheduled amortization payments under
the Term Loan will be $1.5 million in 1996, $3.8 million in 1997, $5.6 million
in 1998, $7.8 million in 1999, $10.1 million in 2000, $14.9 million in 2001 and
$9.3 million in 2002.
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The proceeds of the Term Loan were used, together with proceeds of the
Offering and the issuance of the common stock and Preferred Stock of TLC and
available cash of the Company, to finance the Acquisition, to refinance certain
debt of the Company and to pay related fees and expenses. The proceeds of the
Revolving Credit Facility can be used to provide for the working capital
requirements of the Company on or after the consummation of the Acquisition and
for general corporate purposes, including, without limitation, the payment of
transaction fees and tax adjustments.
The New Credit Facility is secured by first priority security interests in
all of the tangible and intangible assets of the Company and its direct and
indirect subsidiaries. In addition, the loans under the New Credit Facility are
guaranteed by TLC, ARP and certain of the Company's future subsidiaries.
Additionally, the Company will be required to apply 75% (subject to reduction to
50% if certain financial tests are met) of excess cash flow (as defined in the
New Credit Facility), 100% of the net proceeds of certain dispositions of
material assets (other than inventory in the ordinary course of business), 50%
of the net proceeds of the issuance or sale of the first $60 million of equity
by TLC and 100% of the net proceeds of the incurrence of certain indebtedness,
to the repayment of the New Credit Facility.
The New Credit Facility contains certain financial and operating covenants
including a maximum leverage ratio, a minimum EBITDA and a minimum fixed charge
coverage ratio. In addition, the Company is limited in the amount of annual
capital expenditures and capital lease obligations it may incur.
The operating covenants of the New Credit Facility include limitations on
the ability of the Company to (i) incur additional indebtedness, other than
certain permitted indebtedness, (ii) permit additional liens or encumbrances,
other than certain permitted liens, (iii) make any investments in other persons,
other than certain permitted investments, (iv) become obligated with respect to
contingent obligations, other than certain permitted contingent obligations, and
(v) make restricted junior payments (including dividends on its common stock).
The operating covenants also include restrictions on certain specified
fundamental changes, such as mergers and asset sales, transactions with
shareholders and affiliates, and business outside the ordinary course as
currently conducted and certain extensions thereof, amendments or waivers of
certain specified agreements, and the issuance of guarantees or other credit
enhancements.
If for any reason the Company is unable to comply with the terms of the New
Credit Facility, including the covenants included therein, such noncompliance
would result in an event of default under the New Credit Facility and could
result in acceleration of the payment of the indebtedness outstanding under the
New Credit Facility.
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DESCRIPTION OF CAPITAL STOCK OF TLC
TLC's Certificate of Incorporation authorizes TLC to issue shares of common
stock ("TLC Common Stock") and shares of the Preferred Stock.
TLC COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, all shares of TLC Common Stock will participate equally in
dividends payable to holders of TLC Common Stock when, as and if declared by
TLC's Board of Directors and in net assets available for distribution to holders
of TLC Common Stock on liquidation or dissolution, will have one vote per share
on all matters submitted to a vote of TLC's stockholders and will not have
cumulative voting rights in the election of directors. All issued and
outstanding shares of TLC Common Stock will be fully paid and nonassessable, and
the holders thereof will not have preemptive rights, except as provided in the
Stockholders Agreement. Following the consummation of the Acquisition, 48% of
the outstanding shares of TLC Common Stock is owned by GEI, 45% is owned by the
Continuing Stockholders and 7% is owned by certain other investors.
PREFERRED STOCK
The Certificate of Incorporation of TLC authorizes the issuance of shares
of Preferred Stock in two series, the Senior Preferred Stock and the Junior
Preferred Stock, and fixes for each such series the designations, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof. In connection with the
consummation of the Acquisition and the Offering, TLC's Board of Directors
authorized the issuance of Senior Preferred Stock and Junior Preferred Stock,
the terms of which are described below.
SENIOR PREFERRED STOCK
The Certificate of Incorporation limits the number of shares of Senior
Preferred Stock which can be issued to 30,000 plus additional shares of Senior
Preferred Stock which may be issued in payment of dividends on the Senior
Preferred Stock if TLC elects to pay dividends in additional shares of Senior
Preferred Stock. The aggregate liquidation preference of the Senior Preferred
Stock issued upon the consummation of the Acquisition was $30.0 million.
Dividends on the Senior Preferred Stock accrue at the rate of 14% per annum and
will be payable quarterly when, as and if declared by the Board of Directors.
Dividends shall be paid in additional fully paid and non-assessable shares of
Senior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends; provided, however, that TLC may, at its option and
upon a majority vote of directors not affiliated with LGP ("Unaffiliated
Directors"), pay dividends in cash.
The Senior Preferred Stock is redeemable at any time, in whole or in part,
at the option of TLC and upon a majority vote of Unaffiliated Directors, at the
amount of the liquidation preference including accrued and unpaid dividends,
except that (i) no partial redemption is allowed unless full cumulative
dividends have been paid on all shares and (ii) no optional redemption is
allowed at any time when TLC is making or required to make an offer to purchase
Preferred Stock upon a change of control. The Senior Preferred Stock will be
subject to mandatory redemption at the amount of the liquidation preference
including accrued and unpaid dividends on May 1, 2007.
In the event of a Change of Control (as defined), TLC will be required to
make an offer to repurchase the outstanding Senior Preferred Stock at a price
equal to 101% of the liquidation preference thereof, plus accrued and unpaid
dividends.
The Senior Preferred Stock ranks junior in right of payment to all
liabilities of TLC and to any preferred stock senior in right of payment to the
Senior Preferred Stock (if consented to by holders of a majority of the shares
of Senior Preferred Stock) and ranks senior in right of payment to the Junior
Preferred Stock and TLC Common Stock.
Holders of the Senior Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate of Incorporation. The Certificate of Incorporation
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provides that the Senior Preferred Stock will have class voting rights with
regard to, among other things, (i) authorization or issuance of stock which is
senior to or on a parity with the Senior Preferred Stock as to dividends and
distributions upon liquidation; (ii) issuance of additional shares of Senior
Preferred Stock other than in payment of dividends on Senior Preferred Stock;
(iii) changes to the Certificate of Incorporation or By-laws of TLC so as to
affect adversely any of the preferences, rights, powers or privileges of the
Senior Preferred Stock or of the holders thereof as such; (iv) mergers,
consolidations or sales of all or substantially all of the assets of TLC (or of
TLC and its subsidiaries, taken as a whole) unless (a) the shares of Senior
Preferred Stock will be redeemed upon consummation of such transaction or (b)
certain other conditions are met; (v) certain transactions with affiliates; and
(vi) subject to certain exceptions (including exceptions relating to the Junior
Preferred Stock), payment of dividends on, or redemption or repurchase of,
junior securities.
JUNIOR PREFERRED STOCK
The Certificate of Incorporation limits the number of shares of Junior
Preferred Stock which can be issued to 37,000, plus additional shares of Junior
Preferred Stock which may be issued in payment of dividends on the Junior
Preferred Stock if TLC elects to pay dividends in additional shares of Junior
Preferred Stock. The aggregate liquidation preference of the Junior Preferred
Stock issued upon the consummation of the Acquisition was $37.0 million.
Dividends on the Junior Preferred Stock accrue at the rate of 11.25% per annum
and will be payable quarterly when, as and if declared by the Board of
Directors. Dividends shall be paid in additional fully paid and non-assessable
shares of Junior Preferred Stock having an aggregate liquidation preference
equal to the amount of such dividends; provided, however, that if dividends are
then being paid in cash on the Senior Preferred Stock, TLC may, at its option
and upon a majority vote of Unaffiliated Directors, pay dividends on the Junior
Preferred Stock in cash.
The Junior Preferred Stock ranks junior in right of payment to all
liabilities of TLC and to the Senior Preferred Stock and any other preferred
stock senior in right of payment to the Junior Preferred Stock (if consented to
by holders of a majority of the shares of Junior Preferred Stock) and ranks
senior in right of payment to any additional preferred stock which does not
expressly provide that it ranks senior to or on a parity with the Junior
Preferred Stock and the TLC Common Stock.
Other than as set forth above with respect to ranking, the powers, rights,
designations and preferences, and qualifications, restrictions and limitations
thereof, of the Junior Preferred Stock are substantially similar to those of the
Senior Preferred Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF AN INVESTMENT IN THE NEW NOTES
The following discussion sets forth a summary of the material anticipated
federal income tax consequences expected to result to holders from the purchase,
ownership and disposition of the New Notes. This summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative
pronouncements, all of which are subject to change, possibly with retroactive
effect.
The following summary is for general information only. The tax treatment of
a holder of the New Notes may vary depending upon such holder's particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH HOLDER OF OLD NOTES SHOULD
CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
PURCHASING, HOLDING, EXCHANGING AND DISPOSING OF THE NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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ORIGINAL ISSUE DISCOUNT AND STATED INTEREST
The New Notes will be issued without original issue discount. Stated
interest on the Old and New Notes will be includable in the holder's income
under such holder's method of accounting.
BOND PREMIUM ON THE NEW NOTES
If a holder purchases the New Notes for an amount in excess of the amount
payable at the maturity date (or a call date, if appropriate) of the New Notes,
the holder may make an election under Section 171 of the Code to deduct such
excess as amortizable bond premium over the term of the New Notes (taking into
account earlier call dates, as appropriate), under a yield-to-maturity formula.
An election under Section 171 is available only if the New Notes are held as
capital assets and is revocable only with the consent of the Internal Revenue
Service (the "Service"). The election applies to all obligations owned or
subsequently acquired by the holder. The holder's adjusted tax basis in the New
Notes will be reduced to the extent of the deduction of amortizable bond
premium. Except as may otherwise be provided in future regulations, under the
Code the amortizable bond premium will be treated as an offset to interest
income on the New Notes rather than as a separate deduction item.
MARKET DISCOUNT ON THE NEW NOTES
Holders of the New Notes should be aware that a disposition of the New
Notes may be affected by the market discount provisions of Sections 1276-1278 of
the Code. These rules generally provide that if a holder acquired the Old Notes
or acquires the New Notes (other than in an original issue, which may not
include the issuance of the New Notes pursuant to the Exchange Offer) at a
market discount which equals or exceeds 1/4 of 1% of the stated redemption price
of the New Notes at maturity multiplied by the number of remaining complete
years to maturity and thereafter recognizes gain upon a disposition (or makes a
gift) of the New Notes, the lesser of (i) such gain (or appreciation, in the
case of a gift) or (ii) the portion of the market discount which accrued while
the Old or New Notes were held by such holder will be treated as ordinary income
at the time of the disposition (or gift). For these purposes, market discount
means the excess (if any) of the stated redemption price at maturity over the
basis of such Old or New Notes immediately after their acquisition by the
holder. A holder of the New Notes may elect to include any market discount
(whether accrued under the Old Notes or the New Notes) in income currently
rather than upon disposition of the New Notes. This election once made applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of the
Service.
A holder of any New Note who acquired the Old or New Note at a market
discount generally will be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry such
Old or New Note until the market discount is recognized upon a subsequent
disposition of such New Note. Such a deferral is not required, however, if the
holder elects to include accrued market discount in income currently.
REDEMPTION OR SALE OF THE NEW NOTES
Generally, any redemption or sale of the New Notes by a holder would result
in taxable gain or loss equal to the difference between the amount of cash and
the fair market value of property received (except to the extent that such cash
or property received is attributable to accrued, but previously untaxed,
interest) and the holder's tax basis in the New Notes. The tax basis of a holder
of the New Notes will generally be equal to the price paid for such New Notes or
the Old Notes exchanged therefor, plus any accrued market discount on the New
Notes (and the Old Notes exchanged therefor) included in the holder's income
prior to sale or redemption of the New Notes, or reduced by any amortizable bond
premium applied against the holder's income prior to sale or redemption of the
New Notes. Such gain or loss generally would be long-term capital gain or loss
if the holding period exceeded one year and the holder holds the New Notes as
capital assets, except to the extent it constitutes accrued market discount.
94
<PAGE> 98
BACKUP WITHHOLDING
A holder of the New Notes may be subject to backup withholding at the rate
of 31% with respect to interest paid or accrued on, and gross proceeds of a sale
of, the New Notes unless (i) such holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. A holder of the
New Notes who does not provide the Company with his or her correct taxpayer
identification number may be subject to penalties imposed by the Service.
The Company will report to the holders of the New Notes and to the Service
the amount of any "reportable payments" and any amount withheld with respect to
the Old Notes and New Notes during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE
OLD NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
95
<PAGE> 99
PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market making or other trading (other than Old Notes
acquired directly from the Company), may exchange Old Notes for New Notes in the
Exchange Offer. However, any such broker-dealer may be deemed to be an
"underwriter" within the meaning of such term under the Securities Act and must,
therefore, acknowledge that it will deliver a prospectus in connection with any
resale of New Notes received in the Exchange Offer. This prospectus delivery
requirement may be satisfied by the delivery by such broker-dealer of this
Prospectus, as it may be amended or supplemented from time to time. The Company
has agreed that, for a period of 180 days after the effective date of this
Prospectus, it will make this Prospectus, as amended or supplemented, available
to any broker-dealer who receives New Notes in the Exchange Offer for use in
connection with any such sale. The Company will not receive any proceeds from
any sales of New Notes by broker-dealers. New Notes received by broker-dealers
for their own accounts pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
of New Notes by broker-dealers may be made directly to a purchaser or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any brokers or dealers and will indemnify
Eligible Holder (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives New
Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior
to using the Prospectus in connection with the sale or transfer of New Notes,
and acknowledges and agrees that, upon receipt of notice from the Company of the
happening of any event which makes any statement in the Prospectus untrue in any
material respect or which requires the making of any changes in the Prospectus
in order to make the statements herein not misleading (which notice the Company
agrees to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to such broker-dealer.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference, the following documents filed
with the Commission under the Exchange Act:
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to termination of the transactions to which this Prospectus
relates, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents incorporated
96
<PAGE> 100
herein by reference, other than exhibits to such documents unless they are
specifically incorporated by reference into such documents. Requests for such
copies should be directed to: Twin Laboratories Inc., 2120 Smithtown Avenue,
Ronkonkoma, New York 11779, Attention: Philip M. Kazin, General Counsel.
LEGAL MATTERS
The validity of the New Notes and the Guarantees offered hereby will be
passed upon for the Company by Kramer, Levin, Naftalis & Frankel, New York, New
York. Kramer, Levin, Naftalis & Frankel will rely on the opinion of Ray, Quinney
& Nebeker, Salt Lake City, Utah, with respect to matters of Utah law.
EXPERTS
The consolidated financial statements of TLC as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995 which
are included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
97
<PAGE> 101
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and
1995 and the Three Months Ended March 31, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1993, 1994 and 1995 and the Three Months Ended March 31, 1996 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995 and the Three Months Ended March 31, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
Note: The consolidated financial statements of TLC include its wholly owned
subsidiary, Twin Laboratories Inc., and its indirect wholly owned subsidiary,
ARP, after giving retroactive effect, in a manner similar to a pooling of
interests, to the Mergers pursuant to the Acquisition. The assets, results of
operations and shareholders' equity of Twin Laboratories Inc. comprises
substantially all of the assets, results of operations and shareholders' equity
of TLC on a consolidated basis. The New Notes are jointly and severally
guaranteed by TLC and ARP on a full and unconditional basis. TLC has no separate
operations and has no significant assets other than TLC's investment in Twin
Laboratories Inc. and, through Twin Laboratories Inc., in ARP. Twin Laboratories
Inc. has no subsidiaries other than ARP; and neither Twin Laboratories Inc. nor
ARP has any stockholder other than, respectively, TLC and Twin Laboratories Inc.
Accordingly, separate financial statements of Twin Laboratories Inc. or ARP are
not included herein.
F-1
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Twinlab Corporation (formerly TLG Laboratories Holding Corp.)
Ronkonkoma, New York
We have audited the accompanying consolidated balance sheets of Twinlab
Corporation (formerly TLG Laboratories Holding Corp.) and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1994 and 1995, and the results of their consolidated operations and
their consolidated cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jericho, New York
February 9, 1996
(May 7, 1996 as to Notes 1 and 16a
and June 4, 1996 as to Note 16b)
F-2
<PAGE> 103
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 7).......................... $ 5,735 $ 7,945 $15,049
Marketable securities (Note 2).............................. 1,178 201 224
Accounts receivable, net of allowance for bad debts of $63,
$177 and $244, respectively (Notes 7 and 15)............. 17,892 24,372 23,669
Inventories (Notes 3 and 7)................................. 22,732 25,273 28,110
Prepaid expenses and other current assets................... 1,179 872 1,479
------- ------- -------
Total current assets................................ 48,716 58,663 68,531
Marketable securities (Note 2)................................ 201 -- --
Property, plant and equipment, net (Notes 4, 8 and 9)......... 12,071 13,036 12,989
Other assets (Note 5)......................................... 3,718 3,610 3,631
------- ------- -------
Total............................................... $64,706 $75,309 $85,151
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8).................. $ 1,101 $ 1,479 $ 1,471
Current portion of capital lease obligations (Note 9)....... 126 136 138
Loan payable -- bank (Note 7)............................... 660 660 660
Notes payable -- shareholders (Note 14)..................... 1,846 846 846
Accounts payable............................................ 3,612 6,854 9,814
Accrued expenses and other current liabilities (Note 6)..... 3,135 4,258 4,208
------- ------- -------
Total current liabilities........................... 10,480 14,233 17,137
Long-term debt, less current portion (Note 8)................. 5,116 5,367 5,290
Capital lease obligations, less current portion (Note 9)...... 439 304 268
------- ------- -------
Total liabilities................................... 16,035 19,904 22,695
------- ------- -------
Commitments and contingencies (Notes 12 and 13)
Shareholders' equity:
Common stock, $1 par value; 1,000,000 shares authorized;
450,000 shares issued and outstanding.................... 450 450 450
Additional paid-in capital.................................. 68 68 68
Retained earnings........................................... 48,153 54,887 61,938
------- ------- -------
Total shareholders' equity.......................... 48,671 55,405 62,456
------- ------- -------
Total............................................... $64,706 $75,309 $85,151
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 104
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------------- -----------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (Note 15)............................ $99,897 $117,342 $148,735 $36,128 $43,984
Cost of sales.................................. 62,131 70,247 89,932 22,158 26,362
------- -------- -------- ------- -------
Gross profit................................... 37,766 47,095 58,803 13,970 17,622
Operating expenses............................. 21,125 23,022 27,191 7,501 7,299
------- -------- -------- ------- -------
Income from operations......................... 16,641 24,073 31,612 6,469 10,323
------- -------- -------- ------- -------
Other (expense) income:
Interest income.............................. 242 254 313 82 167
Interest expense............................. (487) (761) (866) (168) (224)
Transaction expenses (Note 1)................ -- -- (656) -- (400)
Other........................................ 510 354 61 5 (1)
------- -------- -------- ------- -------
265 (153) (1,148) (81) (458)
------- -------- -------- ------- -------
Income before unusual item and provision for
income taxes................................. 16,906 23,920 30,464 6,388 9,865
Unusual item -- nonrecurring charge for prior
years' income tax assessment (Note 13)....... -- 1,982 -- -- --
Provision for income taxes (Note 10)........... 230 245 240 50 86
------- -------- -------- ------- -------
Net income..................................... $16,676 $ 21,693 $ 30,224 $ 6,338 $ 9,779
======= ======== ======== ======= =======
Pro forma (Note 1)
Historical income before provision for income
taxes........................................ $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for income taxes........... 6,644 9,087 12,060 2,529 3,906
------- -------- -------- ------- -------
Pro forma net income........................... $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 105
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- --------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............................. $442 $ 1 $ 32,737 $ 33,180
Issuance of capital stock -- B. Bros................... 8 67 -- 75
Net income............................................. -- -- 16,676 16,676
Distributions to shareholders.......................... -- -- (9,388) (9,388)
---- --- -------- --------
Balance at December 31, 1993........................... 450 68 40,025 40,543
Net income............................................. -- -- 21,693 21,693
Distributions to shareholders.......................... -- -- (13,565) (13,565)
---- --- -------- --------
Balance at December 31, 1994........................... 450 68 48,153 48,671
Net income............................................. -- -- 30,224 30,224
Distributions to shareholders.......................... -- -- (23,490) (23,490)
---- --- -------- --------
Balance at December 31, 1995........................... 450 68 54,887 55,405
Net income (unaudited)................................. -- -- 9,779 9,779
Distributions to shareholders (unaudited).............. -- -- (2,728) (2,728)
----- --- -------- --------
Balance at March 31, 1996 (unaudited).................. $450 $ 68 $ 61,938 $ 62,456
==== ==== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 106
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $16,676 $21,693 $30,224 $ 6,338 $ 9,779
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 805 950 1,011 215 302
Gain on sale of equipment................... (35) (153) (58) -- --
Bad debt expense............................ -- (59) 169 (2) 144
Other....................................... 8 1 -- -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (3,817) (5,880) (6,649) 2,680 559
Inventories............................... (4,381) (3,717) (2,541) (2,751) (2,837)
Prepaid expenses and other current
assets................................. (547) 295 307 (364) (607)
Accounts payable.......................... 2,354 (752) 3,242 2,587 2,960
Accrued expenses and other current
liabilities............................ (471) 494 1,123 887 (50)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 10,592 12,872 26,828 9,590 10,250
------- ------- ------- ------- -------
Cash flows from investing activities:
Maturities of marketable securities............ 1,163 1,120 1,178 345 --
Purchases of marketable securities............. (1,767) -- -- -- (23)
Proceeds from sales of property, plant and
equipment................................... 1,358 435 825 -- --
Acquisition of property, plant and equipment... (4,904) (1,786) (2,641) (489) (224)
Decrease (increase) in other assets............ (283) (519) 6 69 (52)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (4,433) (750) (632) (75) (299)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of debt................. 2,758 6,073 4,685 -- --
Distributions to shareholders.................. (9,388) (13,565) (23,490) (7,194) (2,728)
Payments of debt............................... (785) (5,389) (5,056) (572) (85)
Issuance of capital stock -- B. Bros........... 75 -- -- -- --
Principal payments of capital lease
obligations................................. -- (121) (125) (41) (34)
------- ------- ------- ------- -------
Net cash used in financing
activities........................... (7,340) (13,002) (23,986) (7,807) (2,847)
------- ------- ------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (1,181) (880) 2,210 1,708 7,104
Cash and cash equivalents at beginning of
period......................................... 7,796 6,615 5,735 5,735 7,945
------- ------- ------- ------- -------
Cash and cash equivalents at end of period....... $ 6,615 $ 5,735 $ 7,945 $ 7,443 $15,049
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the periods for:
Interest.................................... $ 466 $ 780 $ 853 $ 190 $ 224
======= ======= ======= ======= =======
Income taxes................................ $ 248 $ 267 $ 216 $ 61 $ 80
======= ======= ======= ======= =======
Supplemental disclosure of non-cash investing
activities -- Assets acquired under capital
lease obligations.............................. $ -- $ 686 $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 107
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF DOLLARS)
1. DESCRIPTION OF ENTITY AND BASIS OF PRESENTATION
Prior to May 7, 1996, Twin Laboratories Inc. ("Twin") and its affiliates,
Twinlab Export Corp. ("Export"), Twinlab Specialty Corporation ("Specialty"),
Alvita Products, Inc. ("Alvita"), Natur-Pharma, Inc. ("Natur-Pharma"), B. Bros.
Realty Corporation ("B Bros.") and Advanced Research Press, Inc. ("ARP")
(collectively the "Companies") operated as separate corporations, all of which
were wholly-owned by the same individuals (with some companies having different
ownership percentages among such individuals) except for Natur-Pharma and B.
Bros. which were only ninety-seven percent owned by such individuals.
In July 1995, the shareholders of the Companies signed a non-binding letter
of intent to sell an interest in the Companies and subsequently entered into a
stock purchase and sale agreement (the "Acquisition Agreement") (see Note 16).
In connection with the transactions contemplated by the Acquisition Agreement,
the Companies incurred $656 of professional expenses as of December 31, 1995
(the "Transaction Expenses").
On February 27, 1996, Twinlab Corporation (formerly TLG Laboratories
Holding Corp. ("TLC")) was incorporated in contemplation of the Acquisition
Agreement. The accompanying consolidated financial statements include the
accounts of TLG and subsidiaries (the "Company") after giving retroactive
effect, in a manner similar to a pooling of interests, to the merger of the
Companies pursuant to the Acquisition Agreement.
The Company's product line includes vitamins, minerals, amino acids, fish
and marine oils, sports nutrition products and special formulas marketed under
the TWINLAB trademark and a full line of herbal supplements and phytonutrients
and herb teas marketed under the Nature's Herbs and Alvita trademarks,
respectively. The Company sells its products through a network of approximately
60 distributors, who service approximately 11,000 health food stores and other
selected retail outlets.
Twin manufactures and markets complete lines in two product categories:
vitamins, minerals and amino acids; and sports nutrition, consisting of a total
of over 400 products.
Export sells Twin's products outside the United States. Specialty markets
innovative and special nutritional supplements, some in unique dosage form.
Alvita Products, Inc., under the brand Alvita, markets over 100 natural single
herb teas and blends in both teabag and bulk form. Natur-Pharma manufactures and
markets approximately 400 herbal and botanical supplements under the Nature's
Herbs brand. Natur-Pharma operates a manufacturing facility registered with the
Food and Drug Administration (FDA).
B. Bros. was incorporated for the purpose of constructing a building to
serve as Natur-Pharma's new office, warehouse and production facility.
ARP is a publisher of sports nutrition books and a body building and
fitness magazine entitled "Muscular Development, Fitness & Health."
The Companies had been S Corporations, pursuant to the Internal Revenue
Code, during the years ended December 31, 1993, 1994 and 1995. Upon completion
of the Acquisition Agreement, the Companies terminated their S Corporation
status. The pro forma income statement information reflects adjustments to the
historical net income had the Companies not elected S Corporation status for
income tax purposes for all periods presented.
F-7
<PAGE> 108
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of combination -- All material intercompany accounts and
transactions have been eliminated.
b. Cash equivalents -- Investments with original maturities of three months
or less are considered cash equivalents and consist primarily of money market
funds.
c. Marketable securities -- The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" during the year ended December 31, 1994, which
requires changes in the accounting and reporting of investments in debt and
equity securities. The effect of adopting SFAS No. 115 on the Company's
consolidated financial statements was not material.
The marketable securities portfolio primarily consists of investments in
tax-exempt municipal bonds. Marketable securities are stated at amortized cost
as the Company has the intent and ability to hold these securities to maturity.
The aggregate fair value of the current marketable securities as of December 31,
1994 and 1995 was $1,170 and $201, respectively. The aggregate fair value of the
noncurrent marketable securities was $196 as of December 31, 1994.
d. Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
e. Property, plant and equipment -- Depreciation is computed using the
straight-line method based upon the estimated useful lives of the related assets
which range from three to forty years. Amortization of leasehold improvements is
computed by the straight-line method over the shorter of the estimated useful
lives of the related assets or lease term.
f. Intangible assets -- Trademarks are being amortized on the straight-line
method over their expected lives, not to exceed forty years. Goodwill, which
represents the excess of purchase price over fair value of net assets acquired,
is being amortized on the straight-line method over forty years. Covenants not
to compete are being amortized on the straight-line method over five years.
g. Income taxes -- In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", which required significant changes in accounting
for income taxes, including an asset and liability approach to income taxes. The
Company adopted SFAS No. 109 in the year ended December 31, 1993. There was no
cumulative effect to the consolidated financial statements as a result of the
change in accounting, nor did SFAS No. 109 have a material effect on the amount
of income taxes provided in the year ended December 31, 1993.
h. Research and development expenses -- The Company charges research and
development expenses to operations as incurred. Research and development
expenses were $861, $1,030 and $1,140 for the years ended December 31, 1993,
1994 and 1995, respectively.
i. Fair value of financial instruments -- The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
1) Cash and cash equivalents -- The carrying amounts approximate fair
value because of the short maturity of these instruments.
2) Marketable securities -- Fair value approximates quoted market
value.
3) Receivables -- The carrying amount approximates fair value because
of the short maturity of these instruments.
4) Debt -- The carrying amounts approximate fair value based on
borrowing rates currently available to the Company for bank loans with
similar terms.
F-8
<PAGE> 109
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
j. Use of estimates in the preparation of financial statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
k. Unaudited interim financial statements -- In the opinion of management,
the unaudited consolidated financial statements for the three months ended March
31, 1995 and 1996 are presented on a basis consistent with the audited
consolidated financial statements and reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
results thereof. The results of operation for interim periods are not
necessarily indicative of the results to be expected for the entire year.
l. Reclassifications -- Certain prior year balances have been reclassified
to conform with current year classifications.
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Inventories consist of the following:
Raw materials........................................... $10,183 $11,006 $12,062
Work in process......................................... 4,720 4,550 6,433
Finished goods.......................................... 7,829 9,717 9,615
------- ------- ---------
Total........................................... $22,732 $25,273 $28,110
======= ======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Land, building and leasehold improvements........................ $10,039 $11,204
Plant equipment.................................................. 5,883 6,097
Office equipment................................................. 1,776 1,942
Automobiles...................................................... 70 56
------- -------
17,768 19,299
Less: accumulated depreciation and amortization.................. 5,697 6,263
------- -------
Property, plant and equipment -- net........................... $12,071 $13,036
------- -------
Depreciation and amortization expense.......................... $ 851 $ 909
======= =======
</TABLE>
F-9
<PAGE> 110
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Due from related trust(a).......................................... $1,640 $1,786
Trademarks, net of accumulated amortization of $128 and $157,
respectively..................................................... 948 1,063
Goodwill, net of accumulated amortization of $96 and $114,
respectively..................................................... 607 590
Other.............................................................. 523 171
------ ------
Total.................................................... $3,718 $3,610
====== ======
</TABLE>
- ---------------
(a) The Company has advanced, to a related party trust, payments for premiums
on a split dollar life insurance policy on the lives of the principal
shareholders. The amounts advanced will be repaid from the benefits or cash
value of the policy and are collateralized by the cash surrender value of
the policy. The principal shareholders are covered by a "second to die"
policy in the face amount of $10,000.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Accrued salaries, employee benefits and payroll taxes.............. $ 839 $ 935
Deferred revenue................................................... 689 787
Accrued professional fees.......................................... 134 700
Other.............................................................. 1,473 1,836
------ ------
Total.................................................... $3,135 $4,258
====== ======
</TABLE>
7. LOAN PAYABLE -- BANK
Natur-Pharma has a revolving line of credit arrangement with a bank. A
maximum of $1,000 is available to Natur-Pharma with interest payable monthly at
the bank's variable base rate (8.5 percent at December 31, 1995). Terms of the
agreement include maintaining a $75 compensating balance, achieving quarterly
net income of at least $50 and limitations on repayment of notes payable to
shareholders. Borrowings are secured by inventories, accounts receivable and a
guarantee by Twin. The credit arrangement matures on June 1, 1996 and is subject
to annual review by the bank. Borrowings against such line of credit aggregated
$660 at December 31, 1994 and 1995.
Twin entered into a line of credit arrangement with a bank which is
cancelable by either party at any time and expires on May 31, 1996. A maximum
amount of $10,000 is available with interest charged at the Alternate Base Rate
of the bank, which is the higher of the prime rate (8.5 percent at December 31,
1995) or the Federal Funds rate (6.0 percent at December 31, 1995) plus 1/2
percent. There were no borrowings against such line of credit at December 31,
1994 and 1995.
F-10
<PAGE> 111
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
Mortgage payable to a bank collateralized by land and building,
payable in monthly installments of $22, including interest at 9.5
percent plus a $1,737 balloon payment due May 1, 2002.............. $2,282 $2,228
Mortgage payable to a bank collateralized by land and building,
payable in monthly installments of $24, including interest at 9.9
percent, maturing August 2006...................................... 2,171 2,104
Loan payable to a bank, payable in monthly installments of $14,
inclusive of interest at the prime rate plus .5 percent with the
balance due on June 1, 1996........................................ -- 1,121
Note payable to a bank collateralized by equipment, payable in
monthly installments of $10, including interest at 8.43 percent,
maturing August 31, 2001........................................... 584 516
Note payable to a bank, unsecured, payable in monthly installments of
$8, including interest at 7.7 percent, maturing July 1, 2002....... -- 506
Note payable to a power authority, payable in monthly installments of
$2, including interest at 6.38 percent, maturing February 2011..... 296 289
Loan payable to a bank due on August 1, 1995......................... 792 --
Other................................................................ 92 82
------ ------
6,217 6,846
Less: current portion................................................ 1,101 1,479
------ ------
Total...................................................... $5,116 $5,367
====== ======
</TABLE>
The mortgages payable to banks provide, among other things, for the
maintenance by certain of the companies of a minimum tangible net worth balance,
certain financial ratios and limitations on additional borrowings.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
<S> <C>
1996................................................................... $1,479
1997................................................................... 315
1998................................................................... 335
1999................................................................... 366
2000................................................................... 396
Thereafter............................................................. 3,955
------
Total............................................................. $6,846
======
</TABLE>
9. CAPITAL LEASE OBLIGATIONS
The Company is obligated under leases for equipment, which are treated as
capital leases for financial reporting purposes due to certain provisions in the
lease agreements. Included in plant equipment at December 31, 1994 and 1995 are
assets held under capital leases with a net carrying value of $652 and $583,
respectively. Accumulated amortization on these assets at December 31, 1994 and
1995 was $34 and $103, respectively.
F-11
<PAGE> 112
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments, by year and in the aggregate, and the
present value of the future minimum lease payments at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
<S> <C>
1996................................................................... $164
1997................................................................... 164
1998................................................................... 164
----
Total........................................................... 492
Amount representing interest........................................... 52
----
Present value of the future minimum lease payments (including $136
payable currently).................................................... $440
====
</TABLE>
10. INCOME TAXES
Prior to the consummation of the Acquisition Agreement, all of the
Companies were "S" corporations and as such Federal and state taxes were
generally paid at the shareholder level only. However, when corporate taxable
income of any company exceed $200, such company was required to pay New York
State corporate income taxes equal to the difference between the personal and
the corporate tax rate (approximately 2 percent at December 31, 1995) for all
taxable income in excess of $200, except for Natur-Pharma, Alvita and B. Bros.,
which are subject to the tax laws of the State of Utah.
Some of the companies were not "S" corporations since inception. The
following table sets forth the effective date each company elected "S"
corporation status and the "C" corporation retained earnings at the time of "S"
corporation election:
<TABLE>
<CAPTION>
"C" CORPORATION
EFFECTIVE DATE OF "S" RETAINED
COMPANY CORPORATION ELECTION EARNINGS
--------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Twin............................................... January 1, 1987 $6,299
Export............................................. At inception None
Specialty.......................................... At inception None
Alvita............................................. January 1, 1992 $ 39
Natur-Pharma....................................... January 1, 1993 $ 575
B. Bros............................................ At inception None
ARP................................................ January 1, 1989 $ (89)
</TABLE>
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 represents state taxes.
Twin is undergoing a routine audit of its Federal income tax return for the
year ended December 31, 1993. Management believes that any amounts which might
be assessed will not have a material effect on the consolidated financial
statements.
11. EMPLOYEE BENEFIT PLANS
Twin provides a profit sharing plan for all full-time employees who have
satisfied length of service and minimum age requirements. Profit sharing expense
related to Twin's plan was $250 for the years ended December 31, 1993, 1994 and
1995.
Under the Natur-Pharma, Inc. Employee Savings Plan, eligible participating
employees may elect to contribute up to twenty-five percent of their salaries to
an investment trust. Natur-Pharma may, at its sole discretion, contribute to the
plan. Participants are fully vested in their own contributions and vest in
Natur-
F-12
<PAGE> 113
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pharma's contributions at a rate of 20 percent per year beginning one year after
the date of contribution. Natur-Pharma contributed and charged to expense $7,
$11 and $37 under this plan for the years ended December 31, 1993, 1994 and
1995, respectively.
12. COMMITMENTS AND CONTINGENCIES
a. Leases -- The Company leases certain warehouse space and equipment under
operating leases. Generally, the leases carry renewal provisions and require the
payment of maintenance costs. Rental payments may be adjusted for increases in
taxes and other costs above specific amounts. Rental expense charged to
operations for the years ended December 31, 1993, 1994 and 1995 was
approximately $1,254, $1,281 and $1,370, respectively.
Future minimum payments under noncancellable operating leases with initial
or remaining terms of more than one year, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
<S> <C>
1996................................................................. $1,269
1997................................................................. 981
1998................................................................. 866
1999................................................................. 764
2000................................................................. 829
------
Total...................................................... $4,709
======
</TABLE>
b. Legal matters -- Twin and other encapsulators, and various
manufacturers, distributors, suppliers, importers and retailers of manufactured
L-Tryptophan or products containing manufactured L-Tryptophan are or were
defendants in various legal 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. As of January 31, 1996, Twin was a named defendant in three of
these actions. Although Twin believes that few new lawsuits are likely to be
brought because of applicable statutes of limitations, the possibility of future
such actions cannot be excluded. Twin and certain other companies in the
industry (the "Indemnified Group") have each entered into a Defense and
Indemnification Agreement with Showa Denko America, Inc. ("SDA") (the
"Indemnification Agreement"), under which SDA has agreed to assume the defense
of all claims against any of the Indemnified Group arising out of the ingestion
of L-Tryptophan products and to pay all legal fees incurred and indemnify Twin
against liability in any action if it is determined that a proximate cause of
the injury sustained by the plaintiff was a constituent of the raw material sold
by SDA to Twin or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that action by Twin proximately contributed to
the injury, and except for certain claims relating to punitive damages. SDA
appears to have been the supplier of all of the allegedly contaminated
L-Tryptophan. SDA has posted a revolving irrevocable letter of credit for the
benefit of the Indemnified Group if SDA is unable or unwilling to satisfy any
claims or judgments. Showa Denko, K.K. ("SDK"), the Japanese parent of SDA and
manufacturer of the relevant L-Tryptophan, has unconditionally guaranteed the
payment obligations of SDA under the Indemnification Agreement. As of January
31, 1996, 128 lawsuits in which Twin was a named defendant had been dismissed or
settled by SDA at no cost to Twin.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against Twin alone and ignoring the existence of the Indemnification
Agreement, would exceed Twin's available product liability insurance coverage of
$3 million for L-Tryptophan matters in respect of claims made prior to December
31, 1993, and would have a material adverse effect on the Company's results of
operations and financial condition. However, the Indemnification Agreement, the
defense and resolution to date of numerous lawsuits by SDA without cost to Twin,
the multitude of defendants and the possibility that liability could be assessed
against or paid by other parties or by insurance carriers have led management,
after consultation with outside legal
F-13
<PAGE> 114
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counsel, to believe that the prospect for a material adverse effect on the
Company's consolidated financial condition or results of operations is remote
and no provision in the consolidated financial statements has been made for any
loss that may result from these actions. During the year ended December 31,
1993, SDA reimbursed Twin approximately $461 primarily for unsalable
L-Tryptophan related merchandise.
In 1989, Twin received an informal inquiry from the New York Regional
Office of the Federal Trade Commission ("FTC") seeking substantiation for
certain advertising claims made for a segment of its "Fuel" bodybuilding/sports
nutrition line of products. In response, Twin submitted scientific
substantiation and financial information to the FTC. Twin is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of Twin's weight control,
bodybuilding and sports nutrition products. In addition, the Decree seeks
payment of $200. The Company believes that it has adequate scientific
substantiation for the claims at issue, and it intends to vigorously defend the
matter if a settlement is not reached. The Company has reserved $200 for this
matter.
The Company is also engaged in various other litigation in the ordinary
course of business. Management is of the opinion that the amounts which may be
awarded or assessed in connection with these matters, if any, will not have a
material effect on the consolidated financial statements.
13. INVESTMENT IN LIMITED PARTNERSHIP
As a result of investments in certain limited partnerships, Hambrose 3 and
4 ("Partnerships"), Twin entered into an agreement with the Partnerships wherein
Twin subscribed to additional limited interests in the Partnerships. Twin also
agreed to contribute a total of $360 as "Additional Capital Contribution" to the
Partnerships, which consists of a nonrecourse note of $240 and another
noninterest-bearing note due in the year 2010 in the amount of $120. In lieu of
making the Additional Capital Contribution in cash or subscription note, Twin
has assigned 100 percent of certain distribution rights until such time as the
assignee has recovered the full amount of the Additional Capital Contribution.
Twin is contingently liable to the Partnerships in the amount of approximately
$3,450. Management is of the opinion that there will be sufficient income
generated from the Partnerships' leasing operations to repay all the debt due
and Twin will not be required to make any further cash payments. These
investments have not been assigned any value on the accompanying consolidated
balance sheets.
The Hambrose 3 limited partnership has been audited by the Internal Revenue
Service ("IRS") for the years ended December 31, 1985 and 1986, at which time
Twin was a "C" corporation. A settlement was reached during 1995 in which Twin
paid approximately $2,082, including interest. In addition, Twin was responsible
for additional state taxes, inclusive of interest of approximately $28. Twin
recorded an estimated settlement amount during 1994 totaling $1,982 which was
reflected as a nonrecurring charge to operations. An additional $128 of interest
was recorded in 1995, and was included in operating expenses in the accompanying
consolidated statement of income.
14. RELATED PARTY TRANSACTIONS
Natur-Pharma had outstanding notes payable to certain shareholders totaling
$1,500 and $500 as of December 31, 1994 and 1995, respectively. Such notes bear
interest at ten percent per annum, which is payable semi-annually. Interest
expense on such notes was approximately $179, $150 and $100 for the years ended
December 31, 1993, 1994 and 1995, respectively. Alvita had outstanding notes
payable to certain shareholders totaling $250 as of December 31, 1993. Such
notes were repaid in the year ended December 31, 1994. Interest expense on such
notes was approximately $23 and $5 for the years ended December 31, 1993 and
1994, respectively. ARP had outstanding notes payable to certain shareholders
totaling $346 as of December 31, 1994 and 1995. Such notes are non-interest
bearing.
F-14
<PAGE> 115
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS
The Company has two significant customers which accounted for approximately
27 and 19 percent, respectively, of net sales for 1993; 28 and 20 percent,
respectively, of net sales for 1994; and 28 and 22 percent, respectively, of net
sales for 1995. No other customer accounted for more than 10 percent of net
sales in any of the three years ended December 31, 1995.
The Company's customers are primarily large independent distributors of
health food products. At December 31, 1994 and 1995, approximately 69 and 73
percent, respectively, of accounts receivable related to two customers.
16. SUBSEQUENT EVENTS
a. Acquisition Agreement and related transactions -- The shareholders of
the Companies entered into the Acquisition Agreement, which is dated as of March
5, 1996 and which was consummated on May 7, 1996, pursuant to which, among other
things, (i) TLC acquired all of the outstanding capital stock of Natur-Pharma,
(ii) Green Equity Investors II L.P. ("GEI") acquired 480,000 shares (48%) of the
common stock of TLC for aggregate consideration of $4,800, and shares of
non-voting junior redeemable preferred stock of TLC for aggregate consideration
of $37,000, (iii) certain other investors acquired 70,000 shares (7%) of the
common stock of TLC (however, each of these other investors own less than 5% of
the common stock of TLC) for aggregate consideration of $700 and shares of
non-voting senior redeemable preferred stock of TLC for aggregate consideration
of $30,000, (iv) certain of the shareholders of the Companies (the "Continuing
Shareholders") received from TLC, in exchange for certain of their shares of
common stock of Natur-Pharma, 450,000 shares (45%) of the outstanding shares of
common stock of TLC, valued at $4,500, and (v) the shareholders of the Companies
received a total of $212,500 in consideration of the balance of their shares of
common stock of Natur-Pharma and for all of their shares of capital stock of
Twin, Alvita, Export, Specialty, B. Bros., and ARP. Of the total cash
consideration to the shareholders, approximately $15,000 represented
consideration for non-competition agreements entered into by the shareholders of
the Companies, which was recognized as a non-recurring expense upon the
consummation of the Acquisition Agreement.
Pursuant to the terms of the Acquisition Agreement, Twin, Alvita, Export,
Specialty, and B. Bros. were merged into Natur-Pharma. ARP was merged with
Natur-Pharma II, Inc., a wholly owned subsidiary of Natur-Pharma, and
Natur-Pharma became a wholly owned subsidiary of TLC. Natur-Pharma changed its
name to Twin Laboratories Inc. ("New Twin"). TLC's initial board of directors
consists of five of the Continuing Shareholders and three designees of GEI. A
majority of TLC's shareholders have the ability to elect a majority of its
directors. However, regardless of the composition of the board of directors,
pursuant to the terms of the TLC shareholders agreement, a wide range of actions
to be taken by TLC require the affirmative approval of both a majority of the
Continuing Shareholder directors and a majority of the GEI designee directors.
These actions include, but are not limited to, payment of certain dividends,
engagement in new businesses, acquisition of other businesses, entering certain
contracts, incurring certain debt or obligations, making certain investments,
relocation of executive offices, selection of location and date of the annual
shareholders meeting, termination or material modification of any employee
benefit plan, selection of auditors or legal counsel, adoption or amendment of
strategic plans or operating budgets, and election or termination of any
executive officers. In addition, certain fundamental corporate actions,
including but not limited to, amendments to the certificate of incorporation,
the sale of substantially all of the assets of the Company, and the merger or
combination of the Company with another entity additionally require an
affirmative vote of holders of at least 80% of the issued and outstanding stock
of TLC. Such voting rights are generally effective until such time as the common
stock of TLC is publicly held. Because the transactions contemplated by the
Acquisition Agreement do not result in a change in control as defined in
Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout
Transactions" ("EITF 88-16"), the transactions were accounted for as a
recapitalization under the guidance of EITF 88-16 and the Companies' historical
basis of accounting were
F-15
<PAGE> 116
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applied to the consolidated financial statements of TLC. Upon consummation of
the Acquisition Agreement, the Companies terminated their S Corporation status.
Cumulative dividends on the preferred stock accrue at a rate of 14% per
annum (in the case of the senior preferred stock) and 11.25% per annum (in the
case of the junior preferred stock) and are payable quarterly, if declared by
the board of directors. Such dividends are payable in additional shares of
preferred stock (valued at the liquidation preference of $1,000 per share plus
accrued and unpaid dividends) unless the board of directors, upon a majority
vote of directors not affiliated with Leonard Green & Partners, L.P., determines
that any such dividends will be paid in cash.
The redemption price of the preferred stock, as well as the liquidation
preference, is $1,000 per share plus accrued and unpaid dividends. The preferred
stock may be redeemed, in whole or in part, by TLC at any time, except that (1)
no partial redemption can be made by TLC unless all cumulative dividends have
been paid on all shares, (2) TLC may not redeem shares of preferred stock at any
time when it is making, or is required to make, an offer to purchase preferred
stock upon a change of control and (3) so long as any shares of senior preferred
stock are outstanding, no shares of junior preferred stock may be redeemed
without the consent of the holders of a majority of the outstanding shares of
senior preferred stock.
The preferred stock is subject to mandatory redemption, at the redemption
price, including accrued and unpaid dividends, eleven years after the issuance
thereof (in the case of the senior preferred stock) or twelve years after the
issuance thereof (in the case of the junior preferred stock). In addition, upon
a change in control TLC is required to offer to purchase the preferred stock at
101 percent of the liquidation preference thereof, plus accrued and unpaid
dividends.
New Twin obtained additional financing necessary to effect the transactions
contemplated by the Acquisition Agreement, repay certain existing indebtedness
of the Company, and pay the fees and expenses incurred in connection with the
Acquisition Agreement through the incurrence of debt which totalled $153,000.
Such debt included: (1) borrowings of $53,000 under a term loan credit facility
provided by certain banks, financial institutions and other entities, and (2)
gross proceeds of $100,000 from the private placement of subordinated debt. A
six-year $15,000 revolving credit facility was also obtained from the term loan
lenders, to provide for working capital requirements.
The term loan is payable in defined percentages over a six-year period.
Borrowings under the term loan and revolving credit facilities bear interest, at
the borrower's discretion, at either the Alternative Base Rate, as defined, plus
a margin of 1.25 percent, or at the Eurodollar Rate, as defined, plus a margin
of 2.5 percent. Such margins are subject to reduction based upon the achievement
of certain performance targets, as defined. New Twin also must pay a commitment
fee of .5 percent per annum (subject to reduction based on the achievement of
certain performance targets, as defined) on the average daily unused portion of
the revolving credit facility. These credit facilities are secured by all
tangible and intangible assets of New Twin and are subject to certain
restrictive covenants including, among other things, the maintenance of defined
levels of earnings and certain debt coverage rates, as well as restrictions on
additional indebtedness, dividends, investments and certain other significant
transactions.
The subordinated debt matures in ten years and bears interest at a rate of
10 1/4% per annum. The subordinated debt is callable after five years at a
premium to par which will decline to par after eight years. During the first
three years, New Twin has the option to redeem up to 35 percent of the
subordinated debt with the proceeds of a public offering at a redemption price
of 109 1/2%. Upon a change of control, as defined, New Twin is required to offer
to redeem the subordinated debt at 101 percent of the principal amount plus
accrued and unpaid interest. Restrictive covenants on the subordinated debt
include, among other things, limitations on additional indebtedness, investments
and certain other significant transactions.
F-16
<PAGE> 117
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The subordinated debt is guaranteed by TLC and ARP. TLC had no assets or
liabilities until the consummation of the Acquisition. Summarized financial
information of New Twin is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Current assets...................................... $40,178 $ 48,716 $ 58,663
Noncurrent assets................................... 15,409 15,990 16,646
Current liabilities................................. 10,481 10,480 14,233
Noncurrent liabilities.............................. 4,563 5,555 5,671
Shareholders' equity................................ 40,543 48,671 55,405
Net sales........................................... 99,897 117,342 148,735
Gross profit........................................ 37,766 47,095 58,803
Net income.......................................... 16,676 21,693 30,224
</TABLE>
Summarized financial information of ARP is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current assets...................................... $ 763 $1,339 $1,266
Noncurrent assets................................... 173 168 168
Current liabilities................................. 1,051 1,155 1,211
Noncurrent liabilities.............................. -- -- --
Total shareholders' equity (deficit)................ (116) 350 222
Net sales........................................... 3,188 3,930 5,200
Gross profit........................................ 68 711 259
Net income (loss)................................... (94) 466 (128)
</TABLE>
The following unaudited pro forma results of operations assume the
transactions contemplated by the Acquisition Agreement occurred as of January 1,
1995. The pro forma operations data has been prepared for comparative purposes
only and does not purport to represent what the Company's actual results of
operations would have been had the transactions contemplated by the Acquisition
Agreement in fact occurred at January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Net sales........................................... $ 148,735 $ 43,984
Interest expense.................................... 16,010 4,002
Net income.......................................... 9,211 3,754
</TABLE>
F-17
<PAGE> 118
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma debt, preferred stock and shareholder's deficit at
March 31, 1996 after giving effect to the transactions contemplated by the
Acquisition Agreement as if they had occurred on March 31, 1996 would be as
follows:
<TABLE>
<S> <C>
Total current portion of long-term debt and capital lease obligations.... $ 3,140
=========
Total long-term debt and capital lease obligations....................... $ 150,633
=========
Senior redeemable cumulative Preferred Stock............................. $ 30,000
=========
Junior redeemable cumulative Preferred Stock............................. $ 37,000
=========
Shareholders' deficit:
Common stock........................................................... $ 1,000
Additional paid-in capital............................................. 82,063
Accumulated deficit.................................................... (178,796)
---------
Total shareholders' deficit.................................... $ (95,733)
=========
</TABLE>
b. Proposed initial public offering -- On June 4, 1996, TLC filed a
registration statement on Form S-1 in respect of an offering by TLC for sale to
the public (the "IPO") of shares of its common stock, $1.00 par value. The
registration statement states that the maximum aggregate offering price of the
securities to be registered is $130,000. The expected use of the net proceeds of
the IPO will be to redeem all of the outstanding shares of senior preferred
stock and all of the outstanding shares of junior preferred stock, which
together have an aggregate liquidation preference of $67,000 (plus accrued and
unpaid dividends thereon); and to prepay in full the $50,000 of remaining
outstanding indebtedness under the term loan facility, plus accrued and unpaid
interest thereon. The balance of the net proceeds of the IPO will be used for
general corporate purposes.
F-18
<PAGE> 119
------------------------------------------------------
------------------------------------------------------
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail:
FLEET NATIONAL BANK
777 MAIN STREET
MSN CT/MO/0224
HARTFORD, CONNECTICUT 06115
ATTENTION: CORPORATE TRUST OPERATIONS
By Hand/Overnight Express:
FLEET NATIONAL BANK
777 MAIN STREET
MSN CT/MO/0224
HARTFORD, CONNECTICUT 06115
ATTENTION: CORPORATE OPERATIONS
Facsimile Transmission:
(860) 986-7908
To confirm receipt:
TEL. (860) 986-1271
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER OR REGISTERED OR CERTIFIED MAIL)
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------------------------------------
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------------------------------------------------------
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OFFER TO EXCHANGE ALL OUTSTANDING 10 1/4%
SENIOR SUBORDINATED NOTES DUE 2006
($100,000,000 PRINCIPAL AMOUNT) FOR 10 1/4%
SENIOR SUBORDINATED NOTES DUE 2006.
TWIN
LABORATORIES
INC.
------------------------
PROSPECTUS
------------------------
, 1996
------------------------------------------------------
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<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Utah law provides for indemnification of directors and officers as follows:
16-10a-902 AUTHORITY TO INDEMNIFY DIRECTORS
(1) Except as provided in Subsection (4), a corporation may indemnify an
individual made a party to a proceeding because he is or was a director, against
liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed to,
the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful.
(2) A director's conduct with respect to any employee benefit plan for a
purpose he reasonably believed to be in or not opposed to the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in
his official capacity, in which proceeding he was adjudged liable on the
basis that he derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
16-10a-903 MANDATORY INDEMNIFICATION OF DIRECTORS.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise, in the
defense of any proceeding, or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
16-10a-907 INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
Unless a corporation's articles of incorporation provide otherwise:
(1) an officer of the corporation is entitled to mandatory
indemnification under Section 16-10a-903, and is entitled to apply for
court-ordered indemnification under Section 16-10a-905, in each case to the
same extent as a director;
(2) the corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(3) a corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent , if not inconsistent with public policy, and if provided for by its
articles of incorporation, bylaws, general or specific action of its board
of directors, or contract.
II-1
<PAGE> 121
16-10a-908 INSURANCE.
A corporation may purchase and maintain liability insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent of the
corporation, or who, while serving as a director, officer, employee, fiduciary,
or agent of the corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, fiduciary, or agent of
another foreign or domestic corporation or other person, or of an employee
benefit plan, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, fiduciary,
or agent, whether or not the corporation would have power to indemnify him
against the same liability under Section 16-10a-902, 16-10a-903, or 16-10a-907.
Insurance may be procured from any insurance company designated by the board of
directors, whether the insurance company is formed under the laws of this state
or any other jurisdiction of the United States or elsewhere, including any
insurance company in which the corporation has an equity or any other interest
through stock ownership or otherwise.
16-10a-909 LIMITATIONS OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or advance for
expenses to, directors that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board of directors, or in a
contract (except an insurance policy) or otherwise, is valid only if and to the
extent the provision is not inconsistent with this part. If the articles of
incorporation limit indemnification or advance of expenses, indemnification and
advance of expenses are valid only to the extent not inconsistent with the
articles of incorporation.
(2) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with the director's appearance as
a witness in a proceeding at a time when the director has not been made a named
defendant or respondent to the proceeding.
The Company's Articles of Restatement to the Articles of Incorporation and
its By-laws filed as Exhibit 3.1 and 3.2 respectively, to this Registration
Statement provide for the indemnification of directors and officers of the
Company to the fullest extent permitted by Utah law.
The Company has obtained liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
2.1 -- Form of Stock Purchase and Sale Agreement, dated as of March 5, 1996, among David
Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling, TLG Laboratories Holding Corp. ("TLC"),
Natur-Pharma Inc. and Green Equity Investors II, L.P. ("GEI II") (the "Stock
Purchase and Sale Agreement") (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, dated June 4, 1996, filed by TLC, Registration
No. 333-05191; "TLC S-1").
2.1.1 -- Form of Amendment to the Stock Purchase and Sale Agreement, dated May 6, 1996
(incorporated by reference to Exhibit 2.1.1 to TLC S-1).
3.1 -- Form of Articles of Restatement to the Articles of Incorporation of the Company.*
3.2 -- Form of By-laws of the Company.*
3.3 -- Form of Articles of Amendment to Articles of Incorporation of the Company.*
3.4 -- Form of Amended and Restated Certificate of Incorporation of TLC (incorporated by
reference to Exhibit 3.1 to TLC S-1).
3.5 -- Form of By-laws of TLC (incorporated by reference to Exhibit 3.2 to TLC S-1).
3.6 -- Form of Certificate of Amendment of Amended and Restated Certificate of
Incorporation of TLC.*
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
3.7 -- Form of Restated Certificate of Incorporation of Advanced Research Press, Inc.
("ARP").*
3.8 -- Form of By-laws of ARP.*
4.1 -- Indenture, dated May 7, 1996, among Twin Laboratories Inc. ("Twin"), ARP and TLC,
(together, the "Guarantors") and Fleet National Bank, as Trustee, Registrar, Paying
Agent and Securities Agent, regarding Twin's 10 1/4% Senior Subordinated Notes due
2006 ("the Old Notes") and the 10 1/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") to be issued in exchange therefor (incorporated by reference to
Exhibit 4.2 to TLC S-1).
4.2 -- Form of Registration Rights Agreement dated as of May 7, 1996 among Twin, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and Chemical
Securities Inc. (the "Initial Purchasers") (incorporated by reference to Exhibit
10.27 to TLC S-1).
4.3 -- Form of Purchase Agreement, dated May 1, 1996, among Twin, the Guarantors and the
Initial Purchasers.*
4.4 -- Form of Credit and Guarantee Agreement, dated May 7, 1996, among Twin, TLC, the
financial institutions named therein, Chemical Bank as Administrative Agent and The
Bank of New York as Documentation Agent (incorporated by reference to Exhibit 4.3
to TLC S-1).
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.**
5.2 -- Opinion of Ray, Quinney & Nebeker.**
10.1 -- Form of Guarantee and Collateral Agreement, dated May 7, 1996, among TLC, Twin, and
ARP in favor of Chemical Bank, as Administrative Agent (incorporated by reference
to Exhibit 10.1 to TLC S-1).
10.2 -- Form of Term Note (incorporated by reference to Exhibit 10.2 to TLC S-1).
10.3 -- Form of Revolving Credit Note (incorporated by reference to Exhibit 10.3 to TLC
S-1).
10.4 -- Form of Swing Line Note (incorporated by reference to Exhibit 10.4 to TLC S-1).
10.5 -- Form of Mortgage and Security Agreement, dated May 7, 1996, from TLC to Chemical
Bank, as Administrative Agent (incorporated by reference to Exhibit 10.5 to TLC
S-1).
10.6 -- Form of Deed of Trust, dated May 7, 1996, from Twin to First American Title Company
of Utah, Trustee for the use and benefit of Chemical Bank, as Administrative Agent,
Beneficiary (incorporated by reference to Exhibit 10.6 to TLC S-1).
10.7 -- Intentionally Omitted.
10.8 -- Stockholders Agreement, dated May 7, 1996, among Brian Blechman, Neil Blechman,
Ross Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC and GEI
(incorporated by reference to Exhibit 10.8 to TLC S-1).
10.9 -- Secondary Stockholders Agreement among Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC, GEI, DLJ
Investment Funding, Inc., DLJ Investment Partners, L.P., Chase Equity Associates,
L.P., PMI Mezzanine Fund, L.P. and State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System, and Michigan
Judges Retirement System (incorporated by reference to Exhibit 10.9 to TLC S-1).
10.10 -- Employment Agreement, dated May 7, 1996, between Twin and Brian Blechman
(incorporated by reference to Exhibit 10.10 to TLC S-1).
10.11 -- Employment Agreement, dated May 7, 1996, between Twin and Neil Blechman
(incorporated by reference to Exhibit 10.11 to TLC S-1).
10.12 -- Employment Agreement, dated May 7, 1996, between Twin and Ross Blechman
(incorporated by reference to Exhibit 10.12 to TLC S-1).
10.13 -- Employment Agreement, dated May 7, 1996, between Twin and Steve Blechman
(incorporated by reference to Exhibit 10.13 to TLC S-1).
10.14 -- Employment Agreement, dated May 7, 1996, between Twin and Dean Blechman
(incorporated by reference to Exhibit 10.14 to TLC S-1).
</TABLE>
II-3
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
10.15 -- Employment Agreement, dated May 7, 1996, between Twin and Stephen Welling
(incorporated by reference to Exhibit 10.15 to TLC S-1).
10.16 -- Consulting Agreement, dated May 7, 1996, between Twin and David Blechman
(incorporated by reference to Exhibit 10.16 to TLC S-1).
10.17 -- Consulting Agreement, dated May 7, 1996, between Twin and Jean Blechman
(incorporated by reference to Exhibit 10.17 to TLC S-1).
10.18 -- Noncompetition Agreement, dated May 7, 1996, between TLC and David Blechman
(incorporated by reference to Exhibit 10.18 to TLC S-1).
10.19 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Jean Blechman
(incorporated by reference to Exhibit 10.19 to TLC S-1).
10.20 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Brian Blechman
(incorporated by reference to Exhibit 10.20 to TLC S-1).
10.21 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Neil Blechman
(incorporated by reference to Exhibit 10.21 to TLC S-1).
10.22 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Ross Blechman
(incorporated by reference to Exhibit 10.22 to Holding's S-1).
10.23 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Steve Blechman
(incorporated by reference to Exhibit 10.23 to TLC S-1).
10.24 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Dean Blechman
(incorporated by reference to Exhibit 10.24 to TLC S-1).
10.25 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Stephen Welling
(incorporated by reference to Exhibit 10.25 to TLC S-1).
10.26 -- Management Services Agreement, dated May 7, 1996, between Twin and Leonard Green &
Partners, L.P. (incorporated by reference to Exhibit 10.26 to TLC S-1).
12 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- List of Twin's Subsidiaries.*
23.1 -- Consent of Deloitte & Touche LLP.*
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the opinion to be
filed as Exhibit 5.1 hereto).
23.3 -- Consent of Ray, Quinney & Nebeker (to be contained in the opinion to be filed as
Exhibit 5.2 hereto).
25 -- Form T-1 Statement of Eligibility and Qualification of Fleet National Bank, as
trustee.*
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to Amendment No. 1
to TLC S-1, filed June 7, 1996).
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.**
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
(b) Financial Statement Schedule
(i) Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or notes therein.
II-4
<PAGE> 124
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE> 125
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
TWINLAB CORPORATION
By: /s/ ROSS BLECHMAN
----------------------------------
Ross Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ ROSS BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Ross Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ STEVE BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Steve Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
</TABLE>
II-6
<PAGE> 126
Signatures
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
TWIN LABORATORIES INC.
By: /s/ ROSS BLECHMAN
----------------------------------
Ross Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ ROSS BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Ross Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ STEVE BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Steve Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
</TABLE>
II-7
<PAGE> 127
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
ADVANCED RESEARCH PRESS, INC.
By: /s/ STEVE BLECHMAN
----------------------------------
Steve Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ STEVE BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Steve Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ ROSS BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Ross Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
</TABLE>
II-8
<PAGE> 128
SCHEDULE II
TWINLAB CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B
-------- ADDITIONS COLUMN E
BALANCE ----------------------- --------
AT CHARGED TO COLUMN D BALANCE
COLUMN A BEGINNING CHARGED TO OTHER -------- AT END
- --------------------------------------- OF COST AND ACCOUNTS DEDUCTIONS OF
DESCRIPTIONS PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD
- --------------------------------------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for bad debts................ $ 63 $169 $ -- $ 55(1) $177
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $100 $415 $ -- $ -- $515
========= ======== ======== ========== =========
YEAR ENDED DECEMBER 31, 1994:
Allowance for bad debts................ $123 $(59) $ -- $ 1(1) $ 63
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $ -- $100 $ -- $ -- $100
========= ======== ======== ========== =========
YEAR ENDED DECEMBER 31, 1993:
Allowance for bad debts................ $126 $ -- $ -- $ 3(1) $123
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $ -- $ -- $ -- $ -- $ --
========= ======== ======== ========== =========
</TABLE>
- ---------------
(1) Amounts written off.
S-1
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
2.1 -- Form of Stock Purchase and Sale Agreement, dated as of March 5, 1996, among David
Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling, TLG Laboratories Holding Corp. ("TLC"),
Natur-Pharma Inc. and Green Equity Investors II, L.P. ("GEI II") (the "Stock
Purchase and Sale Agreement") (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, dated June 4, 1996, filed by TLC, Registration
No. 333-05191; "TLC S-1").
2.1.1 -- Form of Amendment to the Stock Purchase and Sale Agreement, dated May 6, 1996
(incorporated by reference to Exhibit 2.1.1 to TLC S-1).
3.1 -- Form of Articles of Restatement to the Articles of Incorporation of the Company.*
3.2 -- Form of By-laws of the Company.*
3.3 -- Form of Articles of Amendment to Articles of Incorporation of the Company.*
3.4 -- Form of Amended and Restated Certificate of Incorporation of TLC (incorporated by
reference to Exhibit 3.1 to TLC S-1).
3.5 -- Form of By-laws of TLC (incorporated by reference to Exhibit 3.2 to TLC S-1).
3.6 -- Form of Certificate of Amendment of Amended and Restated Certificate of
Incorporation of TLC.*
3.7 -- Form of Restated Certificate of Incorporation of Advanced Research Press, Inc.
("ARP").*
3.8 -- Form of By-laws of ARP.*
4.1 -- Indenture, dated May 7, 1996, among Twin Laboratories Inc. ("Twin"), ARP and TLC,
(together, the "Guarantors") and Fleet National Bank, as Trustee, Registrar, Paying
Agent and Securities Agent, regarding Twin's 10 1/4% Senior Subordinated Notes due
2006 ("the Old Notes") and the 10 1/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") to be issued in exchange therefor (incorporated by reference to
Exhibit 4.2 to TLC S-1).
4.2 -- Form of Registration Rights Agreement dated as of May 7, 1996 among Twin, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and Chemical
Securities Inc. (the "Initial Purchasers") (incorporated by reference to Exhibit
10.27 to TLC S-1).
4.3 -- Form of Purchase Agreement, dated May 1, 1996, among Twin, the Guarantors and the
Initial Purchasers.*
4.4 -- Form of Credit and Guarantee Agreement, dated May 7, 1996, among Twin, TLC, the
financial institutions named therein, Chemical Bank as Administrative Agent and The
Bank of New York as Documentation Agent (incorporated by reference to Exhibit 4.3
to TLC S-1).
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.**
5.2 -- Opinion of Ray, Quinney & Nebeker.**
10.1 -- Form of Guarantee and Collateral Agreement, dated May 7, 1996, among TLC, Twin, and
ARP in favor of Chemical Bank, as Administrative Agent (incorporated by reference
to Exhibit 10.1 to TLC S-1).
10.2 -- Form of Term Note (incorporated by reference to Exhibit 10.2 to TLC S-1).
10.3 -- Form of Revolving Credit Note (incorporated by reference to Exhibit 10.3 to TLC
S-1).
10.4 -- Form of Swing Line Note (incorporated by reference to Exhibit 10.4 to TLC S-1).
10.5 -- Form of Mortgage and Security Agreement, dated May 7, 1996, from TLC to Chemical
Bank, as Administrative Agent (incorporated by reference to Exhibit 10.5 to TLC
S-1).
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
10.6 -- Form of Deed of Trust, dated May 7, 1996, from Twin to First American Title Company
of Utah, Trustee for the use and benefit of Chemical Bank, as Administrative Agent,
Beneficiary (incorporated by reference to Exhibit 10.6 to TLC S-1).
10.7 -- Intentionally Omitted.
10.8 -- Stockholders Agreement, dated May 7, 1996, among Brian Blechman, Neil Blechman,
Ross Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC and GEI
(incorporated by reference to Exhibit 10.8 to TLC S-1).
10.9 -- Secondary Stockholders Agreement among Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC, GEI, DLJ
Investment Funding, Inc., DLJ Investment Partners, L.P., Chase Equity Associates,
L.P., PMI Mezzanine Fund, L.P. and State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System, and Michigan
Judges Retirement System (incorporated by reference to Exhibit 10.9 to TLC S-1).
10.10 -- Employment Agreement, dated May 7, 1996, between Twin and Brian Blechman
(incorporated by reference to Exhibit 10.10 to TLC S-1).
10.11 -- Employment Agreement, dated May 7, 1996, between Twin and Neil Blechman
(incorporated by reference to Exhibit 10.11 to TLC S-1).
10.12 -- Employment Agreement, dated May 7, 1996, between Twin and Ross Blechman
(incorporated by reference to Exhibit 10.12 to TLC S-1).
10.13 -- Employment Agreement, dated May 7, 1996, between Twin and Steve Blechman
(incorporated by reference to Exhibit 10.13 to TLC S-1).
10.14 -- Employment Agreement, dated May 7, 1996, between Twin and Dean Blechman
(incorporated by reference to Exhibit 10.14 to TLC S-1).
10.15 -- Employment Agreement, dated May 7, 1996, between Twin and Stephen Welling
(incorporated by reference to Exhibit 10.15 to TLC S-1).
10.16 -- Consulting Agreement, dated May 7, 1996, between Twin and David Blechman
(incorporated by reference to Exhibit 10.16 to TLC S-1).
10.17 -- Consulting Agreement, dated May 7, 1996, between Twin and Jean Blechman
(incorporated by reference to Exhibit 10.17 to TLC S-1).
10.18 -- Noncompetition Agreement, dated May 7, 1996, between TLC and David Blechman
(incorporated by reference to Exhibit 10.18 to TLC S-1).
10.19 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Jean Blechman
(incorporated by reference to Exhibit 10.19 to TLC S-1).
10.20 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Brian Blechman
(incorporated by reference to Exhibit 10.20 to TLC S-1).
10.21 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Neil Blechman
(incorporated by reference to Exhibit 10.21 to TLC S-1).
10.22 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Ross Blechman
(incorporated by reference to Exhibit 10.22 to Holding's S-1).
10.23 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Steve Blechman
(incorporated by reference to Exhibit 10.23 to TLC S-1).
10.24 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Dean Blechman
(incorporated by reference to Exhibit 10.24 to TLC S-1).
10.25 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Stephen Welling
(incorporated by reference to Exhibit 10.25 to TLC S-1).
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
10.26 -- Management Services Agreement, dated May 7, 1996, between Twin and Leonard Green &
Partners, L.P. (incorporated by reference to Exhibit 10.26 to TLC S-1).
12 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- List of Twin's Subsidiaries.*
23.1 -- Consent of Deloitte & Touche LLP.*
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the opinion to be
filed as Exhibit 5.1 hereto).
23.3 -- Consent of Ray, Quinney & Nebeker (to be contained in the opinion to be filed as
Exhibit 5.2 hereto).
25 -- Form T-1 Statement of Eligibility and Qualification of Fleet National Bank, as
trustee.*
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to Amendment No. 1
to TLC S-1, filed June 7, 1996).
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.**
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
<PAGE> 1
Exhibit 3.1
ARTICLES OF RESTATEMENT TO THE
ARTICLES OF INCORPORATION OF
NATUR-PHARMA INC.
To the Division of Corporations and Commercial Code, State of Utah:
Pursuant to the provisions of Section 16-10a-1007 of the Utah Revised
Business Corporation Act, the undersigned corporation adopts the following
Articles of Restatement to its Articles of Incorporation:
The name of the corporation is NATUR-PHARMA INC., originally formed as
NEW NP CORP.
The Articles of Incorporation are amended in their entirety and the
text of the Articles of Incorporation is hereby restated as amended to read as
herein set forth in full:
FIRST: The name of the Corporation is NATUR-PHARMA INC.
SECOND: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Utah Revised
Business Corporation Act.
THIRD: The following appointment is hereby noted: The address of the
registered office of the Corporation in the State of Utah is c/o The
Prentice-Hall Corporation System, Inc., 185 South State Street, Salt Lake City
84111; and the name of the registered agent of the corporation in Utah at such
address is The Prentice-Hall Corporation System, Inc.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue shall be 1,000 shares of Common Stock, all of
which shall be without par value. Each share of Common Stock shall be entitled
to one vote.
FIFTH: No election of directors need be by written ballot.
SIXTH: The Board of Directors shall not designate any committee of
the Board of Directors.
SEVENTH: Except as otherwise set forth in Section 16-10a-704(5) of the
Utah Revised Business Corporation Act, any action in connection with any
increase or decrease in the number of the members of the Board of Directors of
the Corporation (including, without limitation, the appointment or removal of
any director) that is required or permitted to be taken at any meeting of the
shareholders may be taken without a meeting, without prior
<PAGE> 2
notice and without a vote, if a consent or consents in writing shall be signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation in accordance with the provisions of Section
16-10a-704 of the Utah Revised Business Corporation Act. Except as contemplated
in the immediately foregoing sentence, all other actions that are required or
permitted to be taken at any meeting of the shareholders may be taken without a
meeting, without prior notice and without a vote only if a unanimous consent or
consents in writing shall be signed by the holders of outstanding shares
entitled to vote thereon and shall be delivered to the Corporation in accordance
with the provisions of Section 16-10a-704 of the Utah Revised Business
Corporation Act.
EIGHTH: Except to the extent expressly prohibited by Article 11.7 of
the Stock Purchase and Sale Agreement, dated as of March 5, 1996, as amended,
among David Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman, Stephen Welling, TLG Laboratories
Holding Corp., Natur-Pharma Inc. and Green Equity Investors II, L.P. (the
"Agreement"), with respect to the Stockholder Indemnitors (as such term is
defined in the Agreement), the Corporation shall, to the fullest extent
permitted by the provisions of Part 9 of the Utah Revised Business Corporation
Act, as the same may be amended and supplemented, indemnify each person who is
or was an officer or Director of the Corporation and may indemnify any and all
other persons whom it shall have power to indemnify under said Part 9 from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said Part 9, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of shareholders or disinterested
Directors or otherwise, both as to acting in such person's official capacity and
as to acting in another capacity while holding such office, and shall continue
as to a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors, and administrators of such a person. Nothing in
this Article Eighth and no provision of any by-law, agreement, vote of
shareholders or disinterested Directors, or otherwise, shall obligate the
Corporation to indemnify such persons for expenses, liabilities, or other
matters referred to in or covered by Part 9 of the Utah Revised Business
Corporation Act, arising out of any act or omission prior to the adoption of
these Articles of Restatement to the Articles of Incorporation
NINTH: A Director of the Corporation shall not be personally liable
to the Corporation or the shareholders for damages for any breach of duty in
such capacity, except for the liability of any Director for the amount of a
financial benefit received by a Director to which such director is not entitled,
an intentional infliction of harm on the Corporation or the shareholders, a
violation of Section 16-10a-842 of the Utah Revised Business Corporation Act, an
intentional violation of the criminal law, or the liability of any Director for
any act or omission prior to the adoption of these Articles of Restatement to
the Articles of Incorporation. If the Utah Revised Business Corporation Act is
hereafter amended to
<PAGE> 3
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director shall be eliminated or
limited to the fullest extent permitted by the Utah Revised Business Corporation
Act, as so amended. No repeal or modification of this Article Ninth shall
adversely affect any right of or protection afforded to a Director prior to such
repeal or modification.
TENTH: The shareholders shall not have any preemptive rights to
acquire the Corporation's unissued shares of any class.
The above Articles of Restatement to the Articles of Incorporation was
recommended to the shareholders by a resolution by unanimous written consent of
the Board of Directors of the Corporation dated May 1, 1996, and was adopted and
authorized by a resolution by unanimous written consent of the holders of all
outstanding shares entitled to vote thereon, dated May 1, 1996.
The number and class of shares outstanding, the number of votes
entitled to be cast on these Articles of Restatement to the Articles of
Incorporation, and the number of votes cast for and against these Articles of
Restatement, were:
<TABLE>
<CAPTION>
Number of Number of Number of
Shares Votes Entitled Number of Votes Cast
Class Outstanding to be Cast Votes Cast For Against
----- ----------- ---------- -------------- -------
<S> <C> <C> <C> <C>
Common 100 100 100 0
</TABLE>
<PAGE> 4
Under penalties of perjury, the undersigned hereby affirm that these
Articles of Restatement are the act and deed of the Corporation, and, to the
best of our belief and knowledge, are true, correct and complete.
Dated: May__ , 1996.
Natur-Pharma Inc.
______________________ ______________________
Neil Blechman Brian Blechman
Assistant Secretary Vice President
<PAGE> 5
The Prentice-Hall Corporation System, Inc. hereby accepts and
acknowledges its appointment as the registered agent for Natur-Pharma Inc. and
confirms that the undersigned meets the requirements of Section 16-10a-501 of
the Utah Revised Business Corporation Act.
The Prentice-Hall Corporation System, Inc.
By: _________________________________
Its: ________________________________
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
NATUR-PHARMA INC.
(A Utah Corporation)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held at
such place, either within or without the State of Utah, as shall be designated
in the notice of meeting.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date during the month of April or at such other time and at such
place as shall be designated from time to time by the Board of Directors. At
each annual meeting the stockholders shall elect a Board of Directors by
plurality vote and transact such other business as may be properly brought
before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may
be called by the Board of Directors, by any two directors or by the holders of
ten percent (10%) of the outstanding Common Stock of the Corporation.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and hour of the meeting shall be given by
or at the direction of the Board of Directors or other persons calling the
meeting to each stockholder entitled to vote at the meeting at least ten (10),
but not more than sixty (60), days prior to
<PAGE> 2
the meeting. Notice of any special meeting shall state in general terms the
purpose or purposes for which the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holders of a majority
of the issued and outstanding shares of the capital stock of the Corporation
entitled to vote at a meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at such meeting; but, if
there be less than a quorum, the holders of a majority of the stock so present
or represented may adjourn the meeting to another time or place, from time to
time, until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice, except as required by law, and any business
may be transacted thereat which might have been transacted at the meeting as
originally called.
Section 6. Voting. At any meeting of the stockholders every registered
owner of shares entitled to vote may vote in person or by proxy and, except as
otherwise provided by statute, in the Articles of Incorporation or these
By-Laws, shall have one vote for each such share standing in his name on the
books of the Corporation. Except as otherwise required or provided by the
Stockholders' Agreement dated as of May 7, 1996 by and among Green Equity
Investors II, L.P., Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling and TLG Laboratories Holding Corp.
("Holding") (the "Stockholders' Agreement"), statute, the Articles of
Incorporation or these By-Laws, all elections of directors shall be decided by a
plurality of votes cast, and all other matters shall be decided by a vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote thereon, a quorum being present.
-2-
<PAGE> 3
Section 7. Inspectors of Election. The Board of Directors, or, if the
Board shall not have made the appointment, the chairman presiding at any meeting
of stockholders, shall have power to appoint one or more persons to act as
inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board shall
preside as chairman of a meeting of the stockholders. In the absence of the
Chairman of the Board, a majority of the members of the Board of Directors
present in person at such meeting may appoint any other person to act as
chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the Corporation
shall act as secretary of all meetings of the stockholders. In the absence of
the Secretary, the chairman of the meeting shall appoint any other person to act
as secretary of the meeting.
Section 10. Stockholders' Action Without Meetings. Except as otherwise
set forth in Section 16-10a-704(5) of the Utah Revised Business Corporation Act,
any action in connection with any increase or decrease in the number of the
members of the Board of Directors of the Corporation (including, without
limitation, the appointment or removal of any director) that is required or
permitted to be taken at any meeting of the shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing shall be signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a
-3-
<PAGE> 4
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation in accordance with the provisions of
Section 16-10a-704 of the Utah Revised Business Corporation Act. Except as
contemplated in the immediately foregoing sentence, all other actions that are
required or permitted to be taken at any meeting of the stockholders may be
taken without a meeting, without prior notice and without a vote only if a
unanimous consent or consents in writing shall be signed by the holders of
outstanding stock entitled to vote thereon and shall be delivered to the
Corporation in accordance with the provisions of Section 16-10a-704 of the Utah
Revised Business Corporation Act.
ARTICLE II
Board of Directors
Section 1. Number of Directors. The Board of Directors shall consist of
eight (8) members; provided, however, that such number may from time to time be
increased or decreased by the stockholders, but in no event shall the number of
directors be fewer than eight (8) nor more than eleven (11).
Section 2. Vacancies. Whenever any vacancy shall occur in the Board of
Directors by reason of death, resignation, removal, increase in the number of
directors or otherwise, it may be filled only by the stockholders and not by the
directors.
-4-
<PAGE> 5
Section 3. First Meeting. The first meeting of each newly elected Board
of Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of stockholders or any adjournment thereof at the
place the annual meeting of stockholders was held at which such directors were
elected, or at such other place as the Board of Directors shall determine, for
the election or appointment of a Chairman of the Board of Directors and officers
for the ensuing year and the transaction of such other business as may be
brought before such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors, other than the first meeting, may be held without notice at such
times and places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chairman of the Board or any two directors by
delivering notice of the time and place of each special meeting to the remaining
directors. Notice deposited in the United States mail shall be received by the
directors at least three (3) days before the meeting and notice delivered by
telephone, telegraph or personal delivery shall be received by the directors at
least forty-eight (48) hours before the meeting. Except as otherwise specified
in the notice thereof, or as required by statute, the Articles of Incorporation
or these By-Laws, any and all business may be transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at which one
or more of the members of the Board of Directors or of a committee designated by
the Board of
-5-
<PAGE> 6
Directors shall participate by means of conference telephone or similar
communications equipment shall be deemed to have been held at the place
designated for such meeting, provided that at least one member is at such place
while participating in the meeting.
Section 7. Organization. Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board. In the absence of the Chairman of
the Board, a presiding officer shall be chosen by a majority of the directors
present. The Secretary of the Corporation shall act as secretary of the meeting,
but, in his absence, the presiding officer may appoint any person to act as
secretary of the meeting.
Section 8. Quorum; Vote. Six (6) directors shall constitute a quorum
for the transaction of business, but less than a quorum may adjourn any meeting
to another time or place from time to time until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further notice. Except
as otherwise required by the Stockholders' Agreement, statute, the Articles of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 9. Removal of Directors. Subject to the terms of the
Stockholders' Agreement, any one or more of the directors shall be subject to
removal with or without cause at any time by the stockholders.
-6-
<PAGE> 7
Section 10. Directors' Action Without Meetings. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board of Directors and such written consent is filed with the minutes of
proceedings of the Board of Directors.
Section 11. Attendance of Advisors. Any director shall be entitled to
have one or more legal and/or financial advisors attend and be present at any
meeting of the Board of Directors, provided that (i) such director shall have
delivered a notice to the other directors at least twelve (12) hours prior to
the time of such meeting, specifying the name and affiliation of any such
advisor and (ii) such advisor shall have executed a confidentiality agreement in
form and substance acceptable to the Board of Directors.
Section 12. Committees. The Board of Directors shall not designate any
committee of the Board of Directors.
ARTICLE III
Officers
Section 1. General. The Board of Directors shall elect the officers of
the Corporation, which shall include a Chairman of the Board, a President, a
Chief Executive Officer, a Chief Financial Officer, a Secretary, a Treasurer and
such other or additional
-7-
<PAGE> 8
officers (including, without limitation, one or more Vice-Presidents, Assistant
Vice-Presidents, Assistant Secretaries and Assistant Treasurers) as the Board of
Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer shall hold
his office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer shall be subject to removal with or without
cause at any time by the Board of Directors. Vacancies in any office, whether
occurring by death, resignation, removal or otherwise, may be filled by the
Board of Directors.
Section 3. Powers and Duties. Each of the officers of the Corporation
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his respective office as well as such powers and
duties as from time to time may be conferred upon him by the Board of Directors.
Section 4. Power to Vote Stock. No person shall have the power or
authority on behalf of the Corporation to attend and to vote at any meeting of
stockholders of any corporation in which this Corporation may hold stock, or to
exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, except to the
extent such powers are conferred upon any person by the Board of Directors.
ARTICLE IV
-8-
<PAGE> 9
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of the
Corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the Chairman of the Board or a Vice
Chairman of the Board or the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
Corporation shall be transferable on the books of the Corporation only by the
holder of record thereof, in person or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 3. Ownership of Stock. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
ARTICLE V
-9-
<PAGE> 10
Miscellaneous
Section 1. Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the year and
State of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to fix,
and from time to time to change, the fiscal year of the Corporation.
ARTICLE VI
Amendment
Subject to the terms of the Stockholders' Agreement, the stockholders
shall have the power to make, alter or repeal the By-Laws of the Corporation.
The Board of Directors shall not have such power.
ARTICLE VII
Indemnification
Except to the extent expressly prohibited by the Utah Revised Business
Corporation Act and except to the extent prohibited in Article 11.7 of the Stock
Purchase and Sale Agreement dated as of March 5, 1996, as amended, among David
Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling, TLG Laboratories Holding Corp.,
Natur-Pharma Inc. and Green Equity Investors II, L.P. (the "Purchase
Agreement"), with respect to the Stockholder
-10-
<PAGE> 11
Indemnitors (as such term is defined in the Purchase Agreement), the Corporation
shall indemnify each person made or threatened to be made a party to any action
or proceeding, whether civil or criminal, and whether by or in the right of the
Corporation or otherwise, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the
Corporation, or serves or served at the request of the Corporation any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity while he or she was such a director or officer
(hereinafter referred to as "Indemnified Person"), against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses, including
attorneys' fees, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such Indemnified Person
establishes that either (a) his or her acts were committed in bad faith, or were
the result of active and deliberate dishonesty, and were material to the cause
of action so adjudicated, or (b) that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally entitled.
The Corporation shall advance or promptly reimburse upon request any
Indemnified Person for all expenses, including attorneys' fees, reasonably
incurred in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
Indemnified Person to repay such amount if such Indemnified Person is ultimately
found not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced or reimbursed exceed the amount
to which such Indemnified Person is entitled.
-11-
<PAGE> 12
Nothing herein shall limit or affect any right of any Indemnified
Person otherwise than hereunder to indemnification or expenses, including
attorneys' fees, under any statute, rule, regulation, articles of incorporation,
by-law, insurance policy, contract or otherwise.
Anything in these by-laws to the contrary notwithstanding, no
elimination of this by-law, and no amendment of this by-law adversely affecting
the right of any Indemnified Person to indemnification or advancement of
expenses hereunder shall be effective until the sixtieth (60th) day following
notice to such Indemnified Person of such action, and no elimination of or
amendment to this by-law shall thereafter deprive any Indemnified Person of his
or her rights hereunder arising out of alleged or actual occurrences, acts or
failures to act prior to such sixtieth (60th) day.
The Corporation shall not, except by elimination or amendment of this
by-law in a manner consistent with the preceding paragraph, take any corporate
action or enter into any agreement which prohibits, or otherwise limits the
rights of any Indemnified Person to, indemnification in accordance with the
provisions of this by-law. The indemnification of any Indemnified Person
provided by this by-law shall be deemed to be a contract between the Corporation
and each Indemnified Person and shall continue after such Indemnified Person has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of such Indemnified Person's heirs, executors, administrators and legal
representatives. If the Corporation fails timely to make any payment pursuant to
the indemnification and advancement or reimbursement of expenses provisions of
this Article VII and an Indemnified
-12-
<PAGE> 13
Person commences an action or proceeding to recover such payment, the
Corporation in addition shall advance or reimburse such Indemnified Person for
the legal fees and other expenses of such action or proceeding.
The Corporation is authorized to enter into agreements with any of its
directors or officers extending rights to indemnification and advancement of
expenses to such Indemnified Person to the fullest extent permitted by
applicable law, but the failure to enter into any such agreement shall not
affect or limit the rights of such Indemnified Person pursuant to this by-law,
it being expressly recognized hereby that all directors or officers of the
Corporation, by serving as such after the adoption hereof, are acting in
reliance hereon and that the Corporation is estopped to contend otherwise.
Persons who are not directors or officers of the Corporation shall be similarly
indemnified and entitled to advancement or reimbursement of expenses to the
extent authorized at any time by the Board of Directors.
In case any provision in this Article VII, shall be determined at any
time to be unenforceable in any respect, the other provisions shall not in any
way be affected or impaired thereby, and the affected provision shall be given
the fullest possible enforcement in the circumstances, it being the intention of
the Corporation to afford indemnification and advancement of expenses to its
directors or officers, acting in such capacities or in the other capacities
mentioned herein, to the fullest extent permitted by law whether arising from
alleged or actual occurrences, acts or failures to act occurring before or after
the adoption of this Article VII.
-13-
<PAGE> 14
For purposes of this Article VII, the Corporation shall be deemed to
have requested an Indemnified Person to serve an employee benefit plan where the
performance by such Indemnified Person of his or her duties to the Corporation
also imposes duties on, or otherwise involves services by, such Indemnified
Person to the plan or participants or beneficiaries of the plan, and excise
taxes assessed on an Indemnified Person with respect to an employee benefit plan
pursuant to applicable law shall be considered indemnifiable fines. For purposes
of this Article VII, the term "Corporation" shall include any legal successor to
the Corporation, including any corporation which acquires all or substantially
all of the assets of the Corporation in one or more transactions.
All of the above notwithstanding, nothing in this Article VII shall
obligate the Corporation to indemnify any Indemnified Person for expenses,
liabilities, or other matters referred to or covered by this Article VII,
arising out of any act or omission prior to the consummation of the Purchase
Agreement.
-14-
<PAGE> 1
Exhibit 3.3
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NATUR-PHARMA INC.
Pursuant to the provisions of Section 16-10a-1006 of the
Revised Utah Business Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is NATUR-PHARMA
INC. (the "Corporation").
SECOND: The following amendment to the Articles of
Incorporation was adopted by the written consent of the sole shareholder of the
Corporation on May 7, 1996, in the manner prescribed by the Revised Utah
Business Corporation Act.
THIRD: Article FIRST of the Articles of
Incorporation of the Corporation is hereby amended to read as follows:
FIRST: The name of the corporation is TWIN
LABORATORIES INC. (hereinafter the "Corporation").
FOURTH: The number and class of shares outstanding,
the number of votes entitled to be cast on the amendment, and the number of
votes cast for and against the amendment, were:
Number Number of Number of Number of
of Shares Votes Entitled Votes Votes Cast
Class Outstanding to be Cast Cast For Against
Common 100 100 100 0
<PAGE> 2
FIFTH: No other class of stock of the Corporation
was issued and outstanding.
IN WITNESS WHEREOF, these Articles of Amendment have been
subscribed this ____ day of May, 1996, and I affirm that the statements
contained herein are true and correct to the best of my knowledge under
penalties of perjury.
NATUR-PHARMA INC.
By:
--------------
Brian Blechman
Vice President
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<PAGE> 1
Exhibit 3.6
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TLG LABORATORIES HOLDING CORP.
(Pursuant to Section 242 of the Delaware General Corporation Law)
* * * *
TLG Laboratories Holding Corp., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the
unanimous written consent of all members thereof in lieu of a special meeting,
pursuant to Section 141(f) of the General Corporation Law of the State of
Delaware, duly adopted resolutions setting forth a proposed amendment to the
Amended and Restated Certificate of Incorporation of the Corporation, declaring
said amendment to be advisable and calling for the submission of said amendment
to the stockholders of the Corporation for adoption pursuant to a Written
Consent of Stockholders pursuant to Section 228 of the General Corporation Law
of the State of Delaware, and stating that such amendment will be effective only
after adoption thereof by the affirmative vote of the stockholders of the
Corporation.
SECOND: That thereafter, pursuant to a resolution of the Board
of Directors of the Corporation, said amendment was submitted to the
stockholders of the Corporation, and such holders, by written consent taken
without a meeting in accordance with Section 228 of the
<PAGE> 2
General Corporation Law of the State of Delaware gave its unanimous written
consent and agreed to the adoption of the following resolution to amend the
Amended and Restated Certificate of Incorporation of the Corporation:
RESOLVED, that the Amended and Restated Certificate of
Incorporation of the Corporation be, and it hereby is, amended by
deleting in its entirety the present article one and substituting
in lieu thereof the following:
"FIRST: The name of the corporation is Twinlab
Corporation (the "Company").
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said TLG Laboratories Holding Corp. has
caused this Certificate to be signed by Brian Blechman, its Executive Vice
President, and attested by Neil Blechman, its Secretary, this 6th day of June,
1996.
TLG LABORATORIES HOLDING CORP.
By:_________________________________
Brian Blechman
Executive Vice President
ATTEST:
- -----------------------------
Neil Blechman
Secretary
- 2 -
<PAGE> 1
Exhibit 3.7
RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED RESEARCH PRESS, INC.
Under section 807 of the Business Corporation Law.
The undersigned, the President and Secretary of ADVANCED RESEARCH PRESS,
INC., do hereby certify:
The name of the Corporation is ADVANCED RESEARCH PRESS, INC., originally
formed as 333-335 EAST 70th STREET REALTY CORP.
The certificate of incorporation was filed by the Department of State on
the 8th day of March, 1983.
The certificate of incorporation is hereby amended to change the
purposes of the Corporation and to add provisions concerning: (i) the election
of directors, (ii) prohibiting committees of the Board of Directors, (iii)
actions by unanimous written consent of the shareholders, (iv) election not to
be governed by the provisions of Section 912 of the Business Corporation Law,
(v) indemnification of officers and directors, (vi) limitations on the personal
liability of directors, and (vii) the exclusion of preemptive rights, and the
text of the certificate of incorporation is hereby restated as amended to read
as herein set forth in full:
FIRST: The name of the Corporation is ADVANCED RESEARCH PRESS, INC.
SECOND: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Business
Corporation Law of New York (the "New York Business Corporation Law") provided
that it will not engage in any act or activity requiring the consent or approval
of any state official, department, board, agency or other body without such
consent or approval first being obtained.
THIRD: The office of the Corporation shall be located in the County
of Suffolk, State of New York.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue shall be 200 shares of Common Stock, all of which
shall be without par value. Each share of Common Stock shall be entitled to one
vote.
<PAGE> 2
FIFTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is:
Name Mailing Address
---- ---------------
Philip M. Kazin c/o Twin Laboratories Inc.
2120 Smithtown Ave.
Ronkonkoma, New York 11779
SIXTH: No election of directors need be by written ballot.
SEVENTH: The Board of Directors shall not designate any committee of
the Board of Directors.
EIGHTH: Any action in connection with any increase or decrease in the
number of the members of the Board of Directors of the Corporation (including,
without limitation, the election, appointment or removal of any director) that
is required or permitted to be taken at any meeting of the shareholders may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing shall be signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation in
accordance with the provisions of section 615 of the New York Business
Corporation Law. Except as contemplated in the immediately foregoing sentence,
all other actions that are required or permitted to be taken at any meeting of
the shareholders may be taken without a meeting, without prior notice and
without a vote only if a unanimous consent or consents in writing shall be
signed by the holders of outstanding shares entitled to vote thereon and shall
be delivered to the Corporation in accordance with the provisions of section 615
of the New York Business Corporation Law.
NINTH: The Corporation expressly elects not be governed by section
912 of the New York Business Corporation Law.
TENTH: Except to the extent expressly prohibited by Article 11.7 of
the Stock Purchase and Sale Agreement, dated as of March 5, 1996, as amended,
among David Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman, Stephen Welling, TLG Laboratories
Holding Corp., NaturPharma Inc. and Green Equity Investors II, L.P. (the
"Agreement") with respect to the Stockholder Indemnitors (as such term is
defined in the Agreement), the Corporation shall, to the fullest extent
permitted by the provisions of article 7 of the New York Business
<PAGE> 3
Corporation Law, as the same may be amended and supplemented, indemnify each
person who is or was an officer or Director of the Corporation and may indemnify
any and all other persons whom it shall have power to indemnify under said
article 7 from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said article 7, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any by-law, agreement, vote of
shareholders or disinterested Directors or otherwise, both as to acting in such
person's official capacity and as to acting in another capacity while holding
such office, and shall continue as to a person who has ceased to be a Director
or officer and shall inure to the benefit of the heirs, executors, and
administrators of such a person. Nothing in this Article Tenth and no provision
of any by-law, agreement, vote of shareholders or disinterested Directors, or
otherwise, shall obligate the Corporation to indemnify such persons for
expenses, liabilities, or other matters referred to in or covered by article 7
of the New York Business Corporation Law, arising out of any act or omission
prior to the adoption of this Restated Certificate of Incorporation
ELEVENTH: A Director of the Corporation shall not be personally liable
to the Corporation or the shareholders for damages for any breach of duty in
such capacity, except for the liability of any director if a judgment or other
final adjudication adverse to such director establishes that such director's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that such director personally gained in fact a
financial profit or other advantage to which such director was not legally
entitled or that such director's acts violated section 719 of the New York
Business Corporation Law, or the liability of any director for any act or
omission prior to the adoption of this Restated Certificate of Incorporation. If
the New York Business Corporation Law is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director shall be eliminated or limited to
the fullest extent permitted by the New York Business Corporation Law, as so
amended. No repeal or modification of this Article 11 shall adversely affect any
right of or protection afforded to a Director prior to such repeal or
modification.
TWELFTH: The Corporation expressly elects not to be governed by
section 622 of the New York Business Corporation Law.
The above restatement of the certificate of incorporation was authorized
by a resolution by unanimous written consent of the Board of Directors of the
Corporation, followed by a resolution by unanimous written consent of the
holders of all outstanding shares entitled to vote thereon.
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this certificate and
affirm the truth of the statements therein set forth under penalty of perjury,
this _th day of May, 1996.
---------------- ------------------
Jean Blechman David Blechman
Secretary President
<PAGE> 1
Exhibit 3.8
BY-LAWS
OF
ADVANCED RESEARCH PRESS, INC.
(A New York Corporation)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall
be held at such place, either within or without the State of New York, as shall
be designated in the notice of meeting.
Section 2. Annual Meetings. Annual meetings of stockholders
shall be held on such date during the month of April or at such other time and
at such place as shall be designated from time to time by the Board of
Directors. At each annual meeting the stockholders shall elect a Board of
Directors by plurality vote and transact such other business as may be properly
brought before the meeting.
Section 3. Special Meetings. Special meetings of the
stockholders may be called by the Board of Directors, by any two directors or by
the holders of ten percent (10%) of the outstanding Common Stock of the
Corporation.
Section 4. Notice of Meetings. Written notice of each meeting
of the stockholders stating the place, date and hour of the meeting shall be
given by or at the direction of the Board of Directors or other persons calling
the meeting to each stockholder entitled to vote at the meeting at least ten
(10), but not more than sixty (60), days prior to
<PAGE> 2
the meeting. Notice of any special meeting shall state in general terms the
purpose or purposes for which the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holders of a
majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at a meeting, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at such
meeting; but, if there be less than a quorum, the holders of a majority of the
stock so present or represented may adjourn the meeting to another time or
place, from time to time, until a quorum shall be present, whereupon the meeting
may be held, as adjourned, without further notice, except as required by law,
and any business may be transacted thereat which might have been transacted at
the meeting as originally called.
Section 6. Voting. At any meeting of the stockholders every
registered owner of shares entitled to vote may vote in person or by proxy and,
except as otherwise provided by statute, in the Certificate of Incorporation or
these By-Laws, shall have one vote for each such share standing in his name on
the books of the Corporation. Except as otherwise required or provided by the
Stockholders Agreement dated as of May 7, 1996 by and among Green Equity
Investors II, L.P., Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling and TLG Laboratories Holding Corp.
("Holding") (the "Stockholders' Agreement"), statute, the Certificate of
Incorporation or these By-Laws, all elections of directors shall be decided by a
plurality of votes cast, and all other matters shall be decided by a vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote thereon, a quorum being present.
-2-
<PAGE> 3
Section 7. Inspectors of Election. The Board of Directors, or,
if the Board shall not have made the appointment, the chairman presiding at any
meeting of stockholders, shall have power to appoint one or more persons to act
as inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board
shall preside as chairman of a meeting of the stockholders. In the absence of
the Chairman of the Board, a majority of the members of the Board of Directors
present in person at such meeting may appoint any other person to act as
chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the
Corporation shall act as secretary of all meetings of the stockholders. In the
absence of the Secretary, the chairman of the meeting shall appoint any other
person to act as secretary of the meeting.
Section 10. Stockholders' Action Without Meetings. Any action
in connection with any increase or decrease in the number of the members of the
Board of Directors of the Corporation (including, without limitation, the
election, appointment or removal of any director) that is required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and
-3-
<PAGE> 4
shall be delivered to the Corporation in accordance with the provisions of
Section 615 of the Business Corporation Law of the State of New York. Except as
contemplated in the immediately foregoing sentence, all other actions that are
required or permitted to be taken at any meeting of the stockholders may be
taken without a meeting, without prior notice and without a vote only if a
unanimous consent or consents in writing shall be signed by the holders of
outstanding stock entitled to vote thereon and shall be delivered to the
Corporation in accordance with the provisions of Section 615 of the New York
Business Corporation Law.
ARTICLE II
Board of Directors
Section 1. Number of Directors. The Board of Directors shall
consist of eight (8) members; provided, however, that such number may from time
to time be increased or decreased by the stockholders, but in no event shall the
number of directors be fewer than eight (8) nor more than eleven (11).
Section 2. Vacancies. Whenever any vacancy shall occur in the
Board of Directors by reason of death, resignation, removal, increase in the
number of directors or otherwise, it may be filled only by the stockholders and
not by the directors.
Section 3. First Meeting. The first meeting of each newly
elected Board of Directors, of which no notice shall be necessary, shall be held
immediately following the
-4-
<PAGE> 5
annual meeting of stockholders or any adjournment thereof at the place the
annual meeting of stockholders was held at which such directors were elected, or
at such other place as the Board of Directors shall determine, for the election
or appointment of a Chairman of the Board of Directors and officers for the
ensuing year and the transaction of such other business as may be brought before
such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors, other than the first meeting, may be held without notice at such
times and places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board or any two
directors by delivering notice of the time and place of each special meeting to
the remaining directors. Notice deposited in the United States mail shall be
received by the directors at least three (3) days before the meeting and notice
delivered by telephone, telegraph or personal delivery shall be received by the
directors at least forty-eight (48) hours before the meeting. Except as
otherwise specified in the notice thereof, or as required by statute, the
Certificate of Incorporation or these By-Laws, any and all business may be
transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at
which one or more of the members of the Board of Directors or of a committee
designated by the Board of Directors shall participate by means of conference
telephone or similar communications
-5-
<PAGE> 6
equipment shall be deemed to have been held at the place designated for such
meeting, provided that at least one member is at such place while participating
in the meeting.
Section 7. Organization. Every meeting of the Board of
Directors shall be presided over by the Chairman of the Board. In the absence of
the Chairman of the Board, a presiding officer shall be chosen by a majority of
the directors present. The Secretary of the Corporation shall act as secretary
of the meeting, but, in his absence, the presiding officer may appoint any
person to act as secretary of the meeting.
Section 8. Quorum; Vote. Six (6) directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn any
meeting to another time or place from time to time until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without further
notice. Except as otherwise required by the Stockholders' Agreement, statute,
the Certificate of Incorporation or these By-Laws, all matters coming before any
meeting of the Board of Directors shall be decided by the vote of a majority of
the directors present at the meeting, a quorum being present.
Section 9. Removal of Directors. Subject to the terms of the
Stockholders' Agreement, any one or more of the directors shall be subject to
removal with or without cause at any time by the stockholders.
Section 10. Directors' Action Without Meetings. Any action
required or permitted to be taken at any meeting of the Board of Directors may
be taken without a
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<PAGE> 7
meeting, if a written consent thereto is signed by all members of the Board of
Directors and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 11. Attendance of Advisors. Any director shall be
entitled to have one or more legal and/or financial advisors attend and be
present at any meeting of the Board of Directors, provided that (i) such
director shall have delivered a notice to the other directors at least twelve
(12) hours prior to the time of such meeting, specifying the name and
affiliation of any such advisor and (ii) such advisor shall have executed a
confidentiality agreement in form and substance acceptable to the Board of
Directors.
Section 12. Committees. The Board of Directors shall not
designate any committee of the Board of Directors.
ARTICLE III
Officers
Section 1. General. The Board of Directors shall elect the
officers of the Corporation, which shall include a Chairman of the Board, a
President, a Chief Executive Officer, a Chief Financial Officer, a Secretary, a
Treasurer and such other or additional officers (including, without limitation,
one or more Vice-Presidents, Assistant Vice-
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<PAGE> 8
Presidents, Assistant Secretaries and Assistant Treasurers) as the Board of
Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer
shall hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer shall be subject to removal with or
without cause at any time by the Board of Directors. Vacancies in any office,
whether occurring by death, resignation, removal or otherwise, may be filled by
the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the
Corporation shall, unless otherwise ordered by the Board of Directors, have such
powers and duties as generally pertain to his respective office as well as such
powers and duties as from time to time may be conferred upon him by the Board of
Directors.
Section 4. Power to Vote Stock. No person shall have the power
or authority on behalf of the Corporation to attend and to vote at any meeting
of stockholders of any corporation in which this Corporation may hold stock, or
to exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, except to the
extent such powers are conferred upon any person by the Board of Directors.
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<PAGE> 9
ARTICLE IV
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of
the Corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the Chairman of the Board or a Vice
Chairman of the Board or the President or a Vice-President, and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
Corporation shall be transferable on the books of the Corporation only by the
holder of record thereof, in person or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 3. Ownership of Stock. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
owner thereof in fact and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
-9-
<PAGE> 10
ARTICLE V
Miscellaneous
Section 1. Corporate Seal. The seal of the Corporation shall
be circular in form and shall contain the name of the Corporation and the year
and State of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have
power to fix, and from time to time to change, the fiscal year of the
Corporation.
ARTICLE VI
Amendment
Subject to the terms of the Stockholders' Agreement, the
stockholders shall have the power to make, alter or repeal the By-Laws of the
Corporation. The Board of Directors shall not have such power.
ARTICLE VII
Indemnification
Except to the extent expressly prohibited by the New York
Business Corporation Law and except to the extent prohibited in Article 11.7 of
the Stock Purchase and Sale Agreement dated as of March 5, 1996, as amended,
among David Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman, Stephen Welling, Holding, Natur-Pharma
Inc. and Green Equity Investors II,
-10-
<PAGE> 11
L.P. (the "Purchase Agreement"), with respect to the Stockholder Indemnitors (as
such term is defined in the Purchase Agreement), the Corporation shall indemnify
each person made or threatened to be made a party to any action or proceeding,
whether civil or criminal, and whether by or in the right of the Corporation or
otherwise, by reason of the fact that such person or such person's testator or
intestate is or was a director or officer of the Corporation, or serves or
served at the request of the Corporation any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity
while he or she was such a director or officer (hereinafter referred to as
"Indemnified Person"), against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein, provided that
no such indemnification shall be made if a judgment or other final adjudication
adverse to such Indemnified Person establishes that either (a) his or her acts
were committed in bad faith, or were the result of active and deliberate
dishonesty, and were material to the cause of action so adjudicated, or (b) that
he or she personally gained in fact a financial profit or other advantage to
which he or she was not legally entitled.
The Corporation shall advance or promptly reimburse upon
request any Indemnified Person for all expenses, including attorneys' fees,
reasonably incurred in defending any action or proceeding in advance of the
final disposition thereof upon receipt of an undertaking by or on behalf of such
Indemnified Person to repay such amount if such Indemnified Person is ultimately
found not to be entitled to indemnification or, where
-11-
<PAGE> 12
indemnification is granted, to the extent the expenses so advanced or reimbursed
exceed the amount to which such Indemnified Person is entitled.
Nothing herein shall limit or affect any right of any
Indemnified Person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation, certificate of
incorporation, by-law, insurance policy, contract or otherwise.
Anything in these by-laws to the contrary notwithstanding, no
elimination of this by-law, and no amendment of this by-law adversely affecting
the right of any Indemnified Person to indemnification or advancement of
expenses hereunder shall be effective until the sixtieth (60th) day following
notice to such Indemnified Person of such action, and no elimination of or
amendment to this by-law shall thereafter deprive any Indemnified Person of his
or her rights hereunder arising out of alleged or actual occurrences, acts or
failures to act prior to such sixtieth (60th) day.
The Corporation shall not, except by elimination or amendment
of this by-law in a manner consistent with the preceding paragraph, take any
corporate action or enter into any agreement which prohibits, or otherwise
limits the rights of any Indemnified Person to, indemnification in accordance
with the provisions of this by-law. The indemnification of any Indemnified
Person provided by this by-law shall be deemed to be a contract between the
Corporation and each Indemnified Person and shall continue after such
Indemnified Person has ceased to be a director or officer of the Corporation and
shall inure to the benefit of such
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<PAGE> 13
Indemnified Person's heirs, executors, administrators and legal representatives.
If the Corporation fails timely to make any payment pursuant to the
indemnification and advancement or reimbursement of expenses provisions of this
Article VII and an Indemnified Person commences an action or proceeding to
recover such payment, the Corporation in addition shall advance or reimburse
such Indemnified Person for the legal fees and other expenses of such action or
proceeding.
The Corporation is authorized to enter into agreements with
any of its directors or officers extending rights to indemnification and
advancement of expenses to such Indemnified Person to the fullest extent
permitted by applicable law, but the failure to enter into any such agreement
shall not affect or limit the rights of such Indemnified Person pursuant to this
by-law, it being expressly recognized hereby that all directors or officers of
the Corporation, by serving as such after the adoption hereof, are acting in
reliance hereon and that the Corporation is estopped to contend otherwise.
Persons who are not directors or officers of the Corporation shall be similarly
indemnified and entitled to advancement or reimbursement of expenses to the
extent authorized at any time by the Board of Directors.
In case any provision in this Article VII, shall be determined
at any time to be unenforceable in any respect, the other provisions shall not
in any way be affected or impaired thereby, and the affected provision shall be
given the fullest possible enforcement in the circumstances, it being the
intention of the Corporation to afford indemnification and advancement of
expenses to its directors or officers, acting in such capacities or in the other
capacities mentioned herein, to the fullest extent permitted by law whether
arising from
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<PAGE> 14
alleged or actual occurrences, acts or failures to act occurring before or after
the adoption of this Article VII.
For purposes of this Article VII, the Corporation shall be
deemed to have requested an Indemnified Person to serve an employee benefit plan
where the performance by such Indemnified Person of his or her duties to the
Corporation also imposes duties on, or otherwise involves services by, such
Indemnified Person to the plan or participants or beneficiaries of the plan, and
excise taxes assessed on an Indemnified Person with respect to an employee
benefit plan pursuant to applicable law shall be considered indemnifiable fines.
For purposes of this Article VII, the term "Corporation" shall include any legal
successor to the Corporation, including any corporation which acquires all or
substantially all of the assets of the Corporation in one or more transactions.
All of the above notwithstanding, nothing in this Article VII
shall obligate the Corporation to indemnify any Indemnified Person for expenses,
liabilities, or other matters referred to or covered by this Article VII,
arising out of any act or omission prior to the consummation of the Purchase
Agreement.
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<PAGE> 1
EXHIBIT 4.3
NATUR-PHARMA INC.
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
PAYMENT OF PRINCIPAL AND INTEREST UNCONDITIONALLY
GUARANTEED BY EACH GUARANTOR THEREOF
PURCHASE AGREEMENT
------------------
May 1, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
NATUR-PHARMA INC., a Utah corporation, which will be the
surviving entity of the Natur-Pharma Merger described below, proposes to issue
and sell to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Chase Securities Inc. ("Chase") (collectively, the "Initial Purchasers") an
aggregate of $100,000,000 principal amount of 10 1/4% Senior Subordinated Notes
due 2006 (the "Securities"), subject to the terms and conditions set forth
herein, which notes are unconditionally guaranteed by Advanced Research Press,
Inc. ("ARP") and TLG Laboratories Holding Corp. (the "Holding Company", and
together with ARP, the "Guarantors"). As used herein, the "Company" means (i)
prior to the effectiveness of the Natur-Pharma Merger, Natur-Pharma Inc.
("Natur-Pharma"), and (ii) after the effectiveness of the Natur-Pharma Merger,
Twin Laboratories Inc. The Securities are to be issued pursuant to the
provisions of an Indenture (the "Indenture") to be dated as of May 7, 1996, by
and among the Company, the Guarantors and Fleet National Bank, as Trustee (the
"Trustee").
Pursuant to the Stock Purchase and Sale Agreement dated as
of March 5, 1996 (the "Acquisition Agreement"), by and among Messrs. Brian,
Dean, Neil, Ross,
<PAGE> 2
Steve and David Blechman and Stephen Welling and Ms. Jean Blechman
(collectively, the "Stockholders"), the Holding Company, the Company and Green
Equity Investors II, L.P. ("GEI"), among other things, (i) the Holding Company
will acquire all of the outstanding capital stock of Natur-Pharma and the
Company will become a wholly owned subsidiary of the Holding Company, (ii) Twin
Laboratories Inc., Alvita Products, Inc., Twinlab Export Corp., Twinlab
Specialty Corporation and B. Bros. Realty Corporation (together with ARP, the
"Affiliated Companies") will be merged into Natur-Pharma (the "Natur-Pharma
Merger"), and (iii) ARP will be merged with Natur-Pharma II Inc., a wholly owned
subsidiary of Natur-Pharma, with ARP surviving the merger and becoming a wholly
owned subsidiary of Natur-Pharma (the "Natur-Pharma II Merger") (the above
transactions are herein referred to as the "Acquisition"). In connection with
the Acquisition, the Company's name will be changed from Natur-Pharma Inc. to
Twin Laboratories Inc. Concurrently with the issuance and sale of the
Securities, the Company and the Guarantors will enter into a Credit Facility
(the "New Credit Facility") with Chemical Bank, as managing agent, and certain
lenders named therein which will consist of (i) a term loan in the amount of $53
million, and (ii) a revolving credit facility in the aggregate amount of $15
million, and in connection with the Acquisition and the Acquisition Agreement,
(i) GEI will acquire approximately 48% of the common stock of the Holding
Company for aggregate consideration of $4.8 million and shares of non-voting
junior redeemable preferred stock of the Holding Company for aggregate
consideration of $37.0 million, and (ii) certain other investors will acquire
approximately 7% of the common stock of the Holding Company for aggregate
consideration of $0.7 million and shares of non-voting senior redeemable
preferred stock of the Holding Company for aggregate considerations of $30.0
million.
For purposes of this Agreement, the term "Securities" means
the $100,000,000 aggregate principal amount of the notes of the Company (the
"Notes"), together with the guarantees (the "Guarantees") thereof by the
Guarantors. The Securities and the Indenture are more fully described in the
Offering Memorandum (as hereinafter defined). Capitalized terms used herein
without definition have the respective meanings specified in the Offering
Memorandum.
2
<PAGE> 3
The Securities will be offered and sold to you without being
registered under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on an exemption therefrom. The Company and the Affiliated Companies
have prepared a preliminary offering memorandum dated April 19, 1996 (such
preliminary offering memorandum being hereinafter referred to as the
"preliminary offering memorandum"), and an offering memorandum dated May 1, 1996
(such offering memorandum, in the form first furnished to the Initial Purchasers
for use in connection with the offering of the Securities, being hereinafter
referred to as the "Offering Memorandum"), setting forth information regarding
the Company, the Holding Company, the Affiliated Companies and the Securities.
Unless otherwise explicitly provided for herein, all references herein to the
preliminary offering memorandum are to the preliminary offering memorandum at
April 19, 1996 and do not include any amendment or supplement subsequent
thereto. Each of the Company and the Affiliated Companies hereby confirms that
it has authorized the use of the preliminary offering memorandum and the
Offering Memorandum, and any amendments and supplements thereto, by the Initial
Purchasers in connection with the offering and resale by the Initial Purchasers
of the Securities in accordance with the terms and provisions of this Agreement.
Holders (including subsequent transferees) of the Securities
will have the registration rights set forth in the Registration Rights Agreement
(the "Registration Rights Agreement"), to be dated the Closing Date (as
hereinafter defined), in substantially the form of Exhibit A hereto. Pursuant to
the Registration Rights Agreement, the Company and the Guarantors will agree to
file with the Securities and Exchange Commission (the "Commission") under the
circumstances set forth therein, (i) a registration statement under the 1933 Act
(the "Exchange Offer Registration Statement") registering an issue of senior
subordinated notes identical in all material respects to the Securities (the
"Exchange Securities") to be offered in exchange for the Securities (the
"Exchange Offer") and (ii), under the circumstances set forth therein, a
registration statement pursuant to Rule 415 under the 1933 Act (the "Shelf
Registration Statement").
3
<PAGE> 4
This Agreement, the Indenture, the Securities, the
Registration Rights Agreement, the Acquisition Agreement, the New Credit
Facility, the agreements creating security interests in the assets of the
Company for the benefit of the holders of indebtedness arising under the New
Credit Facility (together with the New Credit Facility, the "Bank Agreements")
are sometimes referred to in this Agreement, individually, as a "Transaction
Agreement" and, collectively, as the "Transaction Agreements" and the
Acquisition, the Offering, the Natur-Pharma Merger, the Natur-Pharma II Merger,
the execution and delivery of the Bank Agreements, the execution and delivery of
the Indenture and the issuance and sale of the Securities are sometimes referred
to herein, individually, as a "Transaction" and collectively, as the
"Transactions."
1. Agreements to Sell and Purchase. On the basis of the
representations, warranties, covenants and agreements contained in this
Agreement, and subject to the terms and conditions herein set forth, the Compa-
ny, as to the Notes, and, the Guarantors, as to the Guarantees, agree to issue
and sell to each of the Initial Purchasers, and each of the Initial Purchasers
agrees, severally and not jointly, to purchase from the Company, as to the
Notes, and the Guarantors, as to the Guarantees, at a purchase price equal to
97% of the principal amount of the Securities (the "Purchase Price"), Securi-
ties in the respective principal amount set forth opposite their names on
Schedule A hereto.
2. Delivery and Payment. Delivery to you of and payment for the
Securities shall be made at 10:00 A.M., New York City time, on May 7, 1996 (such
time and date being referred to as the "Closing Date") at such place as you
shall reasonably designate. The Closing Date and the location of delivery of the
Securities may be varied by agreement among you and the Company.
One or more of the Securities in definitive form, registered
in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"),
or such other name(s) as the Initial Purchasers may request in writing upon at
least two business days' notice to the Company, having an aggregate principal
amount corresponding to the aggregate principal amount of Securities sold
pursuant to Rule 144A under the 1933 Act, as such rule may be amended from time
to time ("Rule 144A"), to qualified institu-
4
<PAGE> 5
tional buyers within the meaning of Rule 144A ("QIBs") (collectively, the
"Global Securities"), and one or more Securities in definitive form, registered
in such names and denominations as the Initial Purchasers may so request, having
an aggregate principal amount corresponding to the aggregate principal amount of
the Securities sold to Institutional Accredited Investors (as defined herein)
(collectively, the "Certificated Securities"), shall be delivered by the Company
to the Initial Purchasers on the Closing Date with any transfer taxes payable
upon initial issuance thereof duly paid by the Company, for your respective
accounts against payment by the Initial Purchasers of the purchase price thereof
by wire transfer of same day funds to such bank account as the Company shall
designate at least two business days prior to the Closing Date. The Global
Securities and Certificated Securities in definitive form shall be made
available to you at the offices of DLJ (or at such other place as shall be
acceptable to you) for inspection not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date.
3. Offering of the Securities and the Initial Purchasers'
Representations.
(a) You have advised the Company that it is your
intention, as promptly as you deem appropriate after the Company shall have
furnished you with copies of the Offering Memorandum, to resell the Securities
pursuant to the procedures and upon the terms and subject to the conditions set
forth in the Offering Memorandum.
(b) Each Initial Purchaser represents, warrants and
agrees with respect to itself, that such Initial Purchaser:
(i) is not acquiring the Securities with a view
to any distribution thereof or with any present intention of
offering or selling any of the Securities in a transaction
that would violate the 1933 Act or the securities laws of any
State of the United States or any other applicable
jurisdiction;
5
<PAGE> 6
(ii) will solicit offers for Securities only
from, and will offer Securities only to, persons that it
reasonably believes are (x) QIBs within the meaning of Rule
144A in transactions meeting the requirements of Rule 144A and
that, in connection with each such sale, it has taken or will
take reasonable steps to ensure that the purchaser of such
Securities is aware that such sale is being made in reliance
on Rule 144A, (y) a limited number of other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the 1933 Act ("Institutional Accredited
Investors")) which the Initial Purchaser maintains on its list
of persons regularly contacted regarding Rule 144A offerings
and which regularly conduct business with such Initial
Purchaser or (z) institutions that are outside the United
States and are not U.S. persons (and are not purchasing for
the account or benefit of a U.S. person) within the meaning of
Regulation S under the 1933 Act;
(iii) will offer and sell the Securities only (x)
to persons who it reasonably believes to be QIBs, (y) to
institutions which it reasonably believes are Institutional
Accredited Investors that execute and deliver a letter
containing certain representations and agreements in the form
attached as Annex A to the Offering Memorandum or (z) to
institutions in transactions that occur outside the United
States within the meaning of Regulation S under the 1933 Act;
(iv) is an Institutional Accredited Investor with
such knowledge and experience in financial and business
matters as are necessary in order to evaluate the merits and
risks of an investment in the Securities;
6
<PAGE> 7
(v) has not and will not offer or sell the
Securities by any form of general solicitation or general
advertising, including but not limited to the methods
described in Rule 502(c) of Regulation D under the 1933 Act;
and,
(vi) is not a pension or welfare plan (as defined
in Section 3 of the Employee Retirement Income Act of 1974, as
amended, or the rules and regulations promulgated thereunder
("ERISA")) and it is not acquiring the Securities on behalf of
a person whose funds to be used for the purchase of the
Securities constitute assets allocated to any qualified trust
that contains the assets of any employee benefit plan with
respect to which the Company is a party in interest or
disqualified person or the use of such assets would not
constitute a non-exempt prohibited transaction under ERISA or
the Code. The representation made in the preceding sentence is
made solely in reliance upon such Initial Purchaser's review
of "Notice to Investors" in the Offering Memorandum, which
describes the employee benefit plans with respect to which the
Company is a party in interest or a disqualified person.
4. Agreements of the Company. Each of the Company and the
Guarantors, jointly and severally, agrees with each of you that:
(a) It will advise you promptly and, if requested by any
of you, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the
qualification or exemption from qualification of any of the Securities
for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, and (ii) of the happening of any event during
such period as in your rea-
7
<PAGE> 8
sonable judgment, upon the advice of counsel, you are required to
deliver an Offering Memorandum in connection with sales of the
Securities by you which event makes any statement of a material fact
made in the Offering Memorandum untrue or which requires the making of
any additions to or changes in the Offering Memorandum (as amended or
supplemented from time to time) in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the Company, the Affiliated Companies and the
Guarantors shall use its best efforts to prevent the issuance of any
order suspending the qualification or exemption of the Securities under
any state securities or Blue Sky laws, and, if at any time, any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of the Securities under
any state securities or Blue Sky laws, the Company, the Affiliated
Companies and the Guarantors shall use every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(b) It will not make any amendment or supplement to the
preliminary offering memorandum or the Offering Memorandum, of which
you shall not previously have been advised and provided a copy within
two business days prior to the delivery thereof or to which you shall
reasonably object. During such period as in your reasonable judgment,
upon advice of counsel, you are required to deliver an Offering
Memorandum in connection with sales of the Securities, the Company and
the Guarantors shall promptly prepare, upon your reasonable request,
any amendment or supplement to the Offering Memorandum that may be
necessary or advisable in connection with resales of the Securities.
(c) It will furnish to you and to those persons who you
identify to the Company, without charge, as many copies of the Offering
Memorandum (and of any amendments or supplements thereto) as you may
reasonably request.
8
<PAGE> 9
(d) If, during such period as in your reasonable
judgment, upon the advice of counsel, you are required to deliver the
Offering Memorandum in connection with sales of the Securities by you,
any event shall occur as a result of which it becomes necessary to
amend or supplement the Offering Memorandum in order to make the
statements therein, in light of the circumstances existing as of the
date the Offering Memorandum is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with any law, it will promptly prepare an
appropriate amendment or supplement to the Offering Memorandum so that
the statements in the Offering Memorandum, as so amended or
supplemented, will not, in the light of the circumstances existing as
of the date the Offering Memorandum is so delivered, be misleading, and
will comply with applicable law, and will furnish to you without charge
such number of copies thereof as you may reasonably request.
(e) It will cooperate with you and your counsel in
connection with the registration or qualification of the Securities for
offer and sale by you under the state securities or Blue Sky laws of
such jurisdictions as you may reasonably request (provided, that
neither the Company nor the Guarantors shall be obligated to qualify as
a foreign corporation in any jurisdiction in which it is not so
qualified or to take any action that would subject it to general
consent to service of process in any jurisdiction in which it is not
now so subject or to subject itself to general taxation in any such
jurisdiction). The Company and the Guarantors will continue such
qualification in effect so long as required by law for distribution of
the Securities by you.
(f) After the closing of the Exchange Offer, the Company
will, so long as the Securities are outstanding, file on a timely basis
with the Commission, to the extent such filings are accepted by the
Commission, and whether or not the Company has a class of securities
reg-
9
<PAGE> 10
istered under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the annual reports, quarterly reports and other documents
that the Company would be required to file if it were subject to
Section 13 or Section 15 of the 1934 Act. For a period of five (5)
years hereafter and thereafter for so long as you are making a market
in the Securities, the Company will furnish to you copies of all such
reports and information, together with such other documents, reports
and information as shall be furnished by the Company to the holders of
the Securities, and such other information concerning the Company and
its Subsidiaries as you may reasonably request.
(g) For so long as and at any time that it is not subject
to Section 13 or 15(d) of the 1934 Act, the Company, upon request of
any holder of the Securities, will furnish to such holder, and to any
prospective purchaser or purchasers of the Securities designated by
such holder, information satisfying the requirements of subsection
(d)(4)(i) of Rule 144A under the 1933 Act; provided, however, that the
Company's obligations under this Section 4(g) shall terminate upon the
earlier of (i) the date the Exchange Offer is concluded and the
exchange of the Exchange Securities for the Securities tendered therein
is consummated or (ii) the date the Shelf Registration Statement is
declared effective by the Commission; provided further that,
notwithstanding the foregoing proviso, the Company shall be obligated
to deliver, upon request, any information required by Rule
144A(d)(4)(i) under the Act to prospective purchasers of the Securities
during any period during which, pursuant to the Registration Rights
Agreement, the Shelf Registration Statement is required to be
effective, but such effectiveness has been suspended or revoked for any
reason.
(h) Whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, it will pay and be
responsible for all costs, expenses, fees and
10
<PAGE> 11
taxes in connection with or incident to (i) the printing, processing
and distribution of the preliminary offering memorandum, the Offering
Memorandum and all amendments or supplements thereto, including such
copies as may be requested for use in connection with resales by you,
(ii) the issuance and delivery of the Securities, (iii) the
registration or qualification of the Securities for offer and sale
under the securities or Blue Sky laws of the jurisdictions referred to
in paragraph (e) above (including, in each case, any filing fees in
connection therewith and the fees and disbursements of counsel relating
thereto), (iv) the rating of the Securities by investment rating
agencies, (v) the inclusion of the Securities on the National
Association of Securities Dealers, Inc. (the "NASD") Automatic
Quotation System-PORTAL ("PORTAL") and the approval of the Securities
by DTC for "book-entry" transfer and (vi) the performance by each of
the Company and the Guarantors of its other obligations under this
Agreement, including (without limitation) the fees of the Trustee, the
cost of its personnel and other internal costs, the cost of printing
and engraving the certificates representing the Securities, and all
expenses and taxes incident to the sale and delivery of the Securities
to you.
(i) It will use the proceeds from the sale of the
Securities in the manner described in the Offering Memorandum under the
caption "Use of Proceeds."
(j) It will use its reasonable efforts to, and will use
its reasonable efforts to cooperate with you to, cause the Securities
to be designated PORTAL securities in accordance with the rules and
regulations of the NASD.
(k) It will not voluntarily claim, and will actively
resist any attempts to claim, the benefit of any usury laws against the
holders of the Securities.
11
<PAGE> 12
(l) It will use its reasonable best efforts to do and
perform all things required to be done and performed under this
Agreement by it prior to or after the Closing Date and will use its
reasonable best efforts to satisfy all conditions precedent on its part
to the delivery of the Securities.
(m) Except in connection with the Exchange Offer or the
filing of the Shelf Registration Statement, as the case may be, it will
not, and will not authorize or knowingly permit any person acting on
its behalf to, solicit any offer to buy or offer to sell the Securities
by means of any form of general solicitation or general advertising
(including, without limitation, as such terms are used in Regulation D
under the 1933 Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the 1933 Act.
(n) Neither the Company nor any affiliate (as such term
is defined in Rule 501(b) under the 1933 Act) of the Company will
offer, sell or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the 1933 Act) which could be expected
to be integrated with the sale of the Securities in a manner that would
require the registration of the Securities under the 1933 Act.
(o) It will not, so long as the Securities are
outstanding, be or become an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company Act
of 1940, as amended.
(p) It will, prior to the Closing Date, furnish to the
Initial Purchasers a copy of any unaudited interim combined financial
statements of the Company for any period subsequent to the period
covered by the most recent financial statements appearing in the
Offering Memorandum.
12
<PAGE> 13
(q) Each Security will bear the following legend until
such legend shall no longer be necessary or advisable because the
Securities are no longer subject to the restrictions on transfer
described therein:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES
NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") THAT IS THREE YEARS (OR SUCH SHORTER
PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING THE RESALE
BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) PURSUANT TO RULE 144A, FOR SO LONG AS IT IS AVAILABLE, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF RULE 501(A)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE
(D),(E) OR (F)
13
<PAGE> 14
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE."
(r) During the period of three years after the Closing
Date or such shorter period as provided by any amendment to Rule 144
under the 1933 Act, the Company will not, and will not permit any of
its "affiliates" (as defined in Rule 144 under the 1933 Act) to, resell
any of the Securities which constitute "restricted securities" under
Rule 144 that have been reacquired by any of them.
(s) For so long as the Initial Purchasers shall hold any
Securities, but in no event longer than three years from the date
hereof, the Company shall, upon the Company's becoming a party in
interest or disqualified person with respect to any "employee benefit
plan" (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) other than any such plans
described in "Notice to Investors" in the Offering Memorandum, (i)
promptly notify the Initial Purchasers, in writing, of such event, and
(ii) as soon as practicable thereafter, amend the "Notice to Investors"
section of the Offering Memorandum to reflect such event.
5. Representations and Warranties. Each of the Company and the
Guarantors, jointly and severally, represents and warrants to each of you that:
(a) Each of the preliminary offering memorandum and the
Offering Memorandum, as of its date, contains all the information that,
if requested by a prospective purchaser, would be required to be
provided pursuant to Rule 144A(d)(4)(i) under the 1933 Act. The
Offering Memorandum does not, and at the Closing Date, the Offering
Memorandum and any amendment or supplement thereto will not, contain
any untrue
14
<PAGE> 15
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 light of the circumstances under which they were made, not
misleading, and the preliminary offering memorandum, at the date
thereof and as of the date hereof, did not contain any untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading; except that the representations
and warranties contained in this paragraph (a) shall not apply to
statements in or omissions from the preliminary offering memorandum or
the Offering Memorandum (or any supplement or amendment thereto) based
upon and conforming with information relating to any Initial Purchaser
furnished to the Company in writing by or on behalf of any Initial
Purchaser expressly for use therein. The Company acknowledges for all
purposes under this Agreement that the statements with respect to price
and discount and the last paragraph on the cover page of the Offering
Memorandum, the information contained under the caption "Plan of
Distribution" in the preliminary offering memorandum and the Offering
Memorandum, and the information regarding stabilization on the inside
front cover of the preliminary offering memorandum and the Offering
Memorandum (or any amendment or supplement thereto) constitute the only
written information furnished to the Company by or on behalf of any
Initial Purchaser expressly for use in the preliminary offering
memorandum or the Offering Memorandum (or any amendment or supplement
thereto) and that the Initial Purchasers shall not be deemed to have
provided any other information (and therefore are not responsible for
any such statement or omission) pertaining to any arrangement or
agreement with respect to any party other than the Initial Purchasers.
No contract or document that would be required to be described in the
Offering Memorandum if the Offering Memorandum were contained in a
registration statement on Form S-1 under the 1933 Act is not so
described.
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<PAGE> 16
(b) To the Company's knowledge, no action has been taken
with respect to the Company or any of its Subsidiaries, and no statute,
rule or regulation or order has been enacted, adopted or issued by any
governmental agency which prevents the issuance of the Securities,
prevents or suspends the use of the preliminary offering memorandum or
the Offering Memorandum or suspends the sale of the Securities in any
jurisdiction referred to in Section 4(e) hereof; no injunction,
restraining order or order of any nature by a Federal or state court of
competent jurisdiction has been issued with respect to the Company, the
Holding Company or any of the Affiliated Companies which would prevent
the issuance of the Securities, prevent or suspend the use of the
preliminary offering memorandum or the Offering Memorandum or suspend
the sale of the Securities in any jurisdiction referred to in Section
4(e) hereof; no action, suit or proceeding before any court or
arbitrator or any governmental body, agency or official (domestic or
foreign) is pending against or, to the knowledge of the Company,
threatened against, the Company, the Holding Company or any of the
Affiliated Companies which, if adversely determined, could reasonably
be expected to (a) prevent the issuance of the Securities, (b) prevent
the consummation of the transactions contemplated by the Acquisition
Agreement, or (c) in any manner invalidate this Agreement, the
Acquisition Agreement, the Registration Rights Agreement or the
Indenture; and every request of any securities authority or agency of
any jurisdiction for additional information (to be included in the
preliminary offering memorandum or the Offering Memorandum or
otherwise) that has been communicated to the Company has been complied
with in all material respects or responded to in a manner acceptable to
such securities authority.
(c) The Securities that are being sold by the Company
have been duly authorized for issuance and sale to the Initial
Purchasers pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agr-
16
<PAGE> 17
eement against payment of the consideration set forth herein, will have
been duly executed by the Company and the Guarantors; when the
Securities are issued, authenticated and delivered in accordance with
the Indenture and paid for in accordance with the terms of this
Agreement, the Securities issued by the Company or the Guarantors, as
applicable, will constitute valid and legally binding obligations of
the Company and the Guarantors, as applicable, enforceable against the
Company and the Guarantors, as applicable, in accordance with their
terms and entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity); the
Securities and the capital stock of the Company conform in all material
respects to the statements relating thereto in the Offering Memorandum;
and the issuance and sale of the Securities by the Company will not be
subject to preemptive or other similar rights.
(d) Each of the Transaction Agreements has been or, as of
the Closing Date will have been, duly authorized and validly executed
and delivered by the Company, the Affiliated Companies and the
Guarantors (to the extent each is a party thereto), and, assuming due
execution by you and the other parties thereto, constitutes a valid and
legally binding agreement of the Company, the Affiliated Companies and
the Guarantors (to the extent each is a party thereto), enforceable
against the Company, the Affiliated Companies and the Guarantors (to
the extent each is a party thereto) in accordance with its terms
subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other laws affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or
in equity).
17
<PAGE> 18
(e) The execution and delivery of the Transaction
Agreements and the consummation of the Transactions do not and on the
Closing Date will not (i) conflict with or result in a breach or
violation of any of the respective charter or bylaws of the Company,
the Affiliated Companies or the Holding Company or of any of the terms
or provisions thereof as in effect on such respective dates, or (ii)
constitute a default or cause an acceleration of any obligation under
or result in the imposition or creation of (or the obligation to create
or impose) a Lien (as hereinafter defined) with respect to, any of the
respective charters or by-laws of the Company, the Affiliated Companies
or the Holding Company or any material bond, note, debenture or other
evidence of indebtedness or any indenture, mortgage, deed of trust or
other material contract lease, or other instrument except for any such
bond, note, debenture or other evidence of indebtedness or any
indenture, mortgage, deed of trust or other material contract lease or
other instrument which will be satisfied in full or terminated on or
prior to the Closing Date to which the Company, the Holding Company or
any of the Affiliated Companies is a party or by which any of them is
bound, or to which any of the property or assets of the Company, the
Holding Company or any of the Affiliated Companies is or may be
subject, except for any such violation or default which, individually
or in the aggregate, would not have a material adverse effect on the
financial condition or results of operations or business of the Company
and ARP, taken as a whole (a "Material Adverse Effect") and except for
Liens in respect of the Securities and Liens to secure indebtedness
incurred pursuant to the New Credit Facility, or (iii) contravene any
order of any court or governmental agency or authority having
jurisdiction over the Company, the Holding Company or any of the
Affiliated Companies or any of their respective properties entered in
any proceeding to which the Company, the Holding Company or any of the
Affiliated Companies was or is a party or by which any of them is bound
or vio-
18
<PAGE> 19
late or conflict with any applicable Federal, state or local law, rule,
administrative regulation or ordinance or administrative or court
decree applicable to the Company, the Holding Company or any of the
Affiliated Companies or their respective properties except for such
defaults, accelerations or contraventions that individually or in the
aggregate would not have a Material Adverse Effect.
(f) The Company has applied to have the Securities
designated as PORTAL securities in accordance with the rules and
regulations of the NASD.
(g) Upon consummation of the Transactions, except for
interests in Hambrose Leasing - III, Limited Partnership, Hambrose
Leasing IV, Limited Partnership and Charterhouse Capital Associates,
L.P., the only entity in which the Company will have an equity or other
ownership interest will be ARP. The Company and ARP have been duly
organized, each is validly existing as a corporation in good standing
under the laws of its state of incorporation or organization and has
full corporate power and authority to carry on its business as it is
currently being conducted and as it will be conducted after the
Acquisition. Each of the Company and ARP has the requisite corporate
power and authority to own, lease and operate its properties, and each
is duly qualified and is in good standing as a foreign corporation (or
other entity) authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property
requires such qualification except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse
Effect.
(h) Each of the Company and the Guarantors has the
requisite corporate power and authority to authorize the offering of
the Securities and to execute, deliver and perform its obligations
under each of the Transaction Agreements to which it is a party and to
issue,
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<PAGE> 20
sell and deliver the Securities being issued by such issuer.
(i) All of the issued and outstanding shares of capital
stock of ARP have been duly authorized and validly issued, and, on the
Closing Date and after the Natur-Pharma II Merger, will be owned
directly by the Company. All such shares in ARP are fully paid and
non-assessable, and on the Closing Date, will be owned by the Company
free and clear of any security interest, mortgage, pledge, claim, lien,
encumbrance or adverse interest of any nature (each, a "Lien") other
than Liens securing indebtedness under or granted in connection with
the New Credit Facility. As of the Closing Date, there will be no
outstanding subscriptions, rights, warrants, options, calls,
convertible or exchangeable securities, commitments of sale, or Liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of ARP.
(j) The authorized, issued and outstanding capital stock
of the Company will be, as of the Closing Date, as set forth in the
Offering Memorandum under "Capitalization"; all the shares of issued
and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid, nonassessable and not subject to
any preemptive or similar rights and all of the outstanding shares of
capital stock of, or other ownership interests in, the Company will be
on the Closing Date owned directly by the Holding Company, free and
clear of all Liens other than Liens securing indebtedness to be
incurred under the New Credit Facility.
(k) Other than as disclosed in the Offering Memorandum,
there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, pending against the
Company, the Affiliated Companies or the Holding Company which would be
required to be disclosed in the Offering Memorandum if the Offering
Memorandum were a pro-
20
<PAGE> 21
spectus contained in a registration statement on Form S-1 under the
1933 Act, or which could reasonably be expected to have a Material
Adverse Effect, or materially and adversely to affect the performance
of the Company's or the Guarantors' obligations pursuant to this
Agreement, the Registration Rights Agreement or the Indenture or the
Company's obligations pursuant to the transactions contemplated hereby
or thereby and, to the Company's knowledge, no such proceedings are
contemplated or threatened.
(l) Except as would not, individually or in the
aggregate, have a Material Adverse Effect, neither the Company, the
Affiliated Companies nor the Holding Company is in violation of any
Federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
("Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
in connection with protection of human health or the environment
(collectively, "Environmental Laws"), which violation includes, but is
not limited to, noncompliance with any permits or other governmental
authorizations required for the operation of the business of the
Company, the Affiliated Companies or the Holding Company under
applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company, the Affiliated Companies or
the Holding Company received any communication (written or oral),
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company, the Affiliated Companies or
the Holding Company
21
<PAGE> 22
is in violation and there are no circumstances, either past, present or
that are reasonably foreseeable, that will or could reasonably be
expected to lead to such violation in the future. In addition, except
as disclosed in the preliminary offering memorandum or the Offering
Memorandum, or as would not, individually or in the aggregate, have a
Material Adverse Effect: there is no claim, action, cause of action,
investigation or notice (written or oral) by any person or entity
alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property
damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned or operated by the Company, the Affiliated Companies or the
Holding Company, now or in the past, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law
(collectively, "Environmental Claims"), pending or, to the knowledge of
the Company, threatened against the Company, the Affiliated Companies
or the Holding Company or, to the knowledge of the Company, against any
person or entity whose liability for any Environmental Claim the
Company, the Affiliated Companies or the Holding Company has retained
or assumed either contractually or by operation of law; to its
knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that will or could reasonably be
expected to result in a violation of any Environmental Law or form the
basis of any Environmental Claim against the Company, the Affiliated
Companies or the Holding Company or against any person or entity whose
liability for any Environmental Claim the Company, the Affiliated
Companies or the Holding Company has retained or assumed either
contractually or by operation of law.
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<PAGE> 23
(m) None of the Company, the Affiliated Companies or the
Holding Company has any knowledge of any actionable violation of any
Federal, state or local law relating to employment and employment
practices, discrimination in the hiring, promotion or pay of employees
nor any applicable wage or hour laws, except for any such violation
which, individually or in the aggregate, would not result in a Material
Adverse Effect. There is (A) no significant unfair labor practice
complaint pending against the Company, the Affiliated Companies or the
Holding Company or, to the knowledge of the Company, the Affiliated
Companies or the Holding Company, threatened against any of them,
before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective
bargaining agreement is pending against the Company, the Affiliated
Companies or the Guarantors or, to the knowledge of the Company, the
Affiliated Companies or the Holding Company, threatened against any of
them, (B) no labor strike, dispute, slowdown or stoppage ("Labor
Dispute") in which the Company, the Affiliated Companies or the Holding
Company is involved nor, to the knowledge of the Company, the
Affiliated Companies or the Holding Company, is any Labor Dispute
imminent, other than routine disciplinary and grievance matters, each
of the Company, the Affiliated Companies and the Holding Company is not
aware of any existing or imminent Labor Dispute by the employees of any
of its principal suppliers, manufacturers or contractors and (C) no
question concerning union representation within the meaning of the
National Labor Relations Act existing with respect to the employees of
the Company, the Affiliated Companies or the Holding Company and, to
the knowledge of the Company, the Affiliated Companies or the Holding
Company, no union organizing activities are taking place, except (with
respect to any matter specified in clause (A), (B) or (C) above, singly
or in the aggregate) such as would not have a Material Adverse Effect.
23
<PAGE> 24
(n) Subject to Liens securing indebtedness to be incurred
under the New Credit Facility or disclosed in the Offering Memorandum,
including capitalized leases, the Company and each of the Affiliated
Companies has good and marketable title, free and clear of all Liens,
to all property and assets described in the Offering Memorandum as
being owned by it excluding any Liens that would not have a Material
Adverse Effect. All leases to which the Company or any of the
Affiliated Companies is a party are valid and binding and no default by
the Company or any Subsidiary or, to the Company's knowledge, any other
party has occurred or is continuing thereunder, except for any such
defaults which, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company and the Affiliated Companies
enjoy possession under all such leases to which any of them is a party
as lessee with such exceptions as do not materially interfere with the
use made by the Company or the Affiliated Companies.
(o) The Company and each of the Affiliated Companies
maintains insurance covering their properties, operations, personnel
and businesses, including without limitation product liability
insurance. Neither the Company nor any of the Affiliated Companies has
received written notice from any insurer or agent of such insurer that
substantial capital improvements or other similar expenditures will
have to be made in order to continue such insurance. All such insurance
is outstanding and duly in force on the date hereof and will be
outstanding and duly in force on the Closing Date.
(p) The firm of accountants that has certified or shall
certify the applicable combined financial statements of the Company and
the Affiliated Companies included in the preliminary offering
memorandum and the Offering Memorandum are independent public
accountants with respect to the Company and its Subsidiaries, as
required by the 1933 Act and the 1934
24
<PAGE> 25
Act. The combined financial statements of the Company, together with
related notes, set forth in the preliminary offering memorandum and the
Offering Memorandum (and any amendments or supplements thereto) comply
as to form in all material respects with the requirements of the 1933
Act and the 1934 Act and fairly present the combined financial position
of the Company and the Affiliated Companies at the respective dates
indicated and the results of their operations and their cash flows for
the respective periods indicated, in accordance with generally accepted
accounting principles in the United States of America consistently
applied throughout such periods. The pro forma financial statements,
together with related notes, set forth under the caption "Unaudited Pro
Forma Condensed Consolidated Financial Data" in the preliminary
offering memorandum and the Offering Memorandum have been prepared on a
basis consistent with such historical statements, except for the pro
forma adjustments specified therein, and give effect to assumptions
made on a reasonable basis and present fairly the transactions
reflected thereby as indicated in the preliminary offering memorandum,
the Offering Memorandum and the Transaction Agreements and comply as to
form in all material respects with the applicable accounting
requirements of rule 11-02 of Regulation S-X and the pro forma
adjustments have been properly applied to the historical amounts in the
compilation of those statements.
(q) Except as contemplated by the preliminary offering
memorandum and the Offering Memorandum, subsequent to the respective
dates as of which information is given in the preliminary offering
memorandum and the Offering Memorandum, (i) neither the Company nor any
of the Affiliated Companies has incurred any liabilities or
obligations, direct or contingent, which are material to the Company
and the Affiliated Companies, taken as a whole, nor entered into any
transaction not in the ordinary course of business that is material to
the Company and the Affiliated Companies, taken as
25
<PAGE> 26
a whole, (ii) there has been no decision or judgment in any litigation
to which the Company or any of the Affiliated Companies are a party
materially adverse to the Company and any of the Affiliated Companies,
taken as a whole, and (iii) there has been no material adverse change
in the financial condition or in the results of operations or business
of the Company and the Affiliated Companies, taken as a whole (any of
the items set forth in clauses (i), (ii), or (iii), above, "Material
Adverse Change").
(r) All tax returns required to be filed by the Company
and its Subsidiaries in any jurisdiction have been filed, other than
those filings that are being contested in good faith, except where
failure to so file would not have a Material Adverse Effect, and all
taxes, including withholding taxes, penalties and interest,
assessments, fees and other governmental charges due or claimed to be
due from such entities have been paid other than those being contested
in good faith and for which adequate reserves have been provided,
except where failure to so pay would not have a Material Adverse
Effect.
(s) As of the Closing Date, the Company and the
Guarantors will possess such licenses, certificates, authorizations,
approvals, franchises, permits and other rights issued by local, state,
Federal or foreign regulatory agencies or bodies (collectively,
"Permits") as are necessary to own, lease and operate its respective
properties and to conduct the businesses now conducted by them except
where the failure to possess any such Permit would not have a Material
Adverse Effect; as of the Closing Date, the Company and each of the
Guarantors will have fulfilled and performed all of its material
obligations with respect to such Permits and neither the Company nor
the Guarantors will have received any notice of proceedings relating to
the revocation or modification of any such Permit that is reasonably
likely to have a Material Adverse Effect.
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<PAGE> 27
(t) As of the Closing Date, each of the Company and the
Guarantors will own or possess all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
(collectively, the "Intellectual Property") presently employed by it in
connection with the businesses now operated by them, except where the
failure to so own or possess would not, individually or in the
aggregate, have a Material Adverse Effect, and neither the Company nor
the Guarantors will have received any notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing, except where such infringement or conflict would not
individually, or in the aggregate, have a Material Adverse Effect. To
the Company's knowledge, the use of the Intellectual Property in
connection with the business and operations of the Company and the
Guarantors does not infringe on the rights of any person, except where
such infringement does not individually or in the aggregate have a
Material Adverse Effect. The representations in this clause (t) exclude
Intellectual Property matters with respect to any foreign country that
has not accounted for more than 1% of the sales of the Company and the
Affiliated Companies in either of the last 2 fiscal years.
(u) The Company, the Holding Company and each of the
Affiliated Companies maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's
general or specific authorization; and (4) the recorded accountability
for inventory assets is compared
27
<PAGE> 28
with the existing inventory assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) None of the Company, the Holding Company or any of
the Affiliated Companies has, directly or indirectly, paid or delivered
any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other
party, in the United States or any other country, which is in any
manner related to the business or operations of the Company, the
Holding Company and the Affiliated Companies which any of such entities
knows or has reason to believe to have been illegal under any Federal,
state or local laws of the United States or any other country having
jurisdiction; and none of the Company, the Holding Company or any of
the Affiliated Companies has participated, directly or indirectly, in
any boycotts or other similar practices in contravention of law
affecting any of its actual or potential customers.
(w) As of the Closing Date, neither the Company nor any
Guarantor is (i) an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company
Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary
company" of a holding company, or an "affiliate" thereof within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(x) Except as disclosed in the preliminary offering
memorandum or the Offering Memorandum, no holder of any security of the
Company has any right to require registration of the Securities.
(y) Assuming the accuracy of your representations
contained in Section 3 hereof and your compliance with your agreements
therein set forth, it is not necessary, in connection with the sale and
delivery of the Securities to
28
<PAGE> 29
you and the offer and resale of the Securities by you, in each case in
the manner contemplated by this Agreement and the Offering Memorandum,
to register the Securities under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended, and the
rules and regulations thereunder (collectively, the "TIA").
(z) None of the Company, the Holding Company, any of the
Affiliated Companies or any affiliate (as such term is defined in Rule
501(b) under the 1933 Act) has, directly or through any agent, sold,
offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the 1933 Act) which is or will
be integrated with the sale of the Securities in a manner that would
require the registration of the Securities under the 1933 Act.
(aa) None of the Company, the Holding Company or any of
the Affiliated Companies and any officer, director or other person
(other than you, as to whom the Company makes no representation) acting
on its behalf has engaged, in connection with the offering of the
Securities, in any form of general solicitation or general advertising,
including but not limited to the methods described in Rule 502(c) under
the 1933 Act.
(ab) To the knowledge of the Company and the Guarantors,
immediately after and after giving effect to the Offering, the
Acquisition and the New Credit Facility, with respect to the Company on
a consolidated basis, (i) the present fair salable value of its assets
shall be more than the amount that will be required to pay its debts
(including contingent and unliquidated debts) as they become absolute
and matured, (ii) its assets, at a fair valuation, shall be greater
than the sum of its debts (including contingent and unliquidated
debts), (iii) it shall not be engaged in a business or transaction for
which its remaining assets are unreasonably small in relation to such
business or transaction, and (iv) it shall not intend to incur or
believe that
29
<PAGE> 30
it will incur debts beyond its ability to pay as such debts become
absolute and matured.
(ac) The Indenture, as of the date hereof and at the
Closing Date, will conform in all material respects to the requirements
of the TIA applicable to an indenture which is qualified under the TIA.
(ad) None of the proceeds of the sale of the Securities
will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security (as that term is defined in Regulations G
and U of the Federal Reserve Board), for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry any margin security or for any other purpose which might cause
any of the Securities to be considered a "purpose credit" within the
meanings of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board").
(ae) Based on the representation of the Initial Purchasers
set forth in Section 3(b)(vi) hereof, the execution and delivery of the
Transaction Agreements and the consummation of the Transactions will
not involve any non-exempt prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended, or the rules, regulations and published
interpretations promulgated thereunder (the "Code"). Neither the
Company nor any of its ERISA Affiliates is a "party in interest" or a
"disqualified person" except with respect to those employee benefit
plans described in "Notice to Investors" in the Offering Memorandum.
Except as disclosed in Schedule XV to the Stock Purchase Agreement, no
condition exists or event or transaction has occurred in connection
with any employee benefit plan that could result in the Company or any
such ERISA Affiliate incurring any liability, fine or penalty that
could, singly or in the aggregate, have a Material Adverse Effect. With
respect to any employee pension benefit plan that is subject to Title
IV of ERISA, except as adequately dis-
30
<PAGE> 31
closed in the Offering Memorandum, (i) the fair market value of the
assets of such employee pension benefit plan equals or exceeds the
present value of the liabilities of such pension plan (as determined in
accordance with the actuarial methods and assumptions set forth in the
latest actuarial report for such employee pension benefit plan), except
where the failure to so equal or exceed would not, singly or in the
aggregate, have a Material Adverse Effect and (ii) there exists no
accumulated funding deficiency which would have, singly or in the
aggregate, a Material Adverse Effect. The terms "employee benefit
plan," "employee pension benefit plan" and "party in interest" shall
have the meanings assigned to such terms in Section 3 of ERISA, the
term "Affiliate" shall have the meaning assigned to such term in
Section 407(d)(7) of ERISA, and the term "disqualified person" shall
have the meaning assigned to such term in Section 4975 of the Code.
(af) The Company has delivered to the Initial Purchasers
true and correct copies of the Acquisition Agreement, and there have
been no amendments, alterations, modifications or waivers thereto or in
the exhibits or schedules thereto to which the Initial Purchasers shall
have reasonably objected.
(ag) Each certificate signed by any officer of the Company
and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the
Company to each Initial Purchaser as to the matters covered thereby to
the extent expressly set forth therein.
(ah) To the extent that any representation in Section 5 of
this Agreement is qualified by reference to the preliminary offering
memorandum, no such representation shall be deemed breached by reason
of any misstatement or omission in such preliminary offering memorandum
if and to the extent such misstatement or omission was corrected in the
Offering Memorandum.
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6. Indemnification.
(a) Each of the Company and the Guarantors, jointly and
severally, agrees to indemnify and hold harmless (i) each of the
Initial Purchasers and (ii) each person, if any, who controls (within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act) any of the Initial Purchasers (any of the persons referred to in
this clause (ii) being hereinafter referred to as a "controlling
person"), and (iii) the respective officers, directors, partners,
employees, representatives and agents of any of the Initial Purchasers
or any controlling person (any person referred to in clause (i), (ii)
or (iii) may hereinafter be referred to as an "Indemnified Person") to
the fullest extent lawful, from and against any and all losses, claims,
damages, judgments, actions, costs, assessments, expenses and other
liabilities (collectively, "Liabilities"), including, without
limitation, and as incurred, reimbursement of all reasonable costs of
investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of
counsel to any Indemnified Person directly or indirectly caused by,
related to, based upon, arising out of or in connection with any untrue
statement or alleged untrue statement of a material fact contained in
the Offering Memorandum (or any amendment or supplement thereto), or
any preliminary offering memorandum, or any omission or alleged
omission to state therein a 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, except
insofar as such Liabilities are caused by (i) an untrue statement or
omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the
Initial Purchasers furnished in writing to the Company by any of the
Initial Purchasers expressly for use in the Offering Memorandum (or any
amendment or supplement thereto) or any preliminary offering memorandum
or (ii) an untrue or
32
<PAGE> 33
alleged untrue statement contained in or omission or alleged omission
from the preliminary offering memorandum if a copy of the Offering
Memorandum (as then amended or supplemented) was not delivered by or on
behalf of the Initial Purchasers to the person asserting the claim or
action, if required by law to have been so delivered by the Initial
Purchasers seeking indemnification and the untrue statement or alleged
statement or omission or alleged omission from such preliminary
offering memorandum was corrected in the Offering Memorandum.
Notwithstanding the foregoing, in the event that it is finally
determined by a court of competent jurisdiction that indemnification
under this Section 6(a) is not available to an Indemnified Person,
expenses paid in advance of the final disposition of such claim,
action, investigation or proceeding shall be repaid to the Company by
such Indemnified Person. The Company and the Guarantors shall notify
you promptly of the institution, threat or assertion of any claim,
proceeding (including any governmental investigation) or litigation in
connection with the matters addressed by this Agreement which involves
the Company, the Guarantors or an Indemnified Person.
(b) In case any action or proceeding (for all purposes of
this Section 6 including any governmental investigation) shall be
brought or asserted against any of the Indemnified Persons with respect
to which indemnity may be sought against the Company or any of the
Guarantors, the applicable Initial Purchaser with respect to such
Indemnified Person shall promptly notify the Company in writing
(provided, that the failure to give such notice shall not relieve the
Company or such Guarantor of its obligations pursuant to this Agreement
except to the extent that the Company or any Guarantor is materially
prejudiced or forfeits rights or defenses by reason of such failure).
Upon receiving such notice, the Company or such Guarantor shall be
entitled to participate in any such action or proceeding and to assume,
at its sole expense, the defense thereof, with counsel reasonably
satisfactory to such Indemnified Person (who shall not, except with
33
<PAGE> 34
the consent of the Indemnified Person, be counsel to the Company or to
the Guarantors or any affiliate thereof) and, after written notice from
the Company to such Indemnified Person of its election to so assume the
defense thereof reasonably promptly after receipt of the notice from
the Indemnified Person of such action or proceeding, the Company and
such Guarantor shall not be liable to such Indemnified Person hereunder
for legal expenses of other counsel subsequently incurred by such
Indemnified Person in connection with the defense thereof, other than
costs of investigation, unless (i) the Company and such Guarantor agree
to pay such fees and expenses, or (ii) the Company fails promptly to
assume such defense or fails to employ counsel reasonably satisfactory
to such Indemnified Person, or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both
such Indemnified Person and the Company or such Guarantor or any
affiliate of the Company or such Guarantor, and either (x) there may be
one or more legal defenses available to such Indemnified Person that
are different from or additional to those available to the Company or
such Guarantor or such affiliate of the Company or such Guarantor or
(y) the Indemnified Person shall have been advised by counsel that a
conflict may exist between such Indemnified Person and the Company or
such Guarantor or such affiliate of the Company or such Guarantor. In
the event of any of clause (i), (ii) or (iii) of the immediately
preceding sentence, if such Indemnified Person notifies the Company in
writing, the Company shall not have the right to assume the defense
thereof and such Indemnified Person shall have the right to employ its
own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company, subject to the
provisions hereof, it being understood, however, that the Company shall
not, in connection with any one such action or proceeding or separate
but substantially similar or related actions or proceedings arising out
of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in
addition to any
34
<PAGE> 35
local counsel) at any time for the Indemnified Persons. The Company and
the Guarantors shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which
consent will not be unreasonably withheld, and the Company and each
Guarantor agrees to indemnify and hold harmless any Indemnified Person
from and against any Liabilities by reason of any settlement of any
action effected with the prior written consent of the Company. The
Company and the Guarantors agree to be liable for any settlement of any
proceeding effected without the Company's prior written consent if (i)
such settlement is entered into more than 10 business days after
receipt by the Company of the aforesaid request for payment in respect
of an indemnification obligation pursuant hereto and (ii) the Company
shall not have reimbursed the Indemnified Person in accordance with
such request prior to the date of such settlement. The Company and the
Guarantors shall not, without the prior written consent of each
Indemnified Person, settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened
action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought pursuant hereto (whether
or not any Indemnified Person is a party thereto), unless such
settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Person from all Liabilities
arising out of such action, claim, litigation or proceeding.
(c) Each of the Initial Purchasers agrees, severally and
not jointly, to indemnify and hold harmless the Company and the
Guarantors and their respective directors, officers and any person
controlling (within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act) the Company or the Guarantors and the
officers, directors, partners, employees, representatives and agents of
each such person, to the same extent as the foregoing indemnity from
the Company and the Guarantors to each of the Indemnified Persons, but
only with respect to claims and actions based on information relating
to such Ini-
35
<PAGE> 36
tial Purchaser in the Offering Memorandum that is in conformity with
information furnished in writing by such Initial Purchaser expressly
for use in the Offering Memorandum. In case any action or proceeding
(including any governmental investigation) shall be brought or asserted
against the Company, the Guarantors or any of their respective
directors or officers, or any such controlling person based on any
preliminary offering memorandum or the Offering Memorandum in respect
of which indemnity may be sought against any Initial Purchaser pursuant
to the foregoing sentence, such Initial Purchaser shall have the rights
and duties given to the Company and the Guarantors by Section 6(b)
hereof (except that if the Company shall have assumed the defense
thereof, such Initial Purchaser may but shall not be required to employ
separate counsel therein and participate in the defense thereof but the
fees and expenses of such counsel shall be at the expense of such
Initial Purchaser), and the Company and the Guarantors, their
respective directors or officers, and each such controlling person
shall have the rights and duties given to the Indemnified Person by
Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6
is finally determined by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any Liabilities
referred to herein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such
Liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other hand from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the indemnifying parties and the
indemnified party, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
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<PAGE> 37
Guarantors, on the one hand, and any of the Initial Purchasers, on the
other hand, shall be deemed to be in the same proportion as the total
proceeds from the offering (net of discounts and commissions but before
deducting expenses) received by the Company bear to the total discounts
and commissions received by such Initial Purchaser, in each case as set
forth in the table on the cover page of the Offering Memorandum. The
relative fault of the Company and the Guarantors, and the Initial
Purchasers, 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 related to
information supplied by the Company, the Guarantors or the Initial
Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The indemnity and contribution obligations set forth herein
shall be in addition to any liability or obligation such party may
otherwise have to any indemnified party.
The Company, the Guarantors and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to Section 6(d)
hereof were determined by pro rata allocation (even if the Initial Purchasers
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 in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, judgments,
liabilities or expenses referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6, none of the Initial Purchasers (and its related
Indemnified Persons) shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total underwriting discount
applicable to the Securities purchased by such Initial Purchaser exceeds the
amount of any damages or liabilities which such Initial Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or al-
37
<PAGE> 38
leged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to Section 6(d) hereof are
several in proportion to the respective principal amount of Securities purchased
by each of the Initial Purchasers hereunder and not joint.
7. Conditions of Initial Purchasers' Obligations. The several
obligations of the Initial Purchasers to purchase the Securities under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
and the Guarantors contained in this Agreement shall be true and
correct in all material respects on the Closing Date with the same
force and effect as if made on and as of the Closing Date. The Company
and the Guarantors shall have performed or complied in all material
respects with all of their obligations and agreements herein contained
and required to be performed or complied with at or prior to the
Closing Date.
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers as promptly as reasonably
practicable following the date of this Agreement or at such other date
and time as to which you may agree.
(c) No action shall have been taken, and no statute,
rule, regulation or order shall have been enacted, adopted or issued,
by any governmental agency which would, as of the Closing Date, prevent
the issuance of the Securities; and no injunction, restraining order or
order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Securities, and on the Closing Date no
action, suit or proceeding shall be pending against, or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries before any court or arbitrator or any
38
<PAGE> 39
governmental body, agency or official which, if adversely determined,
would prevent the issuance of the Securities or would have a Material
Adverse Effect; and no stop order suspending the sale of the Securities
in any jurisdiction referred to in Section 4(e) hereof shall have been
issued and no proceeding for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company, threatened.
(d) (i) Except as otherwise specifically contemplated in
the Offering Memorandum, since the date hereof, there shall not have
been any Material Adverse Change; (ii) since the date of the latest
balance sheet included in the Offering Memorandum, there shall not have
been any material change in the capital stock or long-term debt, or
material increase in short-term debt, of the Company or any of its
consolidated Subsidiaries taken as a whole (excluding the repayment of
certain indebtedness to David and Jean Blechman); and (iii) the Company
and its Subsidiaries shall have no liability or obligation, direct or
contingent, which is material to the Company and its Subsidiaries,
taken as a whole, in each case other than those reflected in the
Offering Memorandum.
(e) The Company, the Guarantors and the Trustee shall
have entered into the Indenture and you shall have received
counterparts, conformed as executed, thereof.
(f) The Company and the Guarantors shall have entered
into the Registration Rights Agreement and you shall have received
counterparts, conformed as executed, thereof.
(g) The Securities shall have been designated PORTAL
securities in accordance with the rules and regulations adopted by the
NASD relating to trading in the PORTAL market.
(h) You shall have received a certificate of the Company,
dated the Closing Date, executed on behalf of the Company by the
President or any Vice President, and a principal financial
39
<PAGE> 40
or accounting officer of the Company, confirming, as of the Closing
Date, the matters set forth in paragraphs (a), (c) and (d) of this
Section 7.
(i) On or prior to the Closing Date, (i)(A) the
Acquisition and the transactions contemplated thereby shall have been
consummated, and (b) the Company shall have entered into the Bank
Agreements and all conditions precedent to the effectiveness thereof
shall have been satisfied or waived, (ii) such transactions described
in the foregoing clause (i) shall continue to be in full force and
effect in accordance with the terms thereof, and (iii) the Company
shall have provided to each of the Initial Purchasers and counsel to
the Initial Purchasers copies of all material closing documents
delivered to the parties relating to the Acquisition and the Bank
Agreements (including but not limited to legal opinions relating
thereto).
(j) On the Closing Date, you shall have received:
i) an opinion (in a form reasonably
satisfactory to you and your counsel), dated the Closing Date, of Kramer, Levin,
Naftalis & Frankel ("Kramer, Levin"), counsel for the Company and the
Guarantors, to the effect that:
a) assuming the accuracy of the
representations and warranties of the Company
contained in Section 5 and your representations and
warranties and assuming compliance by you with your
covenants contained in Section 4 of this Agreement,
the offering of the Securities by you and the
issuance and sale of the Securities to you, in each
case in the manner contemplated in the Offering
Memorandum and as provided in this Agreement, are
exempt from the registration requirements of the 1933
Act and it is not necessary to qualify the Indenture
under the TIA;
b) the Notes, when executed by the
Company and authenticated by the
40
<PAGE> 41
Trustee in accordance with the terms of the
Indenture, and delivered to and paid for in
accordance with the terms of this Agreement, will
constitute legal, valid and binding obligations of
the Company, enforceable against the Company in
accordance with their terms and entitled to the
benefits of the Indenture, subject to applicable
bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to
general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in
equity) and except to the extent that a waiver of
rights under any usury laws may be unenforceable;
c) the Guarantees, when executed by
the Guarantors in accordance with the terms of the
Indenture, will constitute legal, valid and binding
obligations of the Guarantors, enforceable against
the Guarantors in accordance with their terms and
entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies
generally and to general principles of equity
(regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the
extent that a waiver of rights under any usury laws
may be unenforceable;
d) the Securities and the Indenture
conform as to legal matters, in all material respects
to the descriptions thereof contained in the Offering
Memorandum; and
e) neither the Company nor any of the
Guarantors is an "investment company" or, to the
knowledge of such counsel after reasonable inquiry a
compa-
41
<PAGE> 42
ny "controlled" by an investment company within the
meaning of the Investment Company Act of 1940, as
amended.
ii) an opinion (in a form
reasonably satisfactory to you and your counsel), dated the
Closing Date, of Ray, Quinney & Nebeker, counsel for the
Company, to the effect that:
a) (A) the Company is a validly
existing corporation in good standing under the
laws of the State of Utah and (B) the Company has
the requisite corporate power and corporate
authority to own, lease and operate its
properties and to conduct its business as
described in the Offering Memorandum;
b) the Company has the
corporate power and corporate authority to
execute, deliver and perform its obliga-
tions under this Agreement, the Registra-
tion Rights Agreement, the Indenture and
the Securities and to consummate the
transactions contemplated hereby and
thereby; and
c) each of this Agreement, the
Registration Rights Agreement, the Indenture and
the Securities has been duly authorized, executed
and delivered by the Company and constitutes a
valid and legally binding agreement of the
Company.
iii) an opinion (in a form
reasonably satisfactory to you and your counsel), dated the Closing
Date, of Kelley Drye & Warren ("Kelley Drye"), counsel for the Company
and the Guarantors, to the effect that:
a) the Company is duly
qualified as a foreign corporation and in
good standing in each jurisdiction identified in
a schedule to such opinion;
42
<PAGE> 43
b) (A) each of the Holding
Company and ARP is a validly existing corporation in
good standing under the laws of the State of its
incorporation and (B) each of the Holding Company and
ARP has the requisite corporate power and corporate
authority to own, lease and operate its properties
and to conduct its business as described in the
Offering Memorandum and is duly qualified as a
foreign corporation and in good standing in each
jurisdiction identified in a schedule to such
opinion;
c) each of the Holding Company and ARP
has the corporate power and corporate authority to
execute, deliver and perform its obligations under
this Agreement, the Registration Rights Agreement,
the Indenture and the Securities and to consummate
the transactions contemplated hereby and thereby;
d) all of the issued and outstanding
shares of capital stock of ARP have been duly and
validly authorized and issued, and to the knowledge
of such counsel are fully paid and nonassessable.
Based solely on a review of the stock record books of
ARP, an inquiry of certain officers of ARP and a
review of certain resolutions, the shares of capital
stock of ARP are owned directly by the Company free
and clear of any Lien except with respect to Liens
incurred to secure indebtedness to be incurred under
the New Credit Facility;
e) each of this Agreement, the
Registration Rights Agreement, the Indenture and the
Securities has been duly authorized, executed and
delivered by ARP and the Holding Company and
constitutes a valid and legally binding agreement of
the Holding Company and APR, enforceable against each
of them in accordance with its terms subject to
appli-
43
<PAGE> 44
cable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to
general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in
equity) and except to the extent that a waiver of
rights under any usury laws may be unenforceable;
f) no authorization, approval, consent
or order of, or filing with, any court or
governmental body or agency is required under the
Applicable Laws (as defined below) for the issuance
and sale of the Securities pursuant to this
Agreement, (except with respect to state securities
or Blue Sky laws or regulations as to which such
counsel need express no opinion); the execution and
delivery of this Agreement, the Registration Rights
Agreement, the Indenture and the Securities and the
consummation of the transactions contemplated hereby
and thereby will not (A) result in a breach or
violation of the certificate of incorporation or
bylaws or any material agreement or instrument known
to such counsel to which the Company or either of the
Guarantors is a party or by which any of them is
bound of the Company or the Guarantors or (B)
constitute a default under statutes, rules or
regulations of the State of New York, the federal
laws of the United States or the General Corporation
Law of the State of Delaware which in such counsel's
experience are normally applicable to the
transactions contemplated by such agreements (other
than state securities or blue sky laws as to which
such counsel need express no opinion) (collectively,
"Applicable Laws") to which the Company or the
Guarantors is bound or to which any of their
properties is subject, which default would have a
Material Adverse Effect;
44
<PAGE> 45
g) to the knowledge of such counsel
based upon an officer's certificate as to material
agreements and instruments, there are no material
agreements or instruments to which the Company or any
of the Guarantors is a party or by which any of them
may be bound that is not described in the Offering
Memorandum and which would be required to be
described if the Offering Memorandum were a
prospectus included in a registration statement or
Form S-1;
h) the statements in the Offering
Memorandum under the captions "Risk Factors - Legal
Matters" and "Business - Legal Matters" insofar as
such statements constitute a summary of legal
matters, documents or proceedings referred to
therein, are accurate in all material respects and
provide a fair summary of such matters;
i) neither the Company nor any of the
Guarantors is in violation of its respective charter
or bylaws; and
j) to the best knowledge of such
counsel based on a review of auditors' response
letters and inquiry of responsible Officers of the
Company, there are no material current or pending
legal or governmental actions, suits or proceedings
which would be required to be described in the
Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on
Form S-1 and are not so described.
iv) an opinion (in a form reasonably
satisfactory to you and your counsel), dated the Closing Date, of Piper
& Marbury, regulatory counsel for the Company and the Guarantors, to
the effect that:
a) to such counsel's knowledge,
there are no material legal or governmental
proceedings by the U.S. Food
45
<PAGE> 46
and Drug Administration ("FDA") or similar federal or
state regulatory officials and bodies pending that
are not described or referred to in the Offering
Memorandum;
b) to such counsel's knowledge, the
Company has, and maintains in full force and effect,
all necessary licenses, permits, approvals,
certificates, consents, orders and other
authorizations of and from the FDA and similar
federal or state governmental regulatory officials
and bodies necessary to conduct its business as
described in the Offering Memorandum; and
c) to the best of such counsel's
knowledge, the statements in the Offering Memorandum
under the captions "Risk Factors -- Governmental
Regulation" and "Business -- Regulatory Matters" that
relate to matters of food and drug law insofar as
such statements constitute a summary of legal
matters, documents or proceedings referred to
therein, are accurate in all material respects and
provide a fair summary of such matters;
d) the Company has certified to such
counsel that it is in substantial compliance with
applicable decrees of the FDA, the Federal Trade
Commission and other state or local regulatory
agencies that have been brought to such counsel's
attention and such counsel does not know of any facts
that contradict such representation; and
e) the product labeling, advertising
and other promotional materials that the Company has
submitted to such counsel for review do not give rise
to a substantial expectation that enforcement action
would be initiated against those products.
46
<PAGE> 47
In addition, Kramer, Levin and Kelley Drye shall state that
although such counsel has not undertaken to investigate or verify independently,
and is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except to the extent expressly referred to in clauses (i)(d) and (iii)(h)
above), during the course of such counsel's participation in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company and you, at which the contents of
the Offering Memorandum were discussed, no facts have come to the attention of
such counsel which cause it to believe that (except for financial statements,
notes thereto, financial statements schedules, other financial data included
therein or information derived therefrom as to which such counsel need not
express any belief) the Offering Memorandum, as of the date thereof and as of
the date hereof, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering such opinions, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers and other representatives of the Company, certificates of
public officials, 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 the Company and the Guarantors provided
that copies of any such statements or certificates shall be delivered or
otherwise made available to your counsel.
(k) You shall have received an opinion,
as to certain of the matters set forth above, dated
the Closing Date, of Skadden, Arps, Slate, Meagher &
Flom ("Skadden Arps"), counsel for the Initial
Purchasers, in form and substance reasonably
satisfactory to you. In rendering such opinion,
Skadden Arps may rely, as to matters of Utah law, to
the extent such counsel deems proper on the opinions
set forth in paragraph (j)(ii) above.
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<PAGE> 48
(l) You shall have received an opinion
from Murray, Devine & Co., Inc. in form and substance
satisfactory to the Initial Purchases that the
Transactions will not render the Company insolvent,
leave the Company with inadequate or unreasonably
small capital or result in the Company incurring
indebtedness beyond its ability to repay as such
indebtedness matures.
(m) You shall have received letters on
and as of the date hereof as well as on and as of the
Closing Date (in the latter case constituting an
affirmation of the statements set forth in the
former, based on limited procedures), in form and
substance reasonably satisfactory to you, from
Deloitte & Touche LLP, Held, Kranzler and Company,
and Dodge Evans & Co., independent public
accountants, with respect to the financial statements
and certain financial information contained in the
Offering Memorandum.
(n) Skadden Arps shall have been
furnished with such documents and opinions, in
addition to those set forth above, as they may
reasonably require for the purpose of enabling them
to review or pass upon the matters referred to in
this Section 7 and in order to evidence the accuracy,
completeness or satisfaction in all material respects
of any of the representations, warranties or
conditions herein contained.
(o) Prior to the Closing Date, the
Company shall have furnished to you such further
information, certificates and documents as you may
reasonably request.
(p) The Initial Purchasers shall have
been furnished with a copy of the opinions delivered
on behalf of GEI, the Company, ARP and the Holding
Company in connection with the Acquisition and the
Bank Agreements, which opinions shall expressly state
that the Initial Purchasers are justified in relying
upon the opinions therein.
All opinions, certificates, letters and other documents
required by this Section 7 to be delivered by the
48
<PAGE> 49
Company and the Guarantors will be in compliance with the provisions hereof only
if they are reasonably satisfactory in form and substance to you. The Company
will furnish the Initial Purchasers with such conformed copies of such opinions,
certificates, letters and other documents as they shall reasonably request.
8. Defaults. If on the Closing Date, any of the Initial
Purchasers shall fail or refuse to purchase Securities which it has agreed to
purchase hereunder on such date, and the aggregate principal amount of such
Securities that such defaulting Initial Purchaser(s) agreed but failed or
refused to purchase does not exceed 10% of the total principal amount of such
Securities that all of the Initial Purchasers are obligated to purchase on such
Closing Date, each non-defaulting Initial Purchaser shall be obligated to
purchase the amount of the Securities that such defaulting Initial Purchaser(s)
agreed but failed or refused to purchase on such date; provided that in no event
shall the number of Securities that any Initial Purchaser has agreed to purchase
pursuant to Section 1 hereof be increased pursuant to this Section 8 by an
amount in excess of one-ninth of such number of Securities, without the written
consent of such Initial Purchaser. If, on the Closing Date, any of the Initial
Purchasers shall fail or refuse to purchase Securities in an aggregate principal
amount that exceeds 10% of such total principal amount of the Securities and
arrangements satisfactory to the other Initial Purchaser(s) and the Company for
the purchase of such Securities are not made within 48 hours after such default,
this Agreement shall terminate without liability on the part of the
non-defaulting Initial Purchaser(s), the Company or the Guarantors, except as
otherwise provided in Section 9 hereof. In any such case that does not result in
termination of this Agreement, the Initial Purchasers and the Company may agree
to postpone the Closing Date for not longer than seven days, in order that the
required changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve a defaulting Initial Purchaser from liability in respect of any default
by such Initial Purchaser under this Agreement.
9. Effective Date of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
49
<PAGE> 50
This Agreement may be terminated at any time on or prior to
the Closing Date by you by notice to the Company if any of the following has
occurred: (i) subsequent to the date of this Agreement, any Material Adverse
Change occurs, which, in your judgment, makes it impracticable or inadvisable to
market the Securities in the manner contemplated in the Offering Memorandum or
to enforce contracts for sale of the Securities, (ii) any outbreak or escalation
of hostilities or other national or international calamity or crisis or material
adverse change in the financial markets of the United States or elsewhere, or
any other substantial national or international calamity or emergency if the
effect of such outbreak, escalation, calamity, crisis or emergency would, in
your judgment, make it impracticable or inadvisable to market the Securities or
to enforce contracts for the sale of the Securities, (iii) any suspension or
limitation of trading generally in securities on the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market System or in the
over-the-counter markets or any setting of minimum prices for trading on such
exchange or markets, (iv) any declaration of a general banking moratorium by
either Federal or New York authorities, (v) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs that in your judgment has a material adverse effect on the
financial markets in the United States, and would, in your judgment, make it
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (vi) the enactment, publication, decree, or
other promulgation of any Federal or state statute, regulation, rule or order of
any court or other governmental authority which would, in your judgment, have a
Material Adverse Effect, or (vii) the Securities or any securities of the
Company shall have been downgraded or placed on any "watch list" for possible
downgrading by any nationally recognized statistical rating organization,
provided, that in the case of such "watch list" placement, termination shall be
permitted only if such placement would, in the judgment of any Initial
Purchaser, make it impracticable or inadvisable to market the Securities or to
enforce contracts for the sale of the Securities or materially impair the
investment quality of the Securities.
The indemnities and contribution provisions and the other
agreements, representations and warranties of the Company, the Guarantors, their
respective officers and directors and the Initial Purchasers set forth in or
made
50
<PAGE> 51
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Securities, regardless of (i)
any investigation, or statement as to the results thereof, made by or on behalf
of any of the Initial Purchasers or by or on behalf of the Company or the
Guarantors, its officers or directors or any controlling person thereof, (ii)
acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
If this Agreement shall be terminated by the Initial
Purchasers pursuant to clause (i) or (vii) of the second paragraph of this
Section 9 or because of the failure or refusal on the part of the Company or the
Guarantors to comply with the terms or to fulfill any of the conditions of this
Agreement, the Company and the Guarantors agree to reimburse you for all
out-of-pocket expenses incurred by you. Notwithstanding any termination of this
Agreement, the Company shall be liable for all expenses which it has agreed to
pay pursuant to Section 4(h) hereof.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Initial Purchasers, any Indemnified Person referred to herein
and their respective successors and assigns, all as and to the extent provided
in this Agreement, and no other person shall acquire or have any right under or
by virtue of this Agreement. The terms "successors and assigns" shall not
include a purchaser of any of the Securities from any of the Initial Purchasers
merely because of such purchase. Notwithstanding the foregoing, it is expressly
understood and agreed that each purchaser of the Securities from you is intended
to be a beneficiary of the Company's covenants contained in the Registration
Rights Agreement to the same extent as if the Securities were sold and those
covenants were made directly to such purchaser by the Company, and each such
purchaser shall have the right to take action against the Company to enforce,
and obtain damages for any breach of, those covenants.
10. Notices. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company or the
Guarantors, at 2120 Smithtown Avenue, Ronkonkoma, New York 11779, Attention:
Philip M. Kazin, Esq., with copies to Kelley Drye & Warren, Two Stamford
Plaza-281 Tresser Boulevard, Stamford, Connecticut
51
<PAGE> 52
06901, Attention: John T. Capetta, Esq. and Kramer, Levin, Naftalis & Frankel,
919 Third Avenue, 40th Floor, New York, New York 10022, Attention: Howard A.
Sobel, Esq., (b) if to any Initial Purchaser, to Donaldson, Lufkin & Jenrette
Securities Corporation, 140 Broadway, New York, New York 10005, Attention:
Syndicate Department, with a copy to Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, Attention: Mark C. Smith, Esq., or in
any case to such other address as the person to be noti- fied may have requested
in writing.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE COMPANY AND THE GUARANTORS HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY
AND THE GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and other persons referred to in Section 6 hereof, and no other
person will have any right or obligation hereunder.
52
<PAGE> 53
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument. Please confirm that the foregoing
correctly sets forth the agreement among the Company, the Guarantors and you.
Very truly yours,
NATUR-PHARMA INC.
By: /s/ Brian Blechman
--------------------------
Name: Brian Blechman
Title: Vice President
ADVANCED RESEARCH PRESS, INC.
By: /s/ David Blechman
--------------------------
Name: David Blechman
Title: President
TLG LABORATORIES HOLDING CORP.
By: /s/ Jennifer Holden Dunbar
--------------------------
Name: Jennifer Holden Dunbar
Title: President
The foregoing Purchase Agreement is hereby confirmed and accepted as of the
date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
By: Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Donald S. Kinsey
---------------------------
Name: Donald S. Kinsey
Title: Vice President
<PAGE> 54
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
of Securities
----------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation............................... $ 60,000,000
Chase Securities Inc. ................................. $ 40,000,000
Total.......................................... $100,000,000
============
</TABLE>
<PAGE> 1
Exhibit 12
TWINLAB CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
SCHEDULE OF COMPUTATION
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before unusual item, provision for
income taxes and extraordinary item ............... $10,331 $14,010 $16,906 $23,920 $30,464
---------------------------------------------------------
Add fixed charges:
Interest expense .................................. 461 494 487 761 866
Interest portion of rentals ....................... 351 402 414 423 452
---------------------------------------------------------
Total fixed charges ................................... 812 896 901 1,184 1,318
----------------------------------------------------------
Income available for fixed charges ..................... $11,143 $14,906 $17,807 $25,104 $31,782
==========================================================
Ratio of earnings to fixed charges ..................... 13.7 16.6 19.8 21.2 24.1
==========================================================
<CAPTION>
HISTORICAL
---------------------------------
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1995 1996
---- ----
<S> <C> <C>
Income before unusual item, provision for
income taxes and extraordinary item ............... $6,388 $9,865
---------------------------------
Add fixed charges:
Interest expense .................................. 168 224
Interest portion of rentals ....................... 122 126
---------------------------------
Total fixed charges .................................... 290 350
---------------------------------
$6,678 $10,215
Income available for fixed charges ..................... =================================
Ratio of earnings to fixed charges ..................... 23.0 29.2
=================================
<CAPTION>
PRO FORMA
-----------------------------------------------------------------------
THREE MONTHS THREE MONTHS YEAR LATEST TWELVE
ENDED ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1995 1996
----- ---- ---- ----
<S> <C> <C> <C> <C>
Income before unusual item, provision for
income taxes and extraordinary item (1) ........... $2,370 $ 6,220 $15,263 $19,113
----------------------------------------------------------------
Add fixed charges:
Interest expense (2) .............................. 4,004 4,002 16,010 16,008
Interest portion of rentals ....................... 122 126 452 456
----------------------------------------------------------------
Total fixed charges .................................... 4,126 4,128 16,462 16,464
----------------------------------------------------------------
Income available for fixed charges ..................... $6,496 $10,348 $31,725 $35,577
================================================================
Ratio of earnings to fixed charges ..................... 1.6 2.5 1.9 2.2
================================================================
- ----------
(1) Income before unusual item, provision for income taxes and extraordinary
item for pro forma periods is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR LATEST TWELVE
ENDED ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before unusual item, provision for
income taxes and extraordinary item ............... $ 6,388 $ 9,865 $ 30,464 $ 33,941
---------------------------------------------------------------
LGP Management Fee ..................................... (100) (100) (400) (400)
Reduction in interest income ........................... (82) (167) (313) (398)
Interest expense adjustment ............................ (3,836) (3,778) (15,144) (15,086)
Elimination of nonrecurring Transaction expenses .... - 400 656 1,056
---------------------------------------------------------------
Total adjustments ................................. (4,018) (3,645) (15,201) (14,828)
---------------------------------------------------------------
Pro forma income before unusual item, provision
for income taxes and extraordinary item ........... $ 2,370 $ 6,220 $ 15,263 $ 19,113
===============================================================
</TABLE>
<PAGE> 2
(2) Interest expense for pro forma periods is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR LATEST TWELVE
ENDED ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense before any adjustments ................ $ 168 $ 224 $ 866 $ 922
Interest expense on Notes and New Credit Facility
at a composite interest rate of 9.5%, including
revolving credit commitment and administrative
fees ................................................ 3,669 3,669 14,676 14,676
Interest expense on refinanced debt .................... (152) (210) (807) (865)
Amortization of deferred finance costs ................. 319 319 1,275 1,275
-----------------------------------------------------
Total adjustments ................................. 3,836 3,778 15,144 15,086
-----------------------------------------------------
Pro forma Interest expense ............................. $4,004 $4,002 $16,010 $16,008
=====================================================
</TABLE>
<PAGE> 1
Exhibit 21
List of Subsidiaries of
Twinlab Corporation (a Delaware Corporation)
Subsidiary State of Incorporation
---------- ----------------------
Twin Laboratories Inc. Utah
List of Subsidiaries of
Twin Laboratories Inc.
Subsidiary State of Incorporation
---------- ----------------------
Advanced Research Press, Inc. New York
List of Subsidiaries of
Advanced Research Press, Inc.
None
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Twinlab Corporation (formerly TLG Laboratories Holding Corp.)
Ronkonkoma, New York
We consent to the use in this Registration Statement of Twin Laboratories
Inc. on Form S-4 of our report on the financial statements of Twinlab
Corporation (formerly TLG Laboratories Holding Corp.) dated February 9, 1996
(May 7, 1996 as to Notes 1 and 16a and June 4, 1996 as to Note 16b), appearing
in the Prospectus, which is a part of such Registration Statement, and to the
references to us under the heading "Selected Historical Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Twinlab Corporation
listed in Part II at Item 21(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Jericho, New York
June 24, 1996
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)
TWIN LABORATORIES INC.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Utah 87-0467271
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2120 Smithtown Avenue
Ronkonkoma, New York, 11779
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
10-1/4% Senior Subordinated Notes Due 2006
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE> 2
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject,
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise
corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.
None with respect to the trustee.
Item 16. List of exhibits.
List below all exhibits filed as a part of this statement of
eligibility and qualification.
(1) A copy of the Articles of Association of the trustee as
now in effect.
(2) A copy of the Certificate of Authority of the trustee
to do business.
(3) A copy of the Certification of Fiduciary Powers of the
trustee.
(4) A copy of the By-Laws of the trustee as now in effect.
(5) Consent of the trustee required by Section 321(b)
of the Act.
(6) A copy of the latest Consolidated Reports of Condition
and Income of the trustee published pursuant to law or
the requirements of its supervising or examining authority.
NOTES
In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 18th day of June, 1996.
FLEET NATIONAL BANK,
AS TRUSTEE
By: /s/
-------------------------
Elizabeth C. Hammer
Its Vice President
<PAGE> 4
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."
SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.
FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE> 5
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;
h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE> 6
SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.
The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
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, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
- --------------------------------------------------
Dated at , as of .
--------------------------------------- --------------------
Revision of February 15, 1996
<PAGE> 7
EXHIBIT 2
[LOGO]
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:
(1) The Comptroller of the Currency, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all National Banking Associations.
(2) "Fleet National Bank of Connecticut", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the
business of banking on the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE> 8
EXHIBIT 2
[LOGO]
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COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
Certification of Fiduciary Powers
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
the records in this Office evidence "Fleet National Bank of Connecticut",
Hartford, Connecticut, (Charter No. 1338), was granted, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of The Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the
authority so granted remains in full force and effect.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE> 9
EXHIBIT 4
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookeeper of the Association may act
as a proxy.
<PAGE> 10
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attanined the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.
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<PAGE> 11
Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its
property and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.
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<PAGE> 12
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.
All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.
Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its memebers and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Commitee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in liew thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.
The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.
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<PAGE> 13
Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Commmunity Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committes of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
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<PAGE> 14
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.
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<PAGE> 15
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.
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<PAGE> 16
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
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<PAGE> 17
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
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<PAGE> 18
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under the Indenture to be entered into between
Twin Laboratories, Inc. and Fleet National Bank, as Trustee, does hereby consent
that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports
of examinations with respect to the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
FLEET NATIONAL BANK,
AS TRUSTEE
By /s/
-------------------------------
Elizabeth C. Hammer
Its: Vice President
Dated:
<PAGE> 19
EXHIBIT 6
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Please refer to page i, / 1 /
[LOGO] Table of Contents, for
the required disclosure
of estimated burden.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
(960331)
REPORT AT THE CLOSE OF BUSINESS March 31, 1996 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidation
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
I, Giro S. DeRosa, Vice President and Controller
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.
/s/ GIRO DEROSA
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report
April 25, 1996
- --------------------------------------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
<PAGE> 21
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Feserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
___
FDIC Certificate Number | 1 | 0 | 5 | 8 | 2 | |
______________________ CALL NO. 190 31 03-31-96
(RCRI 9050)
CERT: 02499 10582 STBK 09-0590
FLEET NATIONAL BANK OF CONNECTICUT
777 MAIN STREET
HARTFORD, CT 06115
| |
___ ___
<FN>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</FN>
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
________________________________________________________________________________
</TABLE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
SIGNATURE PAGE Cover
REPORT OF INCOME
Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8
REPORT OF CONDITION
Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities...............................................RC-3,4,5
Schedule RC-C--Loans and Lease Fianancing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities....................................RC-9,10,11
Schedule RC-F--Only Assets.................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBF's.................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16
Schedule RC-M--Memoranda................................................RC-17,18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-19,20
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-21,22
Schedule RC-R--Risk-Based Captial.......................................RC-23,24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Conditions and Income....................................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)
</TABLE>
<PAGE> 23
DISCLOSURE OF ESTIMATED BURDEN
The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs. Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For information or assistance, national and state nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800)688-FDIC (3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
___________
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
Consolidated Report of Income
for the period January 1, 1996 - March 31, 1996
All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
file
Schedule RI--Income Statement ________
| I480 |
Dollar Amounts in Thousands RIAD Bil Mil Thou__|
_______________________________________________________________________________________________ ___________|________|
<S> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate ................................................... | 4011 68,007 | 1.a.(1)(a)
(b) Loans to depository institutions ............................................... | 4019 0 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ | 4024 42 | 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ | 4012 119,467 | 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... | 4026 22 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................. | 4054 1,870 | 1.a.(1)(f)(1)
(2) Other ...................................................................... | 4055 11,553 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ........................................................ | 4503 0 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... | 4504 469 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ | 4058 14,004 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4059 0 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases ..................................................................... | 4505 192 | 1.b.(1)
(2) Tax-exempt leases .................................................................. | 4307 0 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ................................................................ | 4105 0 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4106 26 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... | 4027 33,725 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................. | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... | 4507 1 | 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... | 3657 7,306 | 1.d.(3)
(4) Foreign debt securities ............................................................ | 3658 49 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... | 3659 1,888 | 1.d.(5)
e. Interest income from trading assets..................................................... | 4069 0 | 1.e.
______________________
<FN>
____________
(1) Includes interest income on time certificates of deposit not held for trading.
</FN>
</TABLE>
3
<PAGE> 25
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
Dollar Amounts in Thousands | Year-to-date |
___________________________________________________________________________________ ______________
<S> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on federal funds sold and securities purchased | ////////////////// |
under agreements to resell in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 292 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 258,913 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 519 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 6,345 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 11,368 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 21,500 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 31,522 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 4,742 | 2.a.(2)
b. Expense of federal funds purchased and securities sold under | ////////////////// |
agreements to repurchase in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 35,405 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other money borrowed ............................... | 4185 29,123 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 106 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 2,993 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 143,623 | 2.f.
___________________________
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 115,290 | 3.
___________________________
4. Provisions: | ////////////////// |
___________________________
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 1,911 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
___________________________
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 21,652 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 15,687 | 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// |
items 8.a through 8.d)............................................... A220 78 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 6 | 5.d.
e. Not applicable....................................................... | ////////////////// |
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 13,425 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 43,419 | 5.f.(2)
___________________________
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 94,267 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 11,352 | 6.b.
| ////////////////// |___________________________
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 36,676 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 14,846 | 7.b.
c. Other noninterest expense* .......................................... | 4092 57,219 | 7.c.
___________________________
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 108,741 | 7.d.
___________________________
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
___________________________
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 110,258 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 51,617 | 9.
___________________________
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
___________________________
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 58,641 | 10.
_________________________________________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>
4
<PAGE> 26
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________ ______________
<S> <C> <C>
11. Extraordinary items and other adjustments: | ////////////////// |
a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a.
b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b.
c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |
___________________________
(item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 58,641 | 12.
_________________________________________________
</TABLE>
<TABLE>
<CAPTION>
__________
______|__I481__|
Memoranda | Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 0 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 0 | M.2.
3.-4. Not applicable | ////////////////// |
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 1,831 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou |
a. Interest rate exposures ...................................................................... | 8757 11 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 67 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (2,618)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (2,834)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 0 | M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
<PAGE> 27
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital
Indicate decreases and losses in parentheses. _________
| I483 |
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,342,473 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 58,641 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 0 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 10,922 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (10,978)| 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 0 | 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 1,379,214 | 14.
______________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
__________
| I486 |
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 6,328 | 4661 3,137 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 21 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 5,700 | 4617 1,564 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 0 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 290 | 4666 10 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 2,187 | 4667 702 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 0 | 4628 298 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 0 | 4668 0 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 14,507 | 4605 5,732 | 9.
___________________________________________
</TABLE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Continued
Part I. Continued
Memoranda
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 71 | 5410 667 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 102 | 3583 142 | M.5.a.
b. Secured by farmLand ................................................... | 3584 75 | 3585 4 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 963 | 5412 0 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 2,574 | 5414 642 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 78 | 3589 211 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 2,536 | 3591 2,138 | M.5.e.
|_________________________________________|
Part II. Changes in Allowance for Loan and Lease Losses
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 5,732 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 14,507 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 1,911 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 0 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 260,079 | 6.
|____________________|
____________
*Describe on Schedule RI-E--Explanations.
Schedule RI-C--Applicable Income Taxes by Taxing Authority
Schedule RI-C is to be reported with the December Report of Income.
| I489 |
____________ ________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Federal ....................................................................................... | 4780 N/A | 1.
2. State and local................................................................................ | 4790 N/A | 2.
3. Foreign ....................................................................................... | 4795 N/A | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4.
____________________________| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5.
__________________________________________________
</TABLE>
7
<PAGE> 28
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-D--Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations
account for more than 10 percent of total revenues, total assets, or net income.
Part I. Estimated Income from International Operations
__________
| I492 |
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
______________________
<CAPTION>
Memoranda ______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
______________________
</TABLE>
<TABLE>
<CAPTION>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
______________________
</TABLE>
8
<PAGE> 29
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
__________
| I495 |
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
_____________
d. | TEXT 4461 |______________________________________________________________________________| |
___________ Gain on Sale of Branches 4461 27,961 1.d.
e. | TEXT 4462 |______________________________________________________________________________| 4462 | 1.e.
___________ 4463 1.f.
f. | TEXT 4463 |______________________________________________________________________________| |
_____________
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 5,424 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |
_____________
e. | TEXT 4464 |______________________________________________________________________________| |
___________ Intercompany Data Processing & Programming Charges 4464 19,616 2.e.
f. | TEXT 4467 |______________________________________________________________________________| 4467 11,457 | 2.f.
___________ Intercompany Corporate Support Function Charges 4468 2.g.
g. | TEXT 4468 |______________________________________________________________________________| |
_____________
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |
_____________
a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1)
_____________
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
_____________ ____________________________
b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1)
_____________
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
_____________ ____________________________
c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1)
_____________
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
____________________________
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a.
___________
b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b.
_____________
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |
_____________
a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a.
___________
b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b.
_____________
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |
_____________
a. | TEXT 4496 |______________________________________________________________________________| 4496 | 6.a.
___________
b. | TEXT 4497 |______________________________________________________________________________| 4497 | 6.b.
_____________
______________________
</TABLE>
9
<PAGE> 30
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// |
(itemize and describe all such transactions): | ////////////////// |
_____________
a. | TEXT 4498 |______________________________________________________________________________| 4498 | 7.a.
___________
b. | TEXT 4499 |______________________________________________________________________________| 4499 | 7.b.
_____________
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4521 |
|______________________________________________________________________________| 4521 | 8.a.
_____________
b. | TEXT 4522 |______________________________________________________________________________| 4522 | 8.b.
_____________
____________________
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 |
______________________
at its option, any other significant items affecting the Report of Income):
___
No comment |X| (RIAD 4769)
___
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE> 31
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
__________
| C400 |
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 644,422 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 175 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 3,192 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 1,806,430 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 0 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 10,679,728 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 260,079 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c.
____________________________
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 10,419,649 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 484 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 146,450 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 871 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 6,513 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 283,894 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 615,485 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 13,927,565 | 12.
______________________
<FN>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</FN>
</TABLE>
11
<PAGE> 32
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... | RCON 2200 8,134,739 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 2,366,568 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 5,768,171 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 261,352 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 0 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 261,352 | /////////////////////// | 13.b.(2)
____________________________
14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 2,009,304 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 55,853 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 170,257 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 460 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With a remaining maturity of one year or less.......................................... | RCFD 2332 954,145 | 16.a.
b. With a remaining maturity of more than one year........................................ | RCFD 2333 143,887 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 8,762 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 6,513 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 440,000 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 363,079 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 12,548,351 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 955,984 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 286,513 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (7,770)| 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 1,379,214 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 13,927,565 | 29.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1995 ............................................................... | RCFD 6724 2 | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
<FN>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</FN>
</TABLE>
12
<PAGE> 33
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 |
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 553,818 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 418,841 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 134,977 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 89,741 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 89,741 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 1,038 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 0 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 1,038 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 0 | 0090 0 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 644,597 | 0010 644,597 | 5.
___________________________________________
<CAPTION>
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 89,566 | M.1.
______________________
</TABLE>
Schedule RC-B--Securities
Exclude assets held in trading accounts.
<TABLE>
_______
| C410 |
___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 843,487 | 1287 829,503 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 0 | 1298 0 | 2.b.
_____________________________________________________________________________________
<FN>
_____________
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</FN>
</TABLE>
13
<PAGE> 34
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ////////// ////// |
a. General obligations ......... | 1676 0 |1677 0 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 42 |1686 45 | 1690 0 | 1691 0 | 3.b.
c. Industrial development ...... | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations ........| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 849 | 1702 849 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 0 |1705 0 | 1706 847,095 | 1707 849,756 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 0 |1710 0 | 1711 0 | 1713 0 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 0 | 1736 0 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities | 1737 0 |1738 0 | 1739 478 | 1741 475 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 2,900 |1743 2,900 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 9,427 | 1748 9,427 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 116,420 | 1753 116,420 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 3,192 | 1771 3,195 | 1772 1,817,756 | 1773 1,806,430 | 7.
____________ |__________________________________________________________________________________|
1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
</TABLE>
14
<PAGE> 35
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
<CAPTION>
___________
Memoranda | C412 |
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 934,681 | M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status):| ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 5,621 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 0 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 1,548,431 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 27,232 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 1,581,284 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 99,741 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 2,750 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 102,491 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 1,683,775 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2)(4) (included in | ////////////////// |
Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 1,000 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale. | ////////////////// |
or transfer ................................................................................... | 1778 0 | m.7.
8. High-Risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items.2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
____________
<FN>
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</FN>
</TABLE>
15
<PAGE> 36
<TABLE>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State Zip: HARTFORD, CT 06115 Page RC-6
<CAPTION>
Schedule RC-C--Loans and Lease Financing Receivables
Part I. Loans and Leases
Do not deduct the allowance for loan and lease losses from amounts __________
reported in this schedule. Report total loans and leases, net of unearned _________________________________| C415 |
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 3,574,653 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 51,282 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 307 | 1.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 325,605 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 2,073,517 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 172,054 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 65,430 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 886,458 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 204,042 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 204,042 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 0 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 0 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 1,568 | 1590 1,568 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 5,397,715 | 1763 5,397,715 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 0 | 1764 0 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 1,538 | 1756 1,538 | 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 548,048 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 25,114 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans) . | 2011 522,934 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 27,864 | 2107 27,864 | 8.
9. Other loans ............................................................ | 1563 934,616 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 155,278 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 779,338 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 7,297 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 7,297 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 17,613 | 2123 17,613 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a) . | 2122 10,679,728 | 2122 10,679,728 | 12.
___________________________________________
</TABLE>
16
<PAGE> 37
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC031
Address: 777 MAIN STREET Page: RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-C--Continued
Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 19,431 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 4,174,641 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 85,961 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 965,740 | M.3.a.(3)
(4) Over five years ................................................. | 0357 1,877,648 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 7,103,990 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 2,937,472 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 547,425 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 20,958 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 0 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 3,505,855 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 10,609,845 | M.3.c.
d. Floating rate loans with a remaining maturity of one year or less | ////////////////// |
(included in Memorandum items 3.b.(1) through 3.b.(4) above)......... | A246 277,721 | M.3.d.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 47,652 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// |_____________________
residential properties (included in Schedule RC-C, part I, item | ////////////////// | RCON Bil Mil Thou |
| ////////////////// |____________________
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 425,358 | M.6.
___________________________________________
<FN>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.
</FN>
</TABLE>
17
<PAGE> 38
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-D--Trading Assets and Liabilities _________
Schedule RC-D is to be completed only by banks with $1 billion or more intotal assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
| C420 |
Dollar Amounts in Thousands ////////// Bil Mil Thou
__________________________________________________________________________________________________ _______________|________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices ........................................ | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 484 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 0 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 484 | 12.
<CAPTION>
___________________________
___________________________
| ///////// Bil Mil Thou |
LIABILITIES _________________________
<S> <C> <C>
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 460 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 460 | 15.
___________________________
</TABLE>
18
<PAGE> 39
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities
Part I. Deposits in Domestic Offices
__________
| C425 |
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 1,870,879 | 2240 1,790,783 | 2346 5,557,638 | 1.
2. U.S. Government ...................................... | 2202 32,574 | 2280 32,277 | 2520 0 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 150,578 | 2290 127,109 | 2530 106,071 | 3.
4. Commercial banks in the U.S. ......................... | 2206 202,546 | 2310 202,546 | 2550 100 | 4.
5. Other depository institutions in the U.S. ............ | 2207 174,699 | 2312 174,699 | 2349 500 | 5.
6. Banks in foreign countries ........................... | 2213 318 | 2320 318 | 2236 0 | 6.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 0 | 2300 0 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 38,836 | 2330 38,836 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 2,470,430 | 2210 2,366,568 | 2385 5,664,309 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 698,350 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 974,688 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 60 | M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 974,628 | M.1.c.(2)
d. Maturity data for brokered deposits: | ////////////////// |
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining | ////////////////// |
maturity of one year or less (included in Memorandum item 1.c.(1) above)................. | A243 40 | M.1.d.(1)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining | ////////////////// |
maturity of one year or less (included in memorandum item 1.b above)..................... | A244 348,862 | M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 250,556 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 2,070,204 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 607,255 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 1,723,479 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 1,263,371 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 103,862 | M.3.
4. Not applicable.
______________________
</TABLE>
19
<PAGE> 40
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
<CAPTION>
Schedule RC-E--Continued
Part I. Continued
Memoranda (continued)
_________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// |
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// |
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// |
(1) Three months or less.................................................................... | A225 606,686 | M.5.a.(1)
(2) Over three months through 12 months..................................................... | A226 797,678 | M.5.a.(2)
(3) Over one year........................................................................... | A227 271,853 | M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently............................................................ | A228 47,262 | M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2)
(3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 28,168 | M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// |
of deposits of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// |
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// |
items 2.c and 2.d above):(1) | ////////////////// |
a. Fixed rate time deposits of $100,000 or more wiht a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | A232 270,543 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | A233 297.457 | M.6.a.(2)
(3) Over one year through five years ....................................................... | A234 695,371 | M.6.a.(3)
(4) Over five years ........................................................................ | A235 0 | M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | A236 0 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | A237 0 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | A238 0 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 0 | M.6.c.
______________________
<FN>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</FN>
</TABLE>
20
<PAGE> 41
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 256,352 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 5,000 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 0 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 261,352 | 7.
Memorandum
Dollar Amounts in Thousands |RCFN Bil Mil Thou |
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 261,352 | M.1.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 |
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 51,988 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 166,839 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 17,484 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 379,174 | 4.
_____________ ___________________________
a. | TEXT 3549 |____________________________________________________| RCFD 3549 | | /////////////////////// | 4.a.
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 615,485 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 |
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 24,670 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 305,857 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 32,552 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 363,079 | 5.
___________________________
<FN>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</FN>
</TABLE>
21
<PAGE> 42
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 |
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 6,513 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 6,513 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 0 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 2,065,157 | 4.
5. Other borrowed money ............................................................................ | 3190 1,098,032 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 261,771 | 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 13,927,565 | 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 12,286,580 | 9.
______________________
</TABLE>
<TABLE>
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 829,753 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 0 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 42 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 850,605 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 0 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1)
(2) All other mortgage-backed securities..................................................... | 2253 0 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 475 | 14.
15. Foreign debt securities ........................................................................ | 3160 2,900 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 9,427 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 116,420 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 1,809,622 | 17.
______________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>
22
<PAGE> 43
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-I--Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 |
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. | 2133 N/A | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ...................................................................................... | 2076 N/A | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... | 2077 N/A | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... | 2898 N/A | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ........................................................................ | 2379 N/A | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... | 2381 N/A | 6.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 |
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 1,841 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 2,327,287 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 42 | 3.
4. a. Other debt securities(2) .............................................................. | RCFD 3647 537,639 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 124,253 | 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic offices | /////////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... | RCFD 3365 24,049 | 5.
6. Loans: | /////////////////////// |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ....................................................................... | RCON 3360 11,036,031 | 6.a.(1)
(2) Loans secured by real estate ...................................................... | RCON 3385 3,924,553 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 1,787 | 6.a.(3)
(4) Commercial and industrial loans ................................................... | RCON 3387 5,456,987 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 620,136 | 6.a.(5)
| /////////////////////// |
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 0 | 6.b.
7. Trading assets ........................................................................... | RCFD 3401 658 | 7.
8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 9,155 | 8.
9. Total assets (4) ......................................................................... | RCFD 3368 15,745,746 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 145,491 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 1,367,351 | 11.a.
b. Other savings deposits ................................................................ | RCON 3487 1,715,719 | 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... | RCON 3345 1,290,422 | 11.c.
d. All other time deposits ............................................................... | RCON 3469 2,270,162 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 357,799 | 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs .............. | RCFD 3353 2,634,782 | 13.
14. Other borrowed money ..................................................................... | RCFD 3355 1,058,218 | 14.
___________________________
<FN>
_____________
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</FN>
</TABLE>
23
<PAGE> 44
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-14
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 |
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 404,731 | 1.a.
b. Credit card lines .......................................................................... | 3815 0 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 112,242 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 4,610 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 5,996,651 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,038,270 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 1,075 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 48,181 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 0 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 129,940 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 0 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 0 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// |
Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 60,259 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 54,182 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// |
Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// |
(1) Outstanding principal balance of small business obligations transferred | ////////////////// |
as of the report date................................................................... | A249 0 | 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 0 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives ) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.
b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________
Dollar Amounts in Thousands RCFD Bil Mil Thou
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13.
_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________
</TABLE>
24
<PAGE> 45
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L -- Continued
_____________
| C461 |
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Future contracts .............. | 0 | 0 | 0 | 0 | 14.a.
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
b. Forward contracts ............. | 0 | 0 | 0 | 0 | 14.b.
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
c. Exchange-traded option contracts| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
| RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 |
(2) Purchased options ........ | 0 | 0 | 0 | 0 | 14.c.(2)
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 68,500 | 0 | 0 | 0 | 14.d.(1)
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
(2) Purchased options ........ | 368,500 | 0 | 0 | 0 | 14.d.(2)
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
e. Swaps ............................ | 4,553,328 | 0 | 0 | 0 | 14.e.
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 160,000 | 0 | 0 | 0 | 15.
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
a. Contracts marked to market ... | 0 | 0 | 0 | 0 | 16.a.
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
b. Contracts not marked to market | 4,830,328 | 0 | 0 | 0 | 16.b.
| RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
___________________________________________________________________________________|
</TABLE>
25
<PAGE> 46
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L -- Continued
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in thousands |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 484 | 8734 0 | 8735 0 | 8736 0 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 460 | 8738 0 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 0 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 0 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 5,594 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 44,514 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
<S> <C> <C>
_________________________________________________________________________________________________________________________
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 4,493,867 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 93,830 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 317,126 | M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// |
September report only)....................................................................... | 2741 N/A | M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b.
c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// |
September report only........................................................................ | 2743 N/A | M.5.c
</TABLE>
26
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
_____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// |
shareholders and their related interests ..................................................... | 6164 159,583 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 7 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 20,866 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 11,305 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 1,163,045 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 48,954 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 2,112,518 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 3,306,908 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 6,513 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 28,816 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 0 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 255,078 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 283,894 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 0 | 7.
______________________
- ------------
<FN>
(1) Do not report federal funds sold and securities purchased under agreements to resell with other
commercial banks in the U.S. in this item.
</FN>
</TABLE>
27
<PAGE> 48
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATINAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> <C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 74 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 596 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 192 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 9 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 871 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 0 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 0 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 0 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 0 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in itmes 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 0 | 10.f.
_________________________
</TABLE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>
28
<PAGE> 49
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets
The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 |
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 | 1246 18,232 | 1247 53,840 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// |
acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// |
institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 | 1597 0 | 1583 100 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 | 1252 1,756 | 1253 31,162 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// |
other personal expenditures: | ////////////////// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 | 5384 183 | 5385 184 | 5.a.
b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 | 5387 1,542 | 5388 2,138 | 5.b.
6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// |
institutions .................................... | 5389 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 | 5460 253 | 5461 72 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 | 1258 0 | 1259 0 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 0 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.
________________________________________________________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 | | | |
through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 | 5613 324 | 5614 317 | 10.
a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 | 5616 256 | 5617 263 | 10.a.
________________________________________________________________
</TABLE>
29
<PAGE> 50
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 |
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ////////////////// | /////////////////// | ///////////////// |
reported in Schedule RC-C, part I, Memorandum | ////////////////// | /////////////////// | ///////////////// |
item 2) ......................................... | 1658 | | | M.1.
2. Loans to finance commercial real estate, | ////////////////// | /////////////////// | ///////////////// |
construction, and land development activities | ////////////////// | /////////////////// | ///////////////// |
(not secured by real estate) included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 593 | 6560 26 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 | 2769 0 | 3492 1,108 | M.3.a.
b. Secured by farmland .......................... | 3493 | 3494 0 | 3495 0 | M.3.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// |
1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 | 5399 1,772 | 5400 2,746 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// |
residential properties ................... | 5401 | 5402 12,822 | 5403 13,798 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 | 3500 1,426 | 3501 1,352 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 | 3503 2,212 | 3504 34,836 | M.3.e.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// |
commodity and equity contracts: | ////////////////// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ////////////////// | ////////////////// |
positive replacement cost .................... | 3529 | 3530 0 | M.4.b.
___________________________________________
</TABLE>
30
<PAGE> 51
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 0 | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 0 | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 28,655 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 3,266 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 5,000 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 2 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, | ////////////////// |
item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 0 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________
_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 864,186 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
<FN>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</FN>
</TABLE>
31
<PAGE> 52
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-O--Continued
Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collections were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 0 | 11.c.
____________________
<CAPTION>
Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less .................................... | 2702 4,389,311 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) ..........................|RCON 3779________N/A | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 .................................. | 2710 3,745,428 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 .............|RCON 2722______6,366 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits that the ____________YES_______NO__
estimated described above ............................................................... |RCON 6861| |///| x | M.2.a.
____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.
_____________________________________________________________________________________________________________________________
| C477 |
Person to whom questions about the Reports of Condition and Income should be directed: __________
PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
</TABLE>
32
<PAGE> 53
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Regulatory Capital
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than
$1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
____________
| C480 |
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________|
only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO |
box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
| and Intermediate | Limited- |
Items 2 and 3 are to be completed by all banks. | Term Preferred | Life Capital |
| Stock | Instruments |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// |
weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// |
maturity of: | ////////////////// | ////////////////// |
a. One year or less ...................................................... | 3780 0 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 0 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 0 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 440,000 | 3791 0 | 2.f.
3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// |
determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou |
a. Tier 1 capital......................................................... | ////////////////// | 8274 1,131,906 | 3.a.
b. Tier 2 capital......................................................... | ////////////////// | 8275 614,539 | 3.b.
c. Total risk-based capital............................................... | ////////////////// | 3792 1,746,445 | 3.c.
d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 85,540 | 3.d.
e. Risk-weighted assets................................................... | ////////////////// | A223 13,877,543 | 3.e.
f. "Average total assets"................................................. | ////////////////// | A224 15,490,668 | 3.f.
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items assigned | | |
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 848,861 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 168,507 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 0 | 4.b.
___________________________________________
<FN>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in column A.
</FN>
</TABLE>
33
<PAGE> 54
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-24
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 21,083 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 1,567,242 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 67,114 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 2,037,765 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 116,963 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 9,551,472 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 3,288,367 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 (7,286)| ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 14,187,644 | ////////////////// | 9.
___________________________________________
<CAPTION>
Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards ...................................................................| 8764 6,077| M.1.
|___________________|
<CAPTION>
________________________________________________________________
| With a remaining maturity of |
|______________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________________________________________________|
|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|
|____________________|____________________|____________________|
<S> |<C> | <C> | <C> | <C>
2. Notional principal amounts of | | | |
off-balance sheet derivative contracts(3):| | | |
a. Interest rate contracts ................. |3809 1,308,203 | 8766 3,328,625 | 8767 0 | M.2.a.
b. Foreign exchange contracts .............. |3812 0 | 8769 0 | 8770 0 | M.2.b.
c. Gold contracts .......................... |8771 0 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... |8774 0 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... |8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. |A000 0 | A001 0 | A002 0 | M.2.f.
|______________________________________________________________|
_________________
1) Do not report in column B the risk-weighted amount of assets reported in column A.
2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as
any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital.
3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
</TABLE>
34
<PAGE> 55
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- -------------------------------------------------------------------------------------------------------------------------------
| OMB No. For OCC: 1557-0081
Name and address of Bank | OMB No. For FDIC: 3064-0052
| OMB No. For Federal Reserve: 7100-0036
| Expiration Date: 3/31/96
|
PLACE LABEL HERE |
| SPECIAL REPORT
| (Dollar Amounts in Thousands)
|
|___________________________________________________________________
| CLOSE OF BUSINESS| FDIC Certificate Number | |
| DATE | | C-700 |
| 12/31/95 | |0|2|4|9|9 | |
__________________________________________________________________________________________________________________________________
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition.
With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to
their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none"
against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See
Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation 0) for the definitions
of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and
principal shareholders who are not executive officers.
________________________________________________________________________________________________________________________________
a. Number of loans made to executive officers since the previous Call Report date ...................| RCFD 3561| 0 a.
b. Total dollar amount of above loans (in thousands of dollars) .....................................| RCFD 3652| 0 b.
c. Range of interest charged on above loans
(example: 9 3/4% = 9.75) ........................................|RCFD 7701| 0.00 | % to | RCFD 7702 | 0.00 | % c.
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
SIGNATURE OF TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year)
|
|
________________________________________________________________________________________________________________________________
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION
| (TEXT 8904)
|
ROBERT P. DUFF VICE PRESIDENT | (203) 986-2474
|
________________________________________________________________________________________________________________________________
FDIC 8040/53 (6-95)
</TABLE>
35
<PAGE> 56
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State, Zip: HARTFORD, CT 06115 Page RC-25
FDIC Certificate No.: 02499
</TABLE>
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on March 31, 1996
FLEET NATIONAL BANK OF CONNECTICUT HARTFORD , CONNECTICUT
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL
BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS
IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks
choosing not to make a statement may check the "No comment" box below and
should make no entries of any kind in the space provided for the narrative
statement; i.e., DO NOT enter in this space such phrases as "No statement,"
"Not applicable," "N/A," "No comment," and "None."
The optional statement must be entered on this sheet. The statement should
not exceed 100 words. Further, regardless of the number of words, the
statement must not exceed 750 characters, including punctuation, indentation,
and standard spacing between words and sentences. If any submission should
exceed 750 characters, as defined, it will be truncated at 750 characters with
no notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
_____________________________________________________________________________
No comment |X| )RCON 6979) | c471 | C472 |
BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
__Gero DeRosa_______________________________ ___4/25/96________
Signature of Executive Officer of Bank Date of Signature
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TWIN LABORATORIES INC.
OFFER TO EXCHANGE
ALL OF ITS
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
FOR ITS
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
PURSUANT TO THE PROSPECTUS DATED , 1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1996, UNLESS EXTENDED.
To: EXCHANGE AGENT
FLEET NATIONAL BANK
<TABLE>
<S> <C>
By Mail By Hand/Overnight Express:
Fleet National Bank Fleet National Bank
777 Main Street 777 Main Street
MSN CT/MO/0224 MSN CT/MO/0224
Hartford, Connecticut 06115 Hartford, Connecticut 06115
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
</TABLE>
Facsimile Transmission:
(860)986-7908
To confirm receipt:
Tel. (860)986-1271
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus, dated
, 1996 ("Exchange Offer"), of Twin Laboratories Inc., a
Utah corporation (the "Company"), relating to the offer of the Company, upon the
terms and subject to the conditions set forth in the Exchange Offer and in this
Letter of Transmittal and the instructions hereto (which together with the
Exchange Offer and the instructions hereto constitute the "Offer"), to exchange
its 10 1/4% Senior Subordinated Notes due 2006 ("New Notes") for any and all of
its outstanding 10 1/4% Senior Subordinated Notes due 2006 ("Old Notes"), at the
rate of $1,000 principal amount of the New Note for each $1,000 principal amount
of the Old Notes. Capitalized terms used but not defined herein have the
meanings given to them in the Exchange Offer.
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Offer.
This Letter of Transmittal is to be used whether the Old Notes are to be
physically delivered herewith, or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth under "The Exchange Offer" in the Exchange Offer. If delivery of Old Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company ("DTC"), this Letter of Transmittal need
not be manually executed, provided, however, that tenders of Old Notes must be
effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Exchange Offer under the caption "The Exchange
Offer--Procedures for Tendering Old Notes--Book Entry Delivery." If a Registered
Holder desires to tender Old Notes and such Old Notes are not immediately
available or time will not permit all documents required by the Offer to reach
the Exchange Agent (or such Registered holder is unable to complete the
procedure for book-entry transfer on a timely basis) prior to the Expiration
Date, a tender may be effected in accordance with the guaranteed delivery
procedures set forth in the Exchange Offer under the caption "The Exchange
Offer--Procedures for Exchanging Old Notes--Guaranteed Delivery Procedures." See
Instruction 1.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 2
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Offer, the undersigned
hereby tenders to the Company the principal amount of the Old Notes indicated
below. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered hereby, the undersigned hereby irrevocably sells, assigns and
transfers to or upon the order of the company all right, title and interest in
and to such Old Notes and hereby irrevocably constitutes and appoints the
Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned
(with full knowledge that said exchange agent also acts as the agent of the
Company) with respect to such Old Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to take such further action as may be required in connection with the
delivery, tender and exchange of the Old Notes.
The undersigned acknowledges that this Offer is being made in reliance on
an interpretation by the staff of the Securities and Exchange Commission (the
"SEC") that the New Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchased Old Notes directly
from the Company for resale pursuant to Rule 144A under the Securities act of
1933, as amended (the "Securities Act"), or (ii) a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities act provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. See "Morgan Stanley & Co.
Inc.," SEC No-Action Letter (available June 5, 1991); The Exchange Offer under
the caption "The Exchange Offer -- Resales of the New Notes."
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT
NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY
DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD
RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents, or,
if the undersigned is a broker, dealer, commercial bank, trust company or other
nominee, represents that it has received representations from the beneficial
owners of the Old Notes stating, (as defined in the Exchange Offer) that (i) the
New Notes to be acquired in connection with the Exchange Offer by the Eligible
Holder and each Beneficial Owner of the Old Notes are being acquired by the
Eligible Holder (as defined in the Exchange Offer) and each Beneficial Owner in
the ordinary course of business of the Eligible Holder and each Beneficial
Owner, (ii) the Eligible Holder and each Beneficial Owner are not participating,
do not intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the New Notes, (iii) the Eligible
Holder and each Beneficial Owner acknowledge and agree that any person
participating in the Exchange Offer for the purpose of distributing the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction of the New
Notes acquired by such person and cannot rely on the position of the staff of
the Commission set forth in no-action letters that are discussed in the Exchange
Offer under the caption "The Exchange Offer -- Resales of the New Notes," (iv)
that if the Eligible Holder is a broker-dealer that acquired Old Notes as a
result of market making or other trading activities, it will deliver a
prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the Eligible Holder and each Beneficial Owner understand that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by item 507 of Regulations S-K of the Securities Act and
(vi) neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing.
In addition, if the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes, it represents
that the Old Notes to be exchanged for New Notes were acquired by it as a result
of market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or as set forth in the
Exchange Offer under the caption "The Exchange Offer -- Conditions of the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The term of any such purchases or offers could differ
from the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Offer, has full power and authority to tender,
exchange, assign and transfer the Old Notes tendered hereby, and that when the
same are accepted for exchange by the Company, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions charges
and encumbrances and not subject to any adverse claim or right. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be reasonably necessary or desirable to
complete the sale, assignment and transfer the Old Notes tendered hereby.
<PAGE> 3
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrations, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer -- Procedures for
Tendering" in the Exchange Offer and in the instructions hereto will constitute
a binding agreement between the undersigned and the Company in accordance with
the terms and subject to the conditions of the Offer.
The undersigned understands that by tendering Old Notes pursuant to one of
the procedures describe in the Exchange Offer and the instructions thereto, the
tendering holder will be deemed to have waived the right to receive any payment
in respect of interest on the Old Notes accrued up to the date of issuance of
the New Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Exchange Offer, the Company may not be required to accept for exchange any
of the Old Notes tendered. Old Notes not accepted for exchange or withdrawn will
be returned to the undersigned as the address set forth below unless otherwise
indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special Exchange
Instructions" below, please deliver New Notes in the name of the undersigned.
Similarly, unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, please send New Notes to the undersigned at the address
shown below the signature of the undersigned. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Exchange Instructions" to
transfer any Old Notes from the name of the Registered Holder thereof if the
Company does not accept for exchange any of the principal amount of such Old
Notes so tendered.
<PAGE> 4
THE UNDERSIGNED BY COMPLETING THE BOX "DESCRIPTION OF OLD NOTES" BELOW AND
SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AND MADE
CERTAIN REPRESENTATIONS DESCRIBED HEREIN AND IN THE EXCHANGE OFFER.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(SEE INSTRUCTIONS 1 AND 3 AND THE FOLLOWING PARAGRAPH)
(IMPORTANT: ALSO COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
................................................................................
................................................................................
SIGNATURE(S) OF OWNER(S)
Dated: ................................................................., 1996
If the holder(s) is/are tendering any Old Notes, this Letter of Transmittal must
be signed by the Registered Holder(s) as the name(s) appear(s) on the Old Notes
or on a security position listing or by person(s) authorized to become
Registered Holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s) ........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
Capacity: ......................................................................
Address: .......................................................................
................................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number .................................................
Tax Identification or
Social Security No(s).: ........................................................
(SEE INSTRUCTION 12 AND COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
Authorized Signature: ..........................................................
Printed Name: ..................................................................
Title: .........................................................................
Name of Firm: ..................................................................
Address: .......................................................................
................................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number .................................................
Dated: ................................................................., 1996
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A
NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
<PAGE> 5
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amounts should be listed on a separate signed schedule affixed thereto. See
Instruction 7. The minimum permitted tender is $1,000 principal amount of Old
Notes; all other tenders must be in integral multiples of $1,000.
DESCRIPTION OF OLD NOTES
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
(I) (II) (III) (IV)
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S) REPRESENTED TENDERED
------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL ...........................................................................................................................
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated in the column labeled "Principal Amount
Tendered" and subject to the terms and conditions of the Offer, the
undersigned will be deemed to have tendered the entire aggregate
principal amount represented by the Old Notes indicated in the column
labeled "Aggregate Principal Amount Represented." See Instruction 8.
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVEY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING (See Instructions 1 and 3):
Name(s) of Registered Holder(s): ..........................................
Date of Execution of Notice of Guaranteed Delivery: .......................
Name of Eligible Institution that Guaranteed Delivery: ....................
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ....................................................................
Address: ..................................................................
..................................................................
If delivery of Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC, then tenders of Old Notes must
be effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Exchange Offer under the caption "The Exchange
Offer -- Procedures for Tendering Old Notes--Book Entry Delivery."
<PAGE> 6
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Old Notes in a principal amount not exchanged and/or New
Notes are to be registered in the name of or issued to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above.
Issue and mail: (check appropriate box(es)):
/ / New Notes to: / / Old Notes to:
Name(s) ........................................................................
(PLEASE TYPE OR PRINT)
................................................................................
(PLEASE TYPE OR PRINT)
Address ........................................................................
................................................................................
(ZIP CODE)
................................................................................
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(COMPLETE THE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Old Notes in a principal amount not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter of Transmittal above or to such person or
persons at an address other than that shown in the box entitled "Description of
Old Notes" on this Letter of Transmittal above.
Mail and deliver: (check appropriate box(es)):
/ / New Notes to: / / Old Notes to:
Name(s) ........................................................................
(PLEASE TYPE OR PRINT)
................................................................................
(PLEASE TYPE OR PRINT)
Address ........................................................................
................................................................................
(ZIP CODE)
................................................................................
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
<PAGE> 7
TO BE COMPLETED BY ALL EXCHANGING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: FLEET NATIONAL BANK
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN SOCIAL SECURITY NUMBER
THE BOX AT RIGHT AND CERTIFY BY
FORM W-9 SIGNING AND DATING BELOW. OR
EMPLOYER IDENTIFICATION NUMBER
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PART 2 -- CERTIFICATION -- Under penalties of perjury, I certify that: (1) The
number shown on this form is my correct Taxpayer Identification Number (or I
am waiting for a number to be issued to me) and (2) I am not subject to backup
withholding because: (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out Item (2) above if you have
been notified by the IRS that you are currently subject to backup withholding
because of under-reporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer subject
to backup withholding, do not cross out such Item (2).
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PART 3 --
SIGNATURE __________________________________ DATE ______________, 1996 AWAITING TIN / /
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION ON SUBSTITUTE FROM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (2)
I intend to mail or deliver an application in the near future. I understanding
that if I do not provide a Taxpayer Identification Number within sixty days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a Taxpayer Identification Number.
SIGNATURE ____ DATE 1996
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Delivery of this Letter of Transmittal and Old Notes: Guaranteed
Delivery Procedures. To be effectively tendered pursuant to the Offer, the Old
Notes, together with a properly completed Letter of Transmittal (or manually
signed facsimile hereof) duly executed by the Registered Holder thereof, and any
other documents required by this Letter of Transmittal must be received by the
Exchange Agent at one of its addresses set forth on the front page of this
Letter of transmittal and tendered Old Notes must be received by the Exchange
Agent at one of such addresses on or prior to the Expiration Date; provided,
however, that book-entry transfers of Old Notes may be effected in accordance
with the procedures set forth in the Exchange Offer under the caption "The
Exchange Offer -- Procedures For Tendering Old Notes -- Book Entry Delivery." If
the Beneficial Owner of any Old Notes is not the Registered Holder, then such
person may validly tender such person's Old Notes only by obtaining and
submitting to the Exchange Agent a properly completed Letter of Transmittal from
the Registered Holder. LETTERS OF TRANSMITTAL OF OLD NOTES SHOULD BE DELIVERED
ONLY BY HAND OR BY COURIER, OR TRANSMITTED BY MAIL, AND ONLY TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED. IF OLD NOTES ARE SENT BY MAIL, IT IS
SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Old Notes and such holder's Old Notes are not
immediately available or time will not permit such holder to complete the
procedures for book-entry transfer on a timely basis or time will not permit
such holder's Letter of Transmittal and other required documents to reach the
Exchange Agent on or before the Expiration Date, such holder's tender may be
effected if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has
received a telegram, facsimile transmission or letter form such Eligible
Institution setting forth the name and address of the holder of such Old
Notes, the certificate number(s) of such Old Notes (except in the case of
book-entry tenders) and the principal amount of Old Notes tendered and
stating that the tender is being made thereby and guaranteeing that, within
three business days after the Expiration Date, a duly executed Letter of
Transmittal, or facsimile thereof, together with the Old Notes, and any
other documents required by this Letter of Transmittal and Instructions,
will be deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal, or a manually signed facsimile hereof,
and Old Notes, in proper form for transfer (or a Book-Entry confirmation
with respect to such Old Notes), and all other required documents are
received by the Exchange Agent within three business days after the
Expiration Date.
2. Withdrawal of Tenders. Tendered Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must (i) be timely received by the Exchange Agent at one of its
addresses set forth on the first page of this Letter of Transmittal before the
Exchange Agent receives notice of acceptance from the Company, (ii) specify the
name of the person who tendered the Old Notes, (iii) contain the description of
the Old Notes to be withdrawn, the certificate number(s) of such Old Notes
(except in the case of book-entry tenders) and the aggregate principal amount
represented by such Old Notes or a Book-Entry Confirmation with respect to such
Old Notes, and (iv) be signed by the holder of such Old Notes in the same manner
as the original signature appears on this Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Old Notes. The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Old Notes have been tendered
(i) by a Registered Holder (which term for purposes of this document shall
include any participant tendering by book-entry transfer) of Old Notes who has
not completed either the box entitled "Special Exchange Instruction" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii)
for the account of an Eligible Institution. If the Old Notes have been tendered
pursuant to the procedure for book-entry tender set forth in the Exchange Offer
under the caption "Exchanging Book Entry Old Notes," a notice of withdrawal is
effective immediately upon receipt by the Exchange Agent of a written,
telegraphic or facsimile transmission notice of withdrawal even if physical
release is not yet effected. In addition, such notice must specify, in the case
of Old Notes tendered by delivery of such Old Notes, the name of the Registered
Holder (if different from that of the tendering holder) to be credited with the
withdrawn Old Notes. Withdrawals may not be rescinded, and any Old Notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, properly withdrawn Old Notes may be retendered by following one
of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Exchange Offer at any time on or prior to the
applicable Expiration Date.
<PAGE> 10
3. Signatures on this Letter of Transmittal, Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
Registered Holder of the Old Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the Old Notes without
any change whatsoever.
If any Old Notes tendered hereby are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any Old Notes tendered hereby are registered in different names, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the Registered Holder or
Holders specified herein and tendered hereby, no endorsements of such Old Notes
or separate bond powers are required. If, however, New Notes are to be issued,
or any untendered principal amount of Old Notes are to be reissued to a person
other than the Registered Holder, then endorsements of any Old Notes transmitted
hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
Registered Holder or Holders, such Old Notes must be endorsed or accompanied by
appropriate bond powers, in either case signed exactly as the name or names of
the Registered Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority so to act must be submitted.
Except as describe in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by
an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution").
Signatures on this Letter of Transmittal or a notice of withdrawal, as the case
may be, need not be guaranteed if the Old Notes tendered pursuant hereto are
tendered (i) by a Registered Holder of Old Notes who has not completed either
the box entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
Endorsement on Old Notes or signatures on bond forms required by this
Instruction 3 must be guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering holders should
indicate in the applicable box the name and address to which New Notes and/or
substitute Old Notes for the principal amounts not exchanged are to be issued or
sent, if different from the name and address of the person signing this Letter
of Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, such Old Notes not exchanged will
be returned to the name and address of the person signing this Letter of
Transmittal.
5. Tax Identification Number and Backup Withholding. Federal income tax
law of the United States requires that a holder of Old Notes whose Old Notes are
accepted for exchange provide the Company with such holder's correct taxpayer
identification number, which, in the case of a holder who is an individual, is
the holder's social security number, or otherwise establish an exemption from
backup withholding. If the Company is not provided with the holder's correct
taxpayer identification number, the exchanging holder of Old Notes may be
subject to a penalty imposed by the Internal Revenue Service. In addition,
interest on the New Notes acquired pursuant to the Offer may be subject to
backup withholding in an amount equal to 31 percent of any interest payment. If
withholding occurs and result in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service filing of a return.
To prevent backup withholding, each exchanging holder of Old Notes subject
to backup withholding must provide his correct taxpayer identification number by
completing the Substitute Form W-9 provided in this Letter of Transmittal,
certifying that the taxpayer identification number provided is correct (or that
the exchanging holder of Old Notes is awaiting a taxpayer identification number)
and that either (a) the exchanging holder has not been notified by the Internal
Revenue Service that he is subject to backup withholding as a result of failure
to report all interest or dividends or (b) the Internal Revenue Service has
notified the exchanging holder that he is no longer subject to backup
withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to such
exempt status on the Substitute Form W-9 provided in this Letter of transmittal.
6. Transfer Taxes. Holders tendering pursuant to the Offer will not be
obligated to pay brokerage commissions or fees or to pay transfer taxes with
respect to their exchange under the Offer unless the box entitled "Special
Issuance Instructions" in this Letter of Transmittal has been completed, or
unless the securities to be received upon exchange are to be issued to any
person other than the holder of the Old Notes tendered for exchange. The Company
will pay all other charges or expenses in connection with the Offer. If holders
tender Old Notes for exchange and the Offer is not consummated, such Old Notes
will be returned to the holders at the Company expense.
<PAGE> 11
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter of
Transmittal.
7. Inadequate Space. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the security
numbers (if available) should be listed on a separate schedule attached hereto
and separately signed by all parties required to sign this Letter of
Transmittal.
8. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If tenders are to be made with respect to less
than the entire principal amount of any Old Notes, fill in the principal amount
of Old Notes which are tendered in column (iv) of the "Description of Old
Notes." In the case of partial tenders, the Old Notes in fully registered form
for the remainder of the principal amount of the Old Notes will be sent to the
persons(s) signing this Letter of Transmittal, unless otherwise indicated in the
appropriate place on this Letter of Transmittal, as promptly as practicable
after the expiration or termination of the Offer.
Unless otherwise indicated in column (iv) in the box labeled "Description
of Old Notes," and subject to the terms and conditions of the Offer, tenders
made pursuant to this Letter of Transmittal will be deemed to have been made
with respect to the entire aggregate principal amount represented by the Old
Notes indicated in column (iii) of such box.
9. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. Validity and Acceptance of Tenders. All questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of Old
Notes tendered for exchange will be determined by the Company in its sole
discretion, which determination shall be final and binding. The Company reserves
the absolute right to reject any and all Old Notes not properly tendered and to
reject any Old Notes the Company's acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such period of time as the Company shall
determine. The Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange but
shall not incur any liability for failure to give such notification. Tenders of
the Old Notes will not be deemed to have been made until such irregularities
have been cured or waived.
11. Requests for Assistance or Additional Copies. Fleet National Bank is
the Exchange Agent. All tendered Old Notes, executed Letters of Transmittal and
other related documents should be directed to the Exchange Agent at the
addresses or facsimile number set forth on the first page of this Letter of
Transmittal. Questions and requests for assistance and requests for additional
copies of the Prospectus, the Letter of Transmittal and other related documents
should be addressed to the Exchange Agent as follows:
Fleet National Bank
777 Main Street
MSN CT/MO/0224
Hartford, Connecticut 06115
Attention: Corporate Trust Operations
Facsimile Transmission:
(860) 986-7908
To confirm receipt:
Tel. (860) 986-1271
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TWIN LABORATORIES INC.
OFFER TO EXCHANGE
ALL OF ITS OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
FOR ITS
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
As set forth in Prospectus described below, this Notice of Guaranteed
Delivery or one substantially equivalent hereto must be used to tender for
exchange 10 1/4% Senior Subordinated Notes due 2006 ("Old Notes"), of Twin
Laboratories Inc., a Utah corporation ("Company"), pursuant to the Exchange
Offer (as defined below) if certificates for Old Notes are not immediately
available or the certificates for Old Notes and all other required documents
cannot be delivered to the Exchange Agent on or prior to the Expiration Date (as
defined in the Prospectus), or if the procedures for delivery by book-entry
transfer cannot be completed on a timely basis. This instrument may be delivered
by hand or transmitted by facsimile transmission or mail to the Exchange Agent.
The Exchange Agent for the Exchange Offer is:
FLEET NATIONAL BANK
<TABLE>
<S> <C>
By Mail By Hand or Overnight Delivery:
Fleet National Bank Fleet National Bank
777 Main Street 777 Main Street
MSN CT/MO/0224 MSN CT/MO/0224
Hartford, Connecticut 06115 Hartford, Connecticut 06115
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
</TABLE>
By Facsimile Transmission:
(860)986-7908
Confirm by telephone:
Tel. (860)986-1271
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the Instructions to the Letter of
Transmittal, such signature guarantee must appear in the applicable space
provided in the signature box in the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1996,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus dated , 1996
("Prospectus") and in the related Letter of Transmittal (which, together with
any amendments or supplements thereto, collectively constitute the "Exchange
Offer"), receipt of each of which is hereby acknowledged, the principal amount
of Old Notes indicated below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Procedures for
Tendering Old Notes -- Guaranteed Delivery Procedures.
Signature(s)
Name(s) of Eligible Holders
- ------------------------------------------------------------
- ------------------------------------------------------------
PLEASE TYPE OR PRINT
Principal Amount of Old Notes Tendered for
Exchange $
Old Note Certificate No(s). (If available
- ------------------------------------------------------------
- ------------------------------------------------------------
Dated , 1996
Address(es)
- ------------------------------------------------------------
Zip Code
Area Code and Tel. No.(s)
(Check box if shares will be tendered by book-entry transfer)
/ / The Depository Trust Company
Account Number
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, an Eligible Institution (as defined in the Prospectus),
having an office or correspondent in the United States, hereby (a) represents
that the above named person(s) "own(s)" the Old Notes tendered hereby within the
meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 14e-4"), (b) represents that such tender of Old Notes complies
with Rule 14e-4, and (c) guarantees to either deliver to the Exchange Agent the
certificates representing all the Old Notes tendered hereby, in proper form for
transfer, or to deliver such Old Notes pursuant to the procedure for book-entry
transfer into the Exchange Agent's account at The Depository Trust Company, in
either case together with the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees or
an Agent's Message (as defined in the Prospectus) in the case of a book-entry
transfer, and any other required documents, all within three New York Stock
Exchange trading days after the date hereof.
<TABLE>
<S> <C>
Name of Firm Authorized Signature
Name
Address Please Type or Print
Title
Zip Code
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS NOTICE. CERTIFICATES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
