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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 AND 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File Number: 0-21003
TWINLAB CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 11-3317986
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
150 Motor Parkway 11788
Hauppauge, New York (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (631) 467-3140
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of shares of Common Stock of the registrant
held by non-affiliates based on the closing sale price of the Common Stock on
March 17, 2000, as reported on the Nasdaq National Market, was $116,618,565.
As of March 17, 2000, the registrant had 28,645,687 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2000
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Report.
NOTE
Twinlab Corporation's Report on Form 10-K filed with the Securities and Exchange
Commission includes all exhibits required to be filed with the Report. Copies of
this Report on Form 10-K, not including any of the exhibits listed under Item
14(c) of this Report, are available without charge upon written request. Please
contact the office set forth below to request copies of this Report on Form 10-K
and for information as to the number of pages contained in each of the exhibits
and to request copies of such exhibits:
Corporate Secretary
Twinlab Corporation
150 Motor Parkway
Hauppauge, NY 11788
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TWINLAB CORPORATION 1999 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART I
Page
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 17
Item 3. Legal Proceedings.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............ 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 18
Item 6. Selected Financial Data........................................ 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 22
Item 8. Financial Statements and Supplementary Data.................... 27
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant............. 27
Item 11. Executive Compensation......................................... 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management ................................................ 27
Item 13. Certain Relationships and Related Party Transactions........... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ...................................................... 27
SIGNATURES.................................................................. 33
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PART I
Information contained or incorporated by reference in this annual report
may contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements 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" and "Business -- Business Strategy."
Forward-looking statements involve substantial risks and uncertainties and
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance, the Company's operations,
performance, financial condition, growth and acquisition strategies, margins and
growth in sales of the Company's products. Such forward looking statements by
their nature involve known and unknown risks, uncertainties and contingencies,
many of which are beyond the Company's control, which may cause actual results,
performance or achievements to differ materially from those projected or implied
in such forward-looking statements. As a result, no assurance can be given that
the future results covered by such forward-looking statements will be achieved.
Factors that might cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements
include, among other things, those discussed in "Factors Affecting Future
Performance" under the caption "Business" in Item 1 of this annual report. Other
factors could also cause actual results to vary materially from the future
results covered in such forward-looking statements. For the purpose of this
annual report, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. The Company
accepts no obligation to update any forward-looking statements and does not
intend to do so.
Unless the context otherwise requires, the terms "Company" and "Twinlab"
refer to Twinlab Corporation and, as applicable, its direct and indirect
subsidiaries, Twin Laboratories Inc. ("Twin"), Advanced Research Press, Inc.
("ARP"), Changes International, Inc. and Changes International U.K. Ltd.
(collectively "Changes International"), Bronson Laboratories, Inc. ("Bronson"),
Health Factors International, Inc. ("Health Factors"), PR*Nutrition, Inc.
("PR*Nutrition") and Twinlab FSC Inc.
Item 1. BUSINESS
General
The Company is one of the leading manufacturers and marketers of brand
name nutritional supplements sold through domestic health and natural food
stores and various direct sales channels, including network and catalog
marketing and is also engaged in the sale of products through national and
regional drug store chains, supermarkets, mass merchandise retailers and
military post exchanges. The Company produces a full line of nutritional
supplements and offers one of the broadest product lines in the industry. 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; a full line of herbal supplements and phytonutrients
marketed under the Nature's Herbs(R) and Twinlab TruHerbs(R) trademarks; a line
of specially formulated nutritional supplements marketed under the Changes(R)
trademark; herb teas marketed under the Alvita(R) trademark; vitamins, herbs,
nutritional supplements and health and beauty aids marketed under the Bronson(R)
trademark; and nutritionally enhanced food bars marketed under the Twinlab,
PR*Bar(R) and Ironman Triathlon(R) trademarks. The Company emphasizes the
development and introduction of high-quality, unique nutraceuticals and other
products in response to emerging trends in the nutritional supplement industry.
The Company's premium 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, Bronson, PR*Nutrition,
Changes and Alvita as leading and widely-recognized brands in the nutritional
supplement industry.
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. To reach the broadest possible
consumer market, the Company has developed a multi-branded and multi-channel
distribution strategy,
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consisting of the following categories:
o Health and Natural Food Store Channel -- The Company's TWINLAB, Nature's
Herbs, Ironman Triathlon and Alvita brand products are sold primarily
through a network of over 60 distributors to nearly 11,000 health and
natural food stores and other selected retail outlets. The health and
natural food store channel of distribution has grown in recent years as
national chains, including those which sell the Company's products, such
as General Nutrition Companies, Inc. ("GNC"), Whole Foods Markets, Inc.
("WFM"), Wild Oats Markets, Inc. ("Wild Oats"), Vitamin Shoppe Industries,
Inc. ("Vitamin Shoppe") and other industry participants continue to add
stores in new and existing markets. The Company believes that it has a
competitive advantage in the health and natural food store channel due to
the high quality of its products, which is a direct result of its use of
premium ingredients, its state of the art manufacturing facilities and its
comprehensive quality control procedures. Sales to the health and natural
food store channel, primarily through distributors, continue to represent
the Company's largest market, totaling approximately $199.8 million, or
approximately 63.3%, of the Company's net sales in 1999. The Company
believes that its products have a presence in over 95% of the health and
natural food stores in the United States, but that only approximately 20%
of such stores carry a comprehensive line of the Company's products.
Management believes that the continued expansion of health and natural
food store retail outlets and the strong demographic and consumer
awareness fundamentals driving the nutritional supplement industry,
combined with health and natural food retailers' success with the
Company's product lines, provide Twinlab with significant opportunities to
increase sales in the health and natural food store channel. The Company
also manufactures, through Health Factors, private label vitamins and
nutritional supplements for a number of other companies on a contract
manufacturing basis.
o Mass Market Channel -- The Company is actively engaged in efforts to
expand its penetration of the mass market retail channel, which consists
of drug store chains, supermarkets and other mass merchandisers. The
Company is currently a provider of Twinlab brand products as well as a
private label herbal product supplier to Wal-Mart Stores, Inc.
("Wal-Mart"), which are sold under Wal-Mart's proprietary Spring Valley
brand name. The Company also sells its products through national and
regional drug store and supermarket chains, such as Rite Aid Corporation,
Walgreen, CVS, Kroger, American Stores and Albertson's. Approximately
$44.7 million, or 14.2%, of the Company's 1999 net sales were attributable
to mass market retailers.
o Direct Sales Channel -- The Company markets and sells a variety of
products through the direct sales distribution channel, which includes
network marketing, catalog and direct response sales. Through Changes
International, the Company develops, markets and sells vitamins, herbs and
nutritional supplements under the Changes brand name. Changes
International operates through a large sales force of independent
distributors located throughout the United States, Canada, the United
Kingdom and Japan who sell directly to consumers. In the United Kingdom,
Changes International operates through Changes International (UK) Limited.
At this time, all of Changes International's products are specially
formulated and packaged for distribution through a network marketing sales
force and are not intended for sale to retail outlets, except for limited
distribution through kiosks that are operated by independent Changes
distributors. Changes International generated net sales of $47.0 million,
or 14.9%, of the Company's net sales in 1999. Under the Bronson brand
name, Twinlab manufactures, markets and distributes vitamins, herbs,
nutritional supplements and health and beauty aids that are sold through
catalogs and specialty direct mailings to customers, including healthcare
and nutritional professionals. The Company also markets and distributes
nutritionally enhanced food bars and other nutritional products under the
PR*Bar brand name directly to consumers through direct mailings and direct
response sales. Approximately $20.3 million, or 6.4%, of the Company's
1999 net sales were attributable to sales through catalog and direct
response sales.
Operating Divisions
While the Company's products are marketed through the distribution
channels discussed above, the
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Company's operations are organized around the following six divisions:
o TWINLAB Division -- The TWINLAB division develops and manufactures
vitamins, minerals, herbs, amino acids, sports nutrition products and
nutritionally enhanced drinks and food bars under the TWINLAB, TruHerbs,
Ironman Triathlon, MaxiLife, "Fuel" and other brand names for distribution
in the health and natural food store and mass market distribution
channels. The TWINLAB division accounted for approximately $195.6 million,
or 62.0%, of the Company's net sales in 1999.
o Herbal Supplements and Teas Division -- The herbal supplements and teas
division develops and manufactures the Company's products marketed and
sold under the Nature's Herbs, and Alvita brand names through the health
and natural food store and mass market distribution channels. This
division generated approximately $30.8 million, or 9.8%, of the Company's
net sales in 1999.
o Changes International Division -- The Changes International division
develops and markets a line of vitamins, herbs and nutritional supplements
under the Changes brand name for distribution exclusively through a
network marketing sales force of independent distributors. This division
accounted for approximately $47.0 million, or 14.9%, of the Company's net
sales in 1999.
o Bronson Division -- Twinlab's Bronson division manufactures, markets and
distributes vitamins, herbs, minerals and health and beauty aids under the
Bronson brand name, which are sold through catalogs and direct mailings to
customers. Through Health Factors, this division also manufactures private
label vitamins and nutritional supplements for a number of other companies
on a contract manufacturing basis. The Bronson division generated net
sales of $25.9 million, or 8.2%, of the Company net sales in 1999.
o PR*Nutrition Division -- The PR*Nutrition division develops, markets and
sells nutritionally enhanced food bars, diet programs and other
nutritional products under the PR*Bar and PR*Nutrition brand names for
sale to consumers through direct and specialty mailings and direct
response sales. Effective July 1, 1999, responsibility for sales of the
Company's Ironman Triathlon food bar was transferred from the PR*Nutrition
Division to the Twinlab Division, and sales attributable to such product
line are reflected in the Twinlab Division sales subsequent to such date.
The PR*Nutrition division generated net sales of $12.5 million in 1999, or
4.0%, of the Company's net sales in 1999.
o Publishing Division - Through Advanced Research Press, the publishing
division is responsible for the publishing activities of the Company,
including the publication of a monthly fitness magazine, Muscular
Development, a monthly newsletter and select books concerning nutritional
supplements and related subjects. ARP generated net sales of $3.8 million,
or 1.1%, of the Company's net sales in 1999.
Twinlab was incorporated under the laws of the State of Delaware in 1996
and maintains its principal executive offices at 150 Motor Parkway, Hauppauge,
New York 11788. Its telephone number is 631-467-3140.
Business Strategy
The Company's strategy is to increase sales and profits by furthering its
leadership position in the sale of vitamins, herbs, sports nutrition products
and other nutritional supplements to the health and natural food store channel
while continuing to increase sales and market share in the mass market and
direct sales distribution channels. Twinlab plans to implement this strategy
both by capitalizing on the strength of its established brands as well as
through the development and introduction of new products and product innovations
for each of its distribution channels, to increase its penetration of foreign
markets and to provide the advertising, marketing, operational and personnel
support necessary to grow its businesses.
Specifically, the Company seeks to:
Further Develop Portfolio of Brands -- Twinlab has developed a portfolio
of core brands that is among the
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most recognized in the vitamin and nutritional supplement industry. The Company
intends to continue to extend the reach of its TWINLAB, Nature's Herbs and
Alvita brands in the health food distribution channel while furthering the
development of its portfolio of proprietary brands, including the TruHerbs,
Ironman Triathlon, Bronson, PR*Nutrition and Changes brands, targeted to the
Company's respective channels of distribution. As in the past, the Company will
promote its brands through strong marketing and advertising programs.
Further Develop Multiple Channels of Distribution -- The Company intends
to continue to increase its penetration of the domestic and international health
and natural food store channel and expand its mass market, retail, network
marketing, catalog and direct response businesses. By utilizing a multiple
distribution channel approach, the Company believes it will be well positioned
to also reach customers who historically have not shopped in health and natural
food stores. If appropriate, the Company may seek to acquire selective products
or product lines to distribute through these established channels.
Continue to Introduce New Products and Product Innovations -- A
cornerstone of the Company's success has been its ability to rapidly utilize
innovative 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 that anticipate and meet customer
demands for newly identified nutritional supplement benefits. As part of its
ongoing research and development effort, the Company maintains an extensive
library of scientific research publications and actively monitors a wide variety
of publications containing scientific and medical research. The Company's
geographically diverse network of wholesale distributors allows it to achieve
rapid and broad distribution for new product launches. Over 100 new products
were introduced in 1999 alone. The Company expects to introduce new products in
the health and natural food store and mass market retail channels and
approximately ten new products have already been introduced in 2000. Additional
products are also expected to be introduced through the direct sales channel.
During 1999, the Company initiated a product line rationalization designed to
reduce costs and streamline its product presentation pursuant to which
approximately 600 stock keeping units will ultimately be discontinued.
Increase Penetration of Foreign Markets -- Management believes there are
substantial opportunities for the Company to expand its presence in foreign
markets. Independent of the Changes International business, the Company's
international sales force is supported by a network of approximately 60 overseas
distributor organizations, serving over 70 foreign countries. Approximately
7.3%, or $22.9 million, of the Company's net sales in 1999, including sales by
Changes International, were derived from international sales originating from
overseas. The Company presently has distribution arrangements covering many
western European countries, including the United Kingdom, France, Italy,
Belgium, the Netherlands and the Scandinavian countries; eastern European
countries, including Russia; Latin American countries, including Mexico, Brazil,
Chile and Argentina; Middle Eastern countries, including Israel and Saudi
Arabia; several countries in Asia, including China and Singapore; and the
Caribbean. As part of its continuing efforts to expand its international
presence, the Company recently opened a representative office in the United
Kingdom. In 1999, the Company entered into formal agreements with distributors
in Australia and Japan. The Australia agreement also provides for the
manufacture in Australia of a limited number of Twinlab products for
distribution in Australia.
Supplement Internal Growth Through Strategic Acquisitions -- The Company
actively pursues acquisition and investment opportunities that will complement
or extend its existing product lines or that would be compatible with its
business philosophy and strategic goals. The Company believes that its leading
and widely recognized brand names, broad distribution capabilities and ability
to generate sales of its products through successful marketing programs provide
it with a strategic advantage in pursuing and consummating such opportunities.
Ongoing Investment in Personnel and Infrastructure -- The Company
continues to make significant investments in developing its management team and
building its infrastructure to support the growth of its businesses. As part of
its ongoing efforts to maintain its reputation for providing the highest quality
products and services to its customers, the Company continues to invest in its
manufacturing and distribution facilities and management information systems. In
1999, the Company completed the expansion of its state-of-the-art manufacturing,
distribution and warehouse facility in American Fork, Utah (the "Utah
Facility"). The total size of the Utah Facility increased from 59,000 square
feet to approximately 168,000 square feet, substantially increasing the
Company's production,
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warehousing and distribution capacity. A portion of the costs associated with
the Utah Facility expansion was financed through a ten year mortgage.
There can be no assurance that the Company will successfully implement all
or any part of its business strategy.
Industry
Based on estimates in recent market reports conducted by Packaged Facts
(the "Packaged Facts Report"), an independent research firm, the retail market
for vitamins, minerals and other supplements (excluding sports nutrition, food
bars and diet products; the "VMS Products") grew, through 1998, at a compound
annual rate of 15.4% from $5.0 billion in 1994 to $8.9 billion in 1998. A large
portion of this growth is attributable to an increase in sales of supplements
(primarily herbal products), which grew from $1.3 billion in 1994 to $3.9
billion in 1998. Growth in this category was fueled by the widespread publicity
surrounding such herbs as echinacea, garlic, ginseng, gingko, saw palmetto and
St. John's Wort. In addition, according to the Packaged Facts Report, the retail
market for sports nutrition products grew at a compound annual rate of 15.2%
from approximately $720 million in 1994 to approximately $1.3 billion in 1998.
Despite the growth reflected above through 1998, industry sources indicate
that the growth rate in the nutritional supplement industry slowed significantly
in 1999. The Company believes this slow down is partially due to a decline in
sales at the retail level of St. John's Wort and other herbal products that were
in greater demand in the first half of 1998, largely as a result of media
attention, and to a more generalized industry-wide slowing of growth across most
product categories. The Company believes that as a result, orders to
manufacturers and suppliers were reduced in 1999.
Management believes the historical industry growth through 1998 was caused
by several factors, including; (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 supporting the
positive health effects of certain nutrients; (iii) the nationwide trend toward
preventive medicine in response to rising health care costs; (iv) increased
consumer interest in alternative health and herb-related supplements; and (v)
the heightened understanding and awareness of healthier lifestyles and 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 56% of Americans currently consume vitamins, herbs and
nutritional supplements on a regular basis.
Vitamin and nutritional supplements are sold through several channels of
distribution: health and natural food stores, mass market retailers (drug store
chains, supermarkets and other mass merchandisers), direct sales channels
(including network marketing and catalog distribution), and e-commerce via the
internet.
Over the past several years, public awareness of the positive effects of
vitamins and nutritional supplements on health has been heightened by widely
publicized reports of scientific findings supporting such claims. Many studies
have indicated a correlation between the regular consumption of selected
vitamins and nutritional supplements and reduced incidences of a wide range of
conditions including cancer, heart disease, stroke, arthritis, osteoporosis,
mental fatigue, depression, declining immune function, macular degeneration,
memory loss and neural tube birth defects. Reports have indicated that the
United States government and universities have generally increased sponsorship
of research relating to vitamins and nutritional supplements. In addition,
Congress has established the Office of Alternative Medicine in the National
Institutes of Health to foster research into alternative medical treatments
which may include natural remedies and has also directed the Office of Dietary
Supplements in the National Institutes of Health to conduct and coordinate
research into the role of dietary supplements in maintaining health and
preventing disease.
The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventative health measures,
should result in increased demand for vitamins and nutritional supplement
products. According to the United States Census Bureau, through 2010, the
35-and-older age group
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of consumers, which represents a substantial majority of regular users of
vitamin and nutritional supplements, is expected to grow significantly faster
than the general United States population. Based on information supplied by
Packaged Facts indicating that approximately 56% of Americans consumed vitamins
and nutritional supplements on a regular basis in 1998, the Company believes
that there is a large untapped domestic market for vitamins and nutritional
supplements.
Products
The Company manufactures and markets a highly diversified array of
products in many product categories. The Company's product line includes
vitamins, minerals, amino acids, fish and marine oils, sports nutrition products
(including nutritionally enhanced food bars) and special formulas marketed under
the TWINLAB trademark, a full line of herbal supplements, phytonutrients and
herb teas marketed under the Nature's Herbs, TruHerbs and Alvita trademarks, a
line of nutritional supplements marketed through Changes International under the
Changes trademark, a full line of vitamins, herbal supplements and personal care
items under the Bronson brand name through its catalog division and a line of
nutritionally enhanced food bars under the PR*Bar trademark through its
PR*Nutrition division. The Company also manufactures certain products under
private label arrangements with third parties. Some of these products are
manufactured by Health Factors, which also manufactures the majority of the
Bronson catalog products. The Company also publishes health, fitness and
nutrition-related publications through its Publishing division.
Among the innovative products successfully launched in 1999, Twinlab, the
Company's flagship brand, introduced Tomato Lycopene, Creatine Fuel Stack, Diet
Fuel with Chitosan, Joint Care, Cholesterol Defense and Cell Boost with IP6.
Bronson introduced Complete Nutrition Bars and Soy Isoflavones; Changes
introduced Advanced CoQ10 with patented Tru-Sorb technology, and Thermo-Lift
protein bars; PR* Nutrition launched a new diet supplement called PR* Slim
Start, and expanded into encapsulated nutritional supplements. Nature's Herbs
introduced Oregano Power, Red Clover Power and Tomato Power. These launches are
strategically aligned with the Company's distribution strategy to develop
channel-specific products to optimize sales and provide a degree of trade
exclusivity.
Twinlab Division. The TWINLAB division is responsible for the manufacture
and sale of vitamins, minerals, amino acids, sports nutrition formulas and other
nutritional supplement products marketed under the TWINLAB brand name, including
multivitamins such as Daily One Caps and Animal Friends, single-entity vitamins
such as B-1 Caps and Mega E Softgels, minerals such as Calcium Citrate Caps and
Magnesium Caps, amino acids such as L-Glutamine Caps and Mega L-Carnitine Tabs,
and nutritionally enhanced food bars under the Twinlab and Ironman Triathlon
trademarks. These products are generally available in a variety of delivery
forms, including liquid, powder, capsule and tablet to accommodate a variety of
consumer tastes and 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 prefer premium quality
ingredients in a variety of dosages and delivery methods.
The sports nutrition products sold under the Twinlab brand consist of a
wide variety of nutritional supplements designed for and targeted to active
lifestyle consumers. These products are specially formulated to help individuals
achieve their personal physical goals and enhance performance. Sports nutrition
products include Diet Fuel, ZMA Fuel and Ripped Fuel, which are marketed for the
preservation of lean body mass and the building of muscle mass in conjunction
with a low fat diet and exercise program; Creatine Fuel, a university tested
supplement designed to increase body mass and muscular performance; and
Metabolift, a successful thermogenic formula. The Company's sports nutrition
products are utilized by a variety of health conscious consumers including
recreational, amateur and professional athletes in a variety of sports. The
Company believes that its sports nutrition business serves to increase the
Company's brand awareness among customers who, as they grow older, are likely to
shift their buying patterns to include the Company's vitamins, herbs and other
nutraceuticals.
Twinlab's special formulas consist 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 and natural food stores.
Examples include Beyond Cholesterol, which
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assists with maintaining a healthy cholesterol level, OcuGuard Plus with Lutein,
which is formulated for nutritional support for the eyes, Coenzyme Q10, which is
designed for cardiovascular health and MaxiLIFE Glucosamine and Chondroitin
Sulfate Formula, which nutritionally supports healthy bone and joint function.
In addition, the Company sells a variety of fish and marine oils in a number of
different delivery forms which offer a number of nutritional benefits, including
favorable effects on cardiovascular health. In 1999, the Twinlab Division
introduced, among other products, SeaStatin; ZMA Fuel; Super Whey Fuel and Skin
Fitness.
Herbal Supplements and Teas. Herbal supplements and phytonutrients
(nutrients from botanical sources that are considered to have medicinal
properties) have become increasingly important categories across all
distribution channels. Through its Nature's Herbs brand, the Company produces a
full line of herbal supplement and phytonutrient products, many of which offer
natural alternatives to over-the-counter medications. The Company manufactures
herbal and botanical supplements at the Company's modern FDA registered Utah
Facility which are sold primarily under the Nature's Herbs and TruHerbs brand
names. The Company's herbal products include single herbs, such as saw palmetto,
garlic, ginseng and golden seal; traditional combinations, such as
echinacea-golden seal; standardized extracts, such as St. John's Wort Power,
Gingko Power, Bilberry Power and Milk Thistle Power sold under the Nature's
Herbs POWER HERBS(R) brand name; and natural health care product formulations,
such as Allerin and Coldrin. The Company manufactures and supplies herbal
supplements to Wal-Mart for its Spring Valley private label line. Twinlab
introduced the first line of time-release herbs ever developed. This advanced
technology includes a unique micro-encapsulation process that permits the
Company's herbal extracts to dissolve gradually and consistently throughout the
day. Nature's Herbs brand products are packaged using the innovative FRESH CARE
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.
Through its Alvita product line, the Company offers herb teas in both
single use bags and bulk. Alvita is one of the most recognizable tea brands sold
through health and natural food stores. Founded in 1922, Alvita 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 at the Company's Utah
facility and by an independent contractor. 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.
Alvita markets its products with an environmentally conscious theme by packaging
bulk tea and tea bags in paper and recyclable foil pouches and by not utilizing
shrink wrap for either its outer boxes or tea bags.
Direct Sales Products. Through Changes International, a network marketing
company that was acquired by the Company in November 1997, the Company develops
and sells vitamins, herbs and nutritional supplements under the Changes brand
name. Changes International operates through a sales force of independent
distributors located throughout the United States, Canada, Japan and the United
Kingdom. Changes International's products include Thermolift, a thermogenic diet
product, Changes Relief, an advanced supplement that nutritionally supports
healthy bone and joint functions, and Perfor-Max, an antioxidant formula.
Substantially all of Changes International's products are specially formulated
and packaged and are manufactured by an independent contractor pursuant to the
Company's specifications solely for the network marketing sales force and are
not intended for sale to retail stores at this time. During 1999, Changes
International introduced Advanced Co-Q10 and Thermolift shakes and food bars,
among other products.
Bronson was acquired by the Company in April 1998. The Bronson catalog is
a leading source for the direct (through mail order and the internet) sale of
high quality nutritional supplement products. During 1999, the Bronson catalog
and mailing lists were significantly updated, and a number of new products were
added to the catalog, such as Bronson Complete Nutrition Bars and SAMe.
PR*Nutrition. In August of 1998, the Company acquired PR*Nutrition, a
distributor of nutritionally enhanced food bars, diet programs and related drink
powders. The bars, powders and diet programs sold by the PR*Nutrition division
are generally based upon a dietary ratio of forty percent carbohydrates, thirty
percent protein and thirty percent fat. PR*Nutrition's products are manufactured
by a third party pursuant to the
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Company's specifications. The PR*Bar and PR*Powder are sold by PR*Nutrition
through direct response. In 1999 PR*Nutrition introduced a line of vitamin and
sports nutrition products to its existing product line, including a whey protein
powder and a multi-vitamin.
Publications. Through ARP, the Company publishes Muscular Development, a
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 bodybuilding, training and nutrition
research, supplements, health, sports, fitness and diet. This publication serves
as a vehicle to increase public awareness of the Company's products and as an
outlet for a portion of the Company's advertising program. The Company also
publishes select books concerning nutritional supplements and related subjects.
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
numerous 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. Over 100 new products were introduced
in 1999, including Beyond Cholesterol, SAM-e, Lycosoy Prostate Protector, ZMA
Fuel, SeaStatin, Super Whey Fuel and the cosmeceutical breakthrough Skin
Fitness. The Company's research and development expenses were $1.9 million in
1999, compared to $1.7 million in 1998.
Sales and Distribution
The Company believes that its TWINLAB products have a presence in over 95%
of the health and natural food stores in the United States, but that only
approximately 20% of such stores carry a comprehensive line of the Company's
products. The Company sells its products primarily through a network of more
than 60 distributors, which service approximately 11,000 health and natural food
stores throughout the country and other selected retail outlets. Sales to
domestic distributors represented approximately 63.3% of the Company's net sales
in 1999. The Company's distributor customers include GNC, Tree of Life, Super
Nutrition, United Natural Foods, Inc., Nature's Best, Inc. and other
distributors that supply retailers of vitamins, herbs, food bars and other
nutritional supplements. Management believes that it sells its products to every
major domestic nutritional supplement distributor servicing health and natural
food stores and is generally the largest independent supplier of nutritional
supplements to such distributors.
Several of the Company's distributors such as GNC, Tree of Life and United
Naturals 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 by the Company and its ability to manufacture products
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.
GNC accounted for approximately 20% of the Company's net sales in 1999. No
other single customer accounted for more than 10% of the Company's net sales in
1999. The largest retail organization in the health and natural food store
channel which sells the Company's products is GNC, with approximately 4,260
stores.
The Company believes that substantial long-term growth opportunities exist
within the mass market distribution channel. The Company's customers among mass
market retailers include Wal-Mart, Albertson's, Inc.,
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American Stores, Inc., Rite Aid Corporation, Walgreen, CVS, Kroger and Target.
Management is continuing its efforts to expand its presence in mass market
retail outlets and hired additional management and staff in 1999 to focus on
this market.
Changes International currently markets and distributes more than 25
products through a network of over 70,000 independent distributors in the United
States, Canada, Japan and the United Kingdom. The distributor network markets
Changes International's products directly to consumers.
Approximately 7.3%, or $22.9 million, of the Company's net sales in 1999,
were derived from international sales originating from overseas distributor
organizations, an increase of over ten percent in net sales from 1998. The
Company presently has distribution agreements covering many western European
countries including Great Britain, France, Belgium, Italy, the Netherlands and
the Scandinavian countries; eastern European countries including Russia; Latin
American countries including Mexico, Chile, Brazil and Argentina; Middle Eastern
countries including Israel and Saudi Arabia; and several other countries in the
Far East, including China and Singapore, and the Caribbean. In 1999, the Company
established a representative office in Europe, entered into a distribution
agreement in Japan with Suntory, a prominent Japanese company, and entered into
distribution and manufacturing agreements covering Twinlab sales in Australia.
Advertising and Marketing
The Company's advertising and marketing strategy has been a critical
component of the Company's strong brand name recognition and leading position
within the nutritional supplement industry.
The Company's advertising expenditures were approximately $21.3 million in
1999, $20.7 million in 1998 and $15.9 million in 1997. As the Company's retail
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
categories in order to generate purchases by consumers and also communicates the
points-of-difference between the Company's products and those of its
competitors. The Company's support of key retailers included a major "Power
Trip" consumer promotion sweepstakes in 1999 run exclusively at GNC.
The Company supports its key product categories through its sponsorship of
television and radio programming on network and cable stations such as ABC, CBS,
Fox, VH-1, USA and ESPN. During 1999, the Company sponsored the CBS television
Wellness Report, and its products were advertised on such popular nationally
broadcast television programs as The Practice, Ally McBeal, WWF Wrestling and
coverage of Major League Baseball, the National Football League and the National
Basketball Association.
Print advertisements continue to be an integral part of the Company's
advertising efforts. During 1999, the Company advertised in consumer magazines
and newspapers such as Better Nutrition, Delicious, Vegetarian Times, Let's
Live, Natural Health, Nutrition Science Journal, New Age Journal, Muscle &
Fitness, Flex and USA Today.
Other marketing and advertising programs conducted by the Company include
participation in or sponsorship of sporting events such as the Boston Marathon,
the San Diego Marathon, the New York Marathon, the Ironman Triathlon World
Championship in Hawaii, and bodybuilding shows, including Team Universe and
Fitness America. In addition, the Company promotes its products at major
industry trade shows and through in-store point of sale materials. The Company
also engages athletic personalities as well as scientists to communicate on the
Company's behalf with the trade and the public and to promote the Company's
products. In March of 2000, the Company announced it had entered into an
agreement with tennis star Andre Agassi, whereby Agassi will serve as a Company
spokesperson and be featured in Twinlab advertising.
The Company has extended its marketing efforts to include various sites on
the World Wide Web, including http://www.twinlab.com, which provides an overview
of the Company in addition to a product catalog. The site also provides a list
of retailers carrying the Company's products and is linked to other Company
sites, including those of
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the Company's herbal supplement and teas division
(http://www.herbalvillage.com); the PR*Nutrition division
(http://www.prbar.com); the Bronson division (http://www.bronsononline.com) and
the publishing division (http://www.musculardevelopment.com). Changes
International's web site can be reached at http://www.changesinternational.com.
Information and other materials contained in any of the Company's World Wide Web
sites shall not be deemed to be a part of or incorporated by reference into this
Annual Report on Form 10-K.
Bronson has expanded its presence on the Internet giving it the ability to
better serve its current customers and attract new ones. Similarly, Changes
International significantly updated its internet business site.
In addition, the Company's products are sold through hundreds of third
party websites including vitaminshoppe.com, planetrx.com and cvs.com.
1999 was also marked by the launch of a strategic alliance with
www.adoctorinyourhouse.com. This innovative, health oriented website, featuring
health information updates by medical experts and celebrity spokespeople, is
linked to the Changes International website as an awareness-building and
recruitment tool.
Customer Sales Support
The Company's established customer relationships at the wholesale and
retail levels are based upon the Company's long-standing commitment to a high
level of customer service. The Company's sales force currently consists of
approximately 40 dedicated sales professionals who work to gain better placement
and additional shelf space for TWINLAB, Nature's Herbs, Alvita and PR*Nutrition
products and to stay abreast of customer needs. These sales representatives are
assigned to specific territories covering the continental United States, Hawaii
and Alaska. These personnel work with distributors and retailers to enhance
knowledge of the Company's products and to maximize shelf exposure for TWINLAB,
Nature's Herbs, Alvita and PR*Nutrition products. During 1999, the Company
significantly expanded its administrative and sales staff to service sales to
retailers in the mass market channel, particularly its sales of Twinlab,
TruHerbs and Ironman Triathlon supplements. The Company services its mass market
accounts through a full-time in-house staff of sales professionals and a
nationwide broker network. The Company, through its in-house creative services
team, also designs, produces and supplies a broad range of marketing literature,
including brochures, pamphlets and in-store display materials to help educate
retailers and consumers as to the benefits of the Company's products.
The Company maintains in-house consumer service and customer sales support
departments to respond to inquiries concerning product applications, background
data, ingredient compositions and the efficacy of products. The consumer service
departments of each division are staffed by full time nutrition experts and
other specially trained employees.
Changes International provides its independent distributors with a broad
range of informational materials, including product brochures, sales tools,
business and information forms, audio materials and initial distributor startup
kits. Changes International maintains a 24-hour toll-free phone line for
receiving distributors' orders and a separate customer service line to answer
product questions.
Manufacturing and Product Quality
Most of the Company's products are manufactured at the Company's 72,000
square foot manufacturing facility located in Ronkonkoma, New York (the
"Ronkonkoma Facility") and the Company's FDA registered Utah Facility. The
Company's products are packaged at and distributed from the Company's 106,515
square foot warehousing and packaging facility located in Bohemia, New York (the
"Bohemia Facility"), as well as the Utah Facility. The Bohemia Facility was
leased by the Company commencing in 1998. The Utah Facility expanded in 1999
from approximately 59,000 square feet to approximately 168,000 square feet. Herb
teas are currently packaged
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at the Utah Facility and by an independent contractor and are warehoused at and
shipped from the Utah Facility. The products of Changes International and
PR*Nutrition are currently manufactured and packaged by independent contractors
pursuant to the Company's specifications. Changes International's products are
currently warehoused in Arizona and Virginia, and PR Nutrition's product are
currently warehoused in the Utah Facility and California, respectively. In
connection with the Bronson acquisition, the Company acquired two adjacent,
approximately 15,000 square foot manufacturing and warehouse facilities in
Tempe, Arizona (collectively the "Tempe Facility") that manufacture and store
the Bronson brand products and manufacture certain other products for third
parties. The Company's modern manufacturing facilities provide the Company with
the capability to promptly meet customers' sales demands 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. The recently completed Utah Facility provides additional
capacity for production, warehouse and distribution operations, as well as
additional office space for the herbal supplement and teas division. Management
believes that the Company's Ronkonkoma, Bohemia, Utah and Tempe Facilities will
be sufficient to enable the Company to meet sales demand for the foreseeable
future. If additional space is required, management believes that it will have
the option to lease or purchase additional space or to construct additional
facilities. See Item 2 "Properties."
The Company's modern manufacturing operations feature the highest quality
blending, filling and packaging capabilities, which enable the Company to offer
quality and consistency in formulation and dosage forms. The Company operates
flexible manufacturing lines which enable it to efficiently and effectively
shift output among various products as dictated by customer demand. The Company
is capable of producing over 40 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 twelve high-speed capsule and tablet packaging lines, two
high-speed liquid filling lines and two powder filling lines, which are capable
of operating simultaneously, at its Ronkonkoma, Bohemia, Utah and Tempe
Facilities. The Company manufactures the powders used in its single-serving
sports drink products and utilizes a contract bottler for the hydration and
bottling of such products. The Ronkonkoma Facility operates, when necessary, on
a 24-hour work day that includes two production shifts and a third shift
primarily for cleaning, maintenance and equipment set-up.
The Company sources its raw material needs from many 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 1999.
The Company believes that quality standards are a significant factor in
consumer purchase decisions, and the Company believes it has established a
competitive advantage based on the premium quality of its products. All capsule
and tablet products manufactured by the Company are visually inspected before
being packaged. Moreover, the Company's products undergo 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 three 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 full-time quality
assurance professionals regularly conducts a wide variety of visual and
scientific tests on finished products, and samples of raw materials and finished
products are generally retained for quality control purposes.
The Company has a strong commitment to maintaining the quality of the
environment. The Company's plastic and corrugated cardboard 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
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no harmful hydrocarbons. The Company believes it is in material compliance with
all applicable environmental regulations.
During 2000, the Company intends to implement a corporate-wide Enterprise
Resource Planning system that should provide enhanced delivery of management
information and strengthen its financial processes. The Company anticipates the
resulting improvement will provide greater efficiency and effectiveness in a
number of business areas.
Competition
Vitamins and nutritional supplements are sold primarily through the
following channels of distribution: health and natural food stores, mass market
retailers (drug store chains, supermarkets and other mass merchandisers), and
direct sales channels (including network marketing, catalog and internet
distribution).
The Company's principal competitors in the health and natural food store
market include Nutraceutical International Corporation, Weider Nutrition
International, Inc., Nature's Way Products, Inc., Natrol, Inc., Nature's Plus
Inc., and Solgar Vitamin and Herb Company (acquired by American Home Products,
Inc. during 1998). Private label products of the Company's retail 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 private label. GNC was acquired in 1999 by Royal Numico N.V.
The Company believes that a growing number of health and natural food
store 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 premium products, premium brand names, commitment to
quality, ability to rapidly introduce innovative products, 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.
In the mass market channel of distribution, the Company competes with
major private label and broadline brand manufacturers, including Leiner Health
Products Inc., Pharmavite Corp., Rexall Sundown, Inc. and NBTY, Inc., certain of
which are larger and have access to greater resources than the Company. Several
major pharmaceutical companies including American Home Products, Warner-Lambert
and Bayer, all of whom have substantially greater financial and personnel
resources than the Company, introduced proprietary branded lines of herbal
supplements into the mass market channel during 1998. The Company believes it
competes on the basis of customer service, product quality, pricing and
marketing support. The Company believes that it competes favorably with other
companies because of its (i) sales and marketing strategies, (ii) customer
service (including speed of delivery) and (iii) reputation as being a supplier
of premium quality products.
Although Changes International competes with other health and nutritional
food companies, the Company believes Changes International's primary competition
stems from other network marketing companies. Changes International competes in
the recruitment of independent distributors with other network marketing
organizations, including Avon, NuSkin, Rexall Showcase International and others,
whose product lines may or may not compete with the products of Changes
International.
In addition to the aforementioned retail competitors, the Bronson catalog
competes with many other nutritional supplement catalogs, including those
distributed by Amrion, NBTY and individual retail stores and chains. Bronson
also competes with the many internet sites that are devoted to the sale of
nutritional supplements. PR*Nutrition competes against other manufacturers and
distributors of nutritionally enhanced food bar products, including Powerbar,
Clif Bar and MetRx. With respect to bars that are formulated based on a
nutritional concept of forty percent carbohydrates, thirty percent protein and
thirty percent fat, the primary competitor is Balance
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Bar, marketed by Balance Bar, Inc. In January 2000, Kraft Foods Inc., a division
of Philip Morris Cos. Inc., announced that it was buying Balance Bar.
Regulatory Matters
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 United States Department
of Agriculture and the Environmental Protection Agency ("EPA"). These activities
are also regulated by various agencies of the states, localities and foreign
countries in which the Company's products are manufactured, distributed and
sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of vitamin and other nutritional supplements in the United States.
On October 25, 1994, the President signed into law the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). This law revised the provisions of
the Federal Food, Drug, and Cosmetic Act (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
created a statutory class of "dietary supplements." This 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, requires evidence of a history of use or other
evidence of safety establishing that it will reasonably be expected to be safe.
The substantial majority of the products marketed by the Company are classified
as dietary supplements under the FFDC Act.
Both foods and dietary supplements are subject to the Nutrition Labeling
and Education Act of 1990 (the "NLEA"), which prohibits the use of any health
claim for foods, including dietary supplements, unless the health claim is
supported by significant scientific agreement and is either pre-approved by the
FDA or the subject of substantial government scientific publications and a
notification to the FDA. To date, the FDA has approved the use of only a limited
number of health claims for dietary supplements. 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 preapproval 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, commonly referred
to as "structure function" claims, may describe how particular nutritional
supplements affect the structure, function or general well-being of the body
(e.g. "promotes your cardiovascular health").
The FDA issued final dietary supplement labeling regulations in 1997 that
required the Company to revise, by the end of March 1999, most of its product
labels. The Company believes it is in material compliance with these
regulations.
Advertising and label claims for dietary supplements and conventional
foods have been regulated by state and federal authorities under a number of
disparate regulatory schemes. There can be no assurance that a state will not
interpret claims presumptively valid under federal law as illegal under that
state's regulations, or that future FDA regulations or FTC decisions will not
restrict the permissible scope of such claims.
Governmental regulations in foreign countries where the Company plans to
commence or expand manufacturing or sales may prevent or delay entry into the
market or prevent or delay the introduction, or require the reformulation or
relabeling of certain of the Company's products. Compliance with such foreign
governmental regulations is generally the responsibility of the Company and the
Company's distributors for those countries. These distributors are independent
contractors over whom the Company has limited control.
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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. The Company cannot predict the nature of any future laws,
regulations, interpretations or applications, nor can it 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.
On November 18, 1998, the FTC published "Dietary Supplements: An
Advertising Guide for Industry," a guide describing FTC policy governing dietary
supplement advertising. The guide provides additional explanation but does not
substantively change the FTC's policy requiring that product claims be truthful
and supported by adequate substantiation as to the truthfulness of the claim.
Changes is subject to regulation under various international, federal,
state and local laws which include provisions regulating, among other things,
the operation of direct sales programs. In addition, many countries currently
have laws that would restrict or prohibit direct sales companies, such as
Changes, from conducting business therein.
The Company's Utah Facility is registered with the FDA as a manufacturer
of OTC drugs and is subject to periodic inspection by the FDA.
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. See "Legal Proceedings."
See "Risk Factors, Ma Huang".
Employees
At December 31, 1999, the Company employed 1,137 persons, of which 368
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.
Trademarks and Patents
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 the Fuel family of trademarks, and
has rights to use other marks material to its business. In addition, the Company
has obtained over two hundred trademark registrations for various of its product
names in the United States. The Ironman Triathlon trademark is licensed to the
Company. 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. The Company currently
has one patent application pending.
FACTORS AFFECTING FUTURE PERFORMANCE
Uncertainty Related to Acquisitions
The Company may pursue acquisition opportunities that complement or extend
its existing products or are
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compatible with its business philosophy and strategic goals. Acquisitions
involve a number of risks that could adversely affect the Company's operating
results, including the diversion of management's attention, the assimilation of
operations and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. There can be no assurance that the Company will consummate future
acquisitions on satisfactory terms, if at all, that adequate financing will be
available on terms acceptable to the Company, if at all, that any acquisition
will be permitted under the Company's financing instruments, that any acquired
product lines or businesses will be successfully integrated or that such product
lines or businesses will ultimately have a positive impact on the Company, its
financial condition or operations. In addition, such acquisitions could result
in substantial equity dilution to existing stockholders.
Restrictions Imposed by Terms of the Company's Indebtedness
The Company's borrowing arrangements 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.
Competition
The business of developing, manufacturing and selling vitamins, minerals,
herbs, sports nutrition products, nutritional supplements and other
nutraceuticals is highly competitive in all channels of distribution. There are
numerous companies selling products competitive to the Company's products to
mass merchandisers, drug store chains, independent drug stores, supermarkets,
health and natural food stores, as well as through catalogs, the internet and
network marketing. Certain of the Company's competitors are substantially larger
and have greater financial resources than the Company. See "Competition."
Absence of Clinical Studies and Scientific Review; Effect of Publicity
While the Company conducts extensive quality control testing on its
products, 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 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 that the 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 Wholesale Distributors and Customers
The Company's success depends in part upon its ability to attract, retain
and motivate a large base of wholesale distributors, and its ability to maintain
a satisfactory relationship with GNC, Tree of Life, and Wal-Mart.
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The loss of GNC or Tree of Life as a distributor or Wal-Mart as a customer, or
the loss of a significant number of other distributors or customers, or a
significant reduction in purchase volume by GNC, Tree of Life, Wal-Mart or such
other distributors or customers, for any reason, would have a material adverse
effect on the Company's results of operations and financial condition.
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.
Ma Huang
A number of the Company's products include an herb known as "Ma Huang,"
also known as ephedra, which contains naturally-occurring ephedrine. Certain of
such products also contain caffeine or other central nervous system stimulants.
Such products accounted for approximately 28% of the Company's net sales in
1999. The Company's products which contain Ma Huang are generally marketed for
bodybuilding, weight loss, sports nutrition and other purposes, including
increased endurance and energy, generally in conjunction with diet or exercise,
and as natural alternatives to over-the-counter medications.
Ma Huang has been the subject of certain adverse publicity in the United
States and other countries relating to alleged harmful or adverse effects. The
FDA has proposed regulations relating to the sale of dietary supplements
containing Ma Huang which, if promulgated in final form, would require the
Company to substantially reformulate and relabel almost all of its Ma Huang
products and would limit potency, require warnings, prohibit certain combination
products and would preclude the Company from making bodybuilding and weight loss
claims for such products. Comments from industry participants and inquiries from
Committees of the United States Congress have been filed with the FDA
challenging the scientific and legal basis for the proposed regulations.
Additionally, the General Accounting Office ("GAO"), an investigating arm of
Congress, reviewed the FDA's proposed regulations and concluded that the FDA
needed to provide better evidence to support the proposed regulations on
supplements containing ephedra. The Company is not able to predict whether the
FDA's proposed regulations will become final. A number of state and local
governments have proposed or passed legislation prohibiting or regulating the
sale of Ma Huang products. The Company's products containing Ma Huang may become
subject to further federal, state and local or foreign laws or regulations,
which could require the Company to reformulate its products with reduced
ephedrine levels or with a substitute for Ma Huang and/or relabel its products
with different warnings or revised directions for use. There can be no assurance
as to whether any resulting reformulation, relabeling or change in the marketing
of the Company's Ma Huang products would have a material adverse effect on the
sales of such products or the Company's results of operations and financial
condition. See "Legal Proceedings."
Item 2. PROPERTIES
The Company owns a vitamin, mineral and nutritional supplement
manufacturing facility in Ronkonkoma, New York. In April 1998, the Company moved
substantially all of its executive and administrative offices to approximately
21,636 square feet of leased space in a modern office building in Hauppauge, New
York. The Company has since leased an additional 8,484 square feet of office
space in the Hauppauge building. The Company also leases 26,300 square feet of
warehouse space in Ronkonkoma, 106,515 square feet of packaging, warehousing and
shipping space in Bohemia, New York and 5,000 square feet of office space in
Ronkonkoma. In addition, the Company owns a modern FDA-registered Utah Facility.
The Utah Facility was initially constructed as an
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<PAGE> 20
approximately 59,000 square foot facility in 1993 and was recently expanded to
approximately 168,000 square feet. The Utah Facility houses office,
manufacturing, distribution and warehousing facilities. The Company also leases
office space in Florida for Changes International. The Company owns
approximately 30,000 square feet of total manufacturing and warehouse space in
two separate 15,000 square foot adjacent properties in Tempe, Arizona and leases
an additional 2,200 square feet of warehouse space in Tempe. The Company leases
approximately 14,500 square feet of office and warehouse space for its
PR*Nutrition operations in San Diego, California.
The Company believes that its facilities and equipment generally are well
maintained and in good operating condition. During 1999, the Company completed
construction of an addition to its Utah Facility that provides additional
capacity for production, warehouse and distribution operations, as well as
additional office space. A substantial portion of the costs of this construction
was financed through a ten year mortgage. Management believes that the Company's
Ronkonkoma, Utah and Tempe Facilities, coupled with its leased space in Bohemia,
Hauppauge, Ronkonkoma, San Diego and Tempe will be sufficient to enable the
Company to meet manufacturing, warehousing, distribution and sales demand for
the foreseeable future. If additional space is required, management believes
that it will have the option to lease or purchase additional space or to
construct an additional facility.
Item 3. LEGAL PROCEEDINGS
The Company, like other manufacturers and retailers 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. The
Company may be subjected to various product liability claims, including, among
others, that its products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. While such claims to date have not been
material to the Company and the Company maintains product liability insurance,
there can be no assurance that product liability claims and the resulting
adverse publicity will not have a material adverse effect on the Company. The
Company carries insurance in the types and amounts that management considers
reasonably adequate to cover the risks associated with its business. 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; for
example, punitive damages may not be covered by insurance in many states.
The Company has been named as a defendant in several currently pending
lawsuits alleging that its Ma Huang containing products caused injuries and/or
damages, as well as two proceedings seeking class action certification for
alleged deceptive advertising claims related to its Ma Huang products. The
Company intends to vigorously defend these lawsuits. The Company believes that
such lawsuits, if successful, would not have a material adverse effect on the
financial condition or results of operations of the Company. There can be no
assurance that the Company will not be subject to further private civil actions
with respect to its Ma Huang products.
Securities Law Litigation
A shareholder class action lawsuit is pending before the United States
District Court for the Eastern District of New York against the Company, certain
of its officers and directors. The plaintiffs allege that the Company and the
other defendants violated the securities laws by making material misstatements
and failing to state material facts about the Company's business and financial
condition, among other things, in securities act filings and public statements.
The class of plaintiffs includes all buyers of the Company's stock from March
17, 1998 through February 24, 1999. In December 1999, the Company purchased an
insurance product that provides additional insurance that is expected to
substantially cover the potential financial consequences of the shareholder
class action lawsuit. The cost of the policy to the Company was $15 million, a
portion of which may be refundable depending upon the ultimate settlement or
judgment in the action.
On February 11, 1999, the former shareholders of PR*Nutrition commenced a
lawsuit in the United States District Court for the Southern District of New
York against the Company and certain of its officers and directors. In November
1999, the lawsuit was settled for a cash payment of which the Company
contributed $4 million with the balance paid through insurance proceeds.
Further, the Company purchased 1,138,800 shares of the Company's common stock
from the former shareholders of PR*Nutrition representing all of the Company's
shares owned by such individuals, at a price of $8.4375 per share for an
aggregate purchase price of $9,609,000. The purchase of such shares was part of
a five million share repurchase program. See Item 7, "Liquidity and Capital
Resources."
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<PAGE> 21
Other Legal Actions
The Company is presently engaged in various other legal actions that arise
in the ordinary course of business. Although ultimate liability cannot be
determined at the present time, the Company believes that the amount of any such
liability, if any, from these other actions, after taking into consideration the
Company's insurance coverage, will not have a material adverse effect on its
results of operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 1999, no matters were submitted
to a vote of security holders of the Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has traded on the Nasdaq National Market
since the Company's initial public offering (the "IPO") of its common stock, par
value $1.00 per share (the "Common Stock"), in November 1996, in which 8,500,000
shares of Common Stock were issued by the Company. Prior to the IPO, there was
no public market for the Common Stock. On March 17, 2000, the last reported
sales price of the Company's Common Stock as reported on the Nasdaq National
Market was $7.563. As of March 17, 2000, there were 205 holders of record of the
Company's Common Stock. The high and low sale prices for the Common Stock as
reported by the Nasdaq National Market for 1998 and 1999 are summarized below.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998
First Quarter............................... $33.875 $22.580
Second Quarter.............................. 45.750 35.250
Third Quarter............................... 47.875 24.375
Fourth Quarter.............................. 26.438 11.500
1999
First Quarter............................... $15.625 $6.500
Second Quarter.............................. 11.000 7.625
Third Quarter............................... 10.000 7.125
Fourth Quarter.............................. 10.500 7.750
</TABLE>
From 1993 until May 7, 1996, the Company consisted solely of "S"
corporations. While maintaining such status, the Company periodically declared
and paid dividends to its shareholders, including amounts sufficient for its
shareholders to pay their income taxes on the earnings of the Company that were
treated as having been earned by the Company's shareholders. The Company
terminated its "S" corporation status on May 7, 1996.
The Company currently intends to retain earnings to finance its operations
and future growth and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Twinlab conducts its business through
its direct and indirect subsidiaries and has no operations of its own. The
principal assets of Twinlab are the capital stock of its direct and indirect
subsidiaries. Accordingly, Twinlab has no independent means of generating
revenues. As a holding company, Twinlab's internal sources of funds to meet its
cash needs, including payment of expenses, are dividends and other permitted
payments from its direct and indirect subsidiaries. Financing arrangements under
which Twin is the borrower restrict the payment of dividends and the making of
loans, advances or other distributions to Twinlab, except in certain limited
circumstances. The payment of cash dividends in the future will depend upon,
among other things, the Company's results of operations, financial condition,
cash requirements and other factors deemed relevant by the Company's Board of
Directors.
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<PAGE> 22
Item 6. SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1999, 1998, 1997, 1996 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, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, is included elsewhere herein. The selected financial data
below also presents pro forma financial data relating to (i) the Company's
conversion of tax status from an "S" corporation to a "C" corporation as a
result of the Transactions (as hereinafter defined), (ii) the Transactions and
the IPO and (iii) PR*Nutrition's conversion of tax status from an "S"
corporation to a "C" corporation as a result of its acquisition by the Company.
The selected 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 in Item 14 to this
Annual Report.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 23
<TABLE>
<CAPTION>
1999 1998 1997 1996(a) 1995
---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales ............................................. $ 315,604 $ 333,375 $ 229,614 $ 182,010 $ 154,805
Gross profit .......................................... 147,197 169,942 104,188 79,792 63,888
Operating expenses .................................... 131,723 106,755 52,072 37,108 30,607
Litigation costs ...................................... 19,000 -- -- -- --
Merger expenses ....................................... -- 1,462 -- -- --
Income (loss) from operations ......................... (3,526) 61,725 52,116 42,684 33,281
Interest expense ...................................... 5,289 8,119 12,336 10,012 875
Nonrecurring and transaction expenses ................. -- -- -- 15,700 (b) 656
Net income (loss) ..................................... (5,176) 29,691 25,876 14,970 (b) 31,857
========= ========= ========= ========= =========
Basic and diluted net income (loss) per share (c ) .... $ (0.16) $ 0.94 $ 0.92 $ 0.36 (b) $ 1.13
========= ========= ========= ========= =========
Basic weighted average shares outstanding (d) ......... 31,594 31,492 28,192 28,150 28,150
========= ========= ========= ========= =========
Diluted weighted average shares outstanding (d) ....... 31,594 31,607 28,228 28,150 28,150
========= ========= ========= ========= =========
Pro forma relating to change in tax status: (e)
Historical income before provision for income taxes
and Extraordinary item ................................. $ 54,989 $ 40,022 $ 17,608 $ 32,127
Pro forma provision for income taxes .................. 21,524 15,429 6,788 12,742
--------- --------- --------- ---------
Pro forma income before extraordinary item ............ 33,465 24,593 10,820 19,385
Extraordinary item .................................... (4,941)(f) -- (1,792)(g) --
--------- --------- --------- ---------
Pro forma net income .................................. $ 28,524 $ 24,593 $ 9,028 $ 19,385
========= ========= ========= =========
Basic income before extraordinary item per share (c ) . $ 1.06 $ 0.87 $ 0.21 $ 0.69
========= ========= ========= =========
Diluted income before extraordinary item per share (c) $ 1.06 $ 0.87 $ 0.21 $ 0.69
========= ========= ========= =========
Basic net income per share (c ) ....................... $ 0.91 $ 0.87 $ 0.15 $ 0.69
========= ========= ========= =========
Diluted net income per share (c) ...................... $ 0.90 $ 0.87 $ 0.15 $ 0.69
========= ========= ========= =========
Pro forma for the Transactions and the IPO: (h)
Net income ............................................ $ 18,631 $ 12,410
========= =========
Basic and diluted net income per share ................ $ 0.66 $ 0.44
========= =========
Other Data:
Income from operations margin (i) ..................... (1.1)% 18.5% 22.7% 23.5% 21.5%
Capital expenditures .................................. $ 16,177 $ 18,037 $ 4,022 $ 2,480 $ 2,740
</TABLE>
<TABLE>
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Net working capital (excluding cash and cash
equivalents, marketable securities and current debt) . $ 80,969 $ 96,443 $ 57,604 $ 43,871 $ 39,205
Property, plant and equipment, net .................... 46,168 34,181 14,263 14,424 13,153
Total assets .......................................... 286,257 290,018 173,010 142,978 75,857
Total debt (including current debt) ................... 63,800 43,531 114,379 120,728 8,792
Shareholders' equity .................................. 163,525 205,485 30,881 2,367 55,673
</TABLE>
(a) Ross Blechman, CEO and President of the Company, Brian, Dean, Neil and
Steve Blechman, each an Executive Vice President of the Company, David and
Jean Blechman, Stephen L. Welling, the President of the Retail Channel of
the Company (collectively, the "Stockholders"), Green Equity Investors II,
L.P. ("GEI") and certain other parties 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 May 7, 1996 (i) GEI
acquired 48% of the Common Stock of Twinlab for aggregate consideration of
$4.8 million and shares of Junior Preferred Stock for aggregate
consideration of $37.0 million, (ii) certain other investors acquired 7%
of the Common Stock of Twinlab for aggregate consideration of $0.7 million
and shares of Senior Preferred Stock (together with the Junior Preferred
Stock, the "Preferred Stock") for aggregate consideration of $30.0
million, (iii) the Senior Executive Officers exchanged certain of their
shares of common stock of Twin (formerly known as Natur-Pharma Inc.) for
45% of the outstanding shares of Common Stock of Twinlab valued at $4.5
million and, (iv) Twinlab purchased all of the remaining shares of common
stock of Twin from the Stockholders for cash, resulting in Twin becoming a
wholly owned subsidiary of Twinlab. The total cash consideration that the
Stockholders received was approximately $212.5 million, the majority of
which was paid to David and Jean Blechman. The transactions described
above are
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<PAGE> 24
hereinafter referred to as the "Acquisition." Concurrently with the
consummation of the Acquisition, the Company entered into a credit
facility (the "Original Credit Facility") (which provided for a term loan
facility in the amount of $53.0 million and a revolving credit facility in
the amount of $15.0 million) and issued $100.0 million principal amount of
its Old Notes in the Note Offering (collectively with the Acquisition and
the Original Credit Facility, the "Transactions"). The net cash proceeds
of the Note Offering were used, together with borrowings under the
Original Credit Facility, the proceeds from the issuance of the Common
Stock and Preferred Stock of Twinlab and available cash of the Company, to
finance the Acquisition, to refinance approximately $7.0 million aggregate
principal amount of debt of the Company and to pay related fees and
expenses. The net proceeds of the initial public offering ("IPO") of
approximately $93.7 million, together with available cash resources of the
Company and approximately $20.0 million of borrowings under the Amended
and Restated Credit and Guarantee Agreement, dated November 15, 1996 (the
"Revolving Credit Facility"), were used to repay all of the Company's
outstanding indebtedness under the Original Credit Facility and to redeem
all of the outstanding shares of Preferred Stock.
(b) Reflects $15.3 million of nonrecurring non-competition agreement expense
and $0.4 million of Transaction expenses.
(c) Basic and diluted income per share has been computed by dividing net
income (and pro forma income before extraordinary item and pro forma net
income for 1995 and 1996), after reduction for Preferred Stock dividends,
by the applicable weighted average shares outstanding.
(d) Diluted weighted average shares outstanding for 1995 and 1996 represents
the number of equivalent shares outstanding after giving retroactive
effect to Twinlab's 18.5 for 1 stock split (effected in the form of a
stock dividend) and assumes that the 10,175,000 shares of Common Stock
issued in connection with the Acquisition and the 8,500,000 shares of
Common Stock issued in connection with the Company's IPO were outstanding.
(e) Prior to May 1996, 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. In addition, PR*Nutrition was an "S"
corporation prior to its acquisition in August 1998. Upon consummation
of its acquisition, PR*Nutrition terminated its "S" corporation status.
(f) Represents the premium paid and the write-off of previously deferred
finance costs relating to the redemptions of the Notes.
(g) Represents the write-off of previously deferred finance costs incurred in
connection with the Original Credit Facility (the "Extraordinary Item").
(h) The unaudited pro forma results of operations assume the Transactions and
the subsequent IPO occurred on January 1, 1995, and exclude the effect of
(i) the nonrecurring non-competition agreement expense, (ii) the
Transaction expenses, (iii) the Extraordinary Item and (iv) the dividends
paid on the Preferred Stock which was redeemed with a portion of the net
proceeds of the IPO, and reflects the additional interest expense relating
to the financing of the Acquisition and the change in tax status described
in Note (e) above. This 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 and the subsequent IPO
in fact occurred on January 1, 1995.
(i) Income from operations margin equals income from operations as a
percentage of net sales.
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<PAGE> 25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the audited Consolidated Financial Statements of
the Company and the notes thereto included elsewhere in this Annual Report.
Results of Operations
The Company operates through six primary business divisions: the TWINLAB
division, the Herbal Supplements and Teas division, the Changes International
division, the Bronson division, the PR*Nutrition division and the Publishing
division. Products sold by the TWINLAB division include vitamins, minerals,
amino acids, herbs, sports nutrition products and special formulas primarily
under the TWINLAB brand name. In addition, effective July 1, 1999, the TWINLAB
division began marketing nutritionally enhanced food bars under the Ironman
Triathlon trademark. The Herbal Supplements and Teas division produces and
markets a full line of herbal supplements and phytonutrients marketed under the
Nature's Herbs brand and a full line of herb teas marketed under the Alvita
brand. The Company's network marketing activities are conducted through Changes
International, which was acquired by the Company in November 1997. The Bronson
division, acquired effective April 30, 1998, markets vitamins, herbs,
nutritional supplements and health and beauty aids through its Bronson catalog
and also manufactures, through Health Factors, private label vitamins and
supplements for a number of other companies on a contract manufacturing basis.
The PR*Nutrition division markets nutritionally enhanced food bars marketed
under the PR*Bar trademark. The Company's publishing activities are conducted
through ARP.
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>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Net Sales: (dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
TWINLAB Division ............ $ 195.6 62.0% $ 172.7 51.8% $ 156.0 67.9%
Herbal Supplements &
Teas Division .............. 30.8 9.8 65.8 19.7 45.2 19.7
Changes International
Division ................... 47.0 14.9 51.3 15.4 7.0 3.1
Bronson Division ............ 25.9 8.2 18.7 5.6 NA NA
PR*Nutrition Division ....... 12.6 4.0 20.9 6.3 16.4 7.1
Publishing Division ......... 3.7 1.1 4.0 1.2 5.0 2.2
-------- ----- -------- ---- -------- -----
Net Sales ................... 315.6 100.0 333.4 100.0 229.6 100.0
Gross Profit ................ 147.2 46.6 169.9 50.9 104.2 45.4
Operating Expenses .......... 131.7 41.7 106.8 32.0 52.1 22.7
Litigation Costs ............ 19.0 6.0 NA NA NA NA
Merger Expenses ............. NA NA 1.4 0.4 NA NA
-------- ----- -------- ---- -------- -----
Income (Loss) From
Operations $ (3.5) (1.1)% $ 61.7 18.5% $ 52.1 22.7%
======== ===== ======== ==== ======== =====
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales for fiscal 1999 were $315.6 million, a decrease of
$17.8 million, or 5.3%, as compared to net sales of $333.4 million for fiscal
1998. Net sales at the TWINLAB division were $195.6 million, an
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<PAGE> 26
increase of $22.9 million or 13.3% compared to the $172.7 million in sales in
1998. This increase was due to increased demand for sports nutrition and special
formula products sold by the TWINLAB division, the expansion of established
accounts, new product introductions and product specific advertising. Sales of
the Herbal Supplements and Teas division were $30.8 million, a decrease of $35.0
million or 53.2% from the $65.8 million in sales in 1998. The Herbal Supplements
and Teas division was impacted by the weakness of the herbal category in both
the mass market and health and natural food store channels. The herbal category
for fiscal 1999 cycled against a particularly tough 1998 comparison, which
benefited from substantial sales of St. John's Wort and other herbal products.
The Changes International division contributed $47.0 million to 1999 net sales
as compared to $51.3 million in 1998. The Bronson division, which was acquired
effective April 30, 1998, contributed $25.9 million to 1999 net sales as
compared to $18.7 million in 1998. The PR*Nutrition division contributed $12.6
million to 1999 net sales as compared to $20.9 million in 1998. Effective July
1, 1999, the Ironman Triathlon bar product line was transferred from the
PR*Nutrition division to the TWINLAB division and sales attributable to such
product line are reflected in the TWINLAB division subsequent to such date.
Publishing activities contributed $3.7 million to 1999 net sales as compared to
$4.0 million in 1998.
Gross Profit. Gross profit for fiscal 1999 was $147.2 million, which
represented a decrease of $22.7 million or 13.4%, as compared to $169.9 million
for fiscal 1998. Gross profit margin was 46.6% for 1999, as compared to 51.0%
for fiscal 1998. The overall decline in fiscal 1999 gross profit dollars and
margin was primarily attributable to the Company's lower sales volumes,
particularly in the herbal category, increased inventory reserves, and the
write-off of certain obsolete inventory.
Operating Expenses. Operating expenses were $131.7 million for fiscal
1999, representing an increase of $24.9 million, or 23.4%, as compared to $106.8
million for fiscal 1998. As a percent of net sales, operating expenses increased
from 32.0% for fiscal 1998 to 41.7% for fiscal 1999. The increase in operating
expenses was primarily attributable to increased selling and marketing expenses,
comprised primarily of an increase in the Company's advertising and promotional
expenses as a result of the Company adding to its marketing and sales staff to
support its entry into new distribution channels.
Costs Related to Litigation. For the year ended December 31, 1999, the
Company incurred expenses of $19.0 million related to (i) the $15.0 million
purchase of an insurance product that is expected to substantially cover the
potential financial consequences of the shareholder class action lawsuit and
(ii) the settlement of a lawsuit commenced by the former shareholders of
PR*Nutrition in which the Company contributed $4.0 million with the balance paid
through insurance proceeds. The Company incurs other litigation expenses in the
ordinary course of running its business.
Income (Loss) from Operations. The Company recorded a loss of $(3.5)
million for fiscal 1999, as compared to recording income from operations of
$61.7 million for fiscal 1998. Income (loss) from operations margin decreased to
(1.1)% of net sales for fiscal 1999, as compared to 18.5% of net sales for
fiscal 1998. The decrease in income from operations and income from operations
margin for 1999 was primarily due to the litigation costs described above as
well as higher operating expenses and lower sales and gross margins.
Other Expenses. Other expense was $4.8 million for fiscal 1999, as
compared to $6.7 million for fiscal 1998. The net decrease of $1.9 million was
primarily attributable to decreased interest expense of $2.8 million as a result
of reduced debt levels partially offset by a decrease in interest income of $1.0
million.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales in 1998 were $333.4 million compared to $229.6
million in 1997, an increase of $103.8 million or 45.2%. Sales at the TWINLAB
division increased from $156.0 million in 1997 to $172.7 million in 1998, an
increase of $16.7 million or 10.7%. This increase was primarily the result of
increased demand in each of the vitamin, mineral and nutritional supplements,
sports nutrition and special formula product lines and reflected, in part,
increased promotion and advertising and in part the successful introduction of
new products, as well as strong consumer interest in existing products. Sales of
the Herbal Supplements and Teas division increased to $65.8 million
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<PAGE> 27
in 1998 from $45.2 in 1997, an increase of $20.6 million or 45.6% compared to
1997. The Herbal Supplements and Teas division benefited from strong consumer
demand for St. John's Wort, Gingko, Kava Kava and Saw Palmetto through a mass
market private label sales program and in the health and natural food store
channel. The Changes International division, which operates a network marketing
sales force was acquired in November 1997 and contributed $7.0 million to 1997
sales for the two month period ended December 31, 1997, and $51.3 million to
1998 net sales. The Bronson division, which was acquired effective April 30,
1998, contributed $18.7 million to 1998 net sales. Sales of the PR*Nutrition
division in 1998 were $20.9 million, an increase of $4.5 million or 27.4% from
the $16.4 million in sales in 1997. The increase was primarily due to the strong
consumer demand for nutritionally enhanced food bar products as well as
increased penetration of the health and natural food store and mass market
channels with the Ironman Triathlon food bar. Publishing sales declined from
$5.0 million in 1997 to $4.0 million in 1998.
Gross Profit. Gross profit for the year ended December 31, 1998 was $169.9
million, representing an increase of $65.7 million, or 63.1% as compared to
$104.2 million for the year ended December 31, 1997. Gross profit margin was
51.0% for the year ended December 31, 1998, as compared to 45.4% for the year
ended December 31, 1997. The overall increase in gross profit dollars was
primarily attributable to the Company's higher sales volume for the year ended
December 31, 1998 and to the increase in gross profit margin. The increase in
gross profit margin for the year ended December 31, 1998, as compared to the
year ended December 31, 1997, was primarily due to higher gross profit margins
of the Changes International division compared to the other divisions of the
Company.
Operating Expenses. Operating expenses for the year ended December 31,
1998 were $106.8 million, representing an increase of $54.7 million, or 105.0%,
compared to $52.1 million for the year ended December 31, 1997. As a percent of
net sales, operating expenses increased to 32% for the year ended December 31,
1998 from 22.7% for the year ended December 31, 1997. The increase in operating
expenses and operating expenses as a percent of net sales was primarily
attributable to increased selling and marketing expenses and higher general and
administrative expenses resulting from the Company's increased level of
operations for the year ended December 31, 1998. These expenses were comprised
primarily of increased variable commission expense for the Changes International
division, an increase in the Company's advertising and marketing expenses and
increased general administrative expenses incurred to support the increased
level of business activity.
Merger Expenses. Merger expenses were $1.4 million for the year ended
December 31, 1998 and were incurred, as a result of the acquisition of
PR*Nutrition.
Income from Operations. Income from operations for the year ended December
31, 1998, was $61.7 million, representing an increase of $9.6 million, or 18.4%,
as compared to $52.1 million for the year ended December 31, 1997. Income from
operations margin decreased to 18.5% of net sales for the year ended December
31, 1998 from 22.7% of net sales for the year ended December 31, 1997. The
increase in income from operations was primarily due to the Company's higher
sales volume together with higher gross margins. The decrease in income from
operations margin was primarily due to higher operating expenses as a percent of
net sales.
Other Expense. Other expense for the year ended December 31, 1998 was $6.7
million, as compared to $12.1 million for the year ended December 31, 1997. The
net decrease of $5.4 million is primarily due to increased interest income of
$1.2 million and decreased interest expense of $4.2 million, both primarily as a
result of reduced debt levels and increased cash balances which resulted
primarily from the Company's second public offering in April 1998.
Income Taxes. PR*Nutrition was an "S" Corporation prior to it acquisition
on August 21, 1998. Accordingly, federal taxes were generally paid at the
shareholder level only. The PR*Nutrition provision for taxes for the year ended
December 31, 1997 and through August 21, 1998 included state taxes only. The
Consolidated Statements of Operations include pro forma information which
reflects adjustments to historical net income as if PR*Nutrition had not elected
"S" Corporation status for income tax purposes.
-24-
<PAGE> 28
Liquidity and Capital Resources
For fiscal 1999, cash provided by operating activities was $22.7 million,
as compared to $13.9 million for fiscal 1998 and $14.9 million for fiscal 1997.
The increase in fiscal 1999 compared to fiscal 1998 was primarily due to a net
decrease in operating assets partially offset by the net loss. The decrease in
fiscal 1998 compared to fiscal 1997 was primarily due to a net increase in
operating assets, principally inventory, partially offset by higher net income
and by an increase in accounts payable and accrued liabilities. The increase in
inventory was due to higher sales volume and to a reduction in inventory
turnover.
Capital expenditures were $16.2 million in fiscal 1999 as compared to
$18.0 million in fiscal 1998 and $4.0 million in fiscal 1997. Capital
expenditures were primarily for the purchase of production equipment to expand
capacity or improve manufacturing efficiency as well as for the expansion of the
Utah Facility. Capital expenditures are expected to be approximately $13.0
million during fiscal 2000 of which approximately $5.0 million will be used to
purchase computer hardware and software including related implementation costs
and the remainder of which will be used primarily to purchase manufacturing
equipment. The Company estimates that its historical level of maintenance
capital expenditures has been approximately $1.0 million per fiscal year.
Net cash used in financing activities was $16.6 million in 1999. The
Company purchased $36.8 million of shares of Common Stock and repurchased $3.3
million of senior subordinated notes which was offset by borrowings under the
Company's Revolving Credit Facility ($16 million) and mortgage financing of the
Utah plant expansion ($8 million). Net cash provided from financing activities
in 1998 was $68.1 million, which was provided by the proceeds of the Company's
public offering in April 1998. Approximately $74.9 million of the net proceeds
of such offering were used to redeem senior subordinated notes and repay debt.
Net cash used in financing activities was $9.6 million for fiscal 1997, and
represented repayment of certain outstanding indebtedness.
Twinlab Corporation has no operations of its own and accordingly has no
independent means of generating revenue. As a holding company, Twinlab
Corporation's internal sources of funds to meet its cash needs, including
payment of expenses, are dividends and other permitted payments from its direct
and indirect subsidiaries. The Indenture relating to the Notes and the Revolving
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.
On February 25, 1999, the Company announced that its Board of Directors
had approved a share repurchase program authorizing the Company to purchase up
to 5 million shares of its Common Stock. The Company has used and may use funds
available under its $50 million Revolving Credit Facility and internally
generated cash to purchase such shares. The Company will purchase Common Stock
from time to time in the open market and in individually negotiated
transactions. The amount and timing of any purchase will be dependent upon a
number of factors, including the price and availability of the Company's shares
and general market conditions. As of February 29, 2000, the Company had
purchased 4,100,900 shares at a total cost of $36.8 million.
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 for at least the next 18 to 24
months. The Company's capital resources and liquidity are expected to be
provided by the Company's cash flow from operations and borrowings under the
existing $50 million Revolving Credit Facility. As of February 29, 2000, $11.0
million of borrowings were available under the Revolving Credit Facility for
working capital requirements and general corporate purposes.
One of the Company's business strategies is to pursue acquisition
opportunities that complement or extend its existing products or product lines,
or are compatible with its business philosophy and strategic goals. Future
acquisitions could be financed by internally generated funds, bank borrowings,
public offerings or private placements of equity or debt securities, or a
combination of the foregoing. There can be no assurance that the Company will be
-25-
<PAGE> 29
able to make acquisitions on terms favorable to the Company and that funds to
finance an acquisition will be available or permitted under the Company's
financing instruments.
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
During 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", which was
subsequently amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the effective Date of SFAS No. 133". SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to have
a material effect on the Company's financial statements.
Year 2000 Readiness Overview
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 instead of the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations.
The Company's Year 2000 initiatives focused on the following areas of
risk: (i) the failure or disruption of systems used by the Company to run its
business operations and facilities, and (ii) the failure or disruption of
systems used by the Company's suppliers and vendors.
The Company established a steering committee including senior executives
to address Year 2000 issues which report periodically to the Board of Directors.
The Company's plan to address Year 2000 issues resulted in the formation of two
main teams: (i) internal systems team, and (ii) external vendors/suppliers team.
The Company assessed the extent to which the Company's interface systems and
sources of supply were vulnerable to third party hardware and software
suppliers' failure to remediate their Year 2000 issues. In addition, a business
continuity plan was established and put in place; however, there was no need to
exercise the plan.
February 2000 Update
Through February of the year 2000, the Company's operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000 problem (as described below). The Company has not experienced any
significant Year 2000-related issues that would affect its ability to
manufacture, ship or sell its products. The Company will continue to monitor its
operations.
The Company's total cost of its Year 2000 activities through 1999 were
approximately $0.6 million which includes approximately $0.1 million of
capitalized fixed assets.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
The following discussion and the estimated amounts generated from the
sensitivity analyses referred to below include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially from
such
-26-
<PAGE> 30
assumptions because the amounts noted below are the result of analyses used
for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by the Company of future events or losses.
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in interest rates. The Company currently is not party to
any derivative instruments and its current policy does not allow speculation in
derivative instruments for profit or execution of derivative instrument
contracts for which there are no underlying exposures. The Company does not use
financial instruments for trading purposes.
The Company measures its market risk, related to its holdings of financial
instruments, based on changes in interest rates utilizing a sensitivity
analysis. The sensitivity analysis measures the potential loss in fair values,
cash flows and earnings based on a hypothetical 10% change in interest rates.
The Company used current market rates on its market risk sensitive assets and
liabilities to perform the sensitivity analysis.
Interest Rate Risk
The Company is exposed to changes in interest rates on its floating rate
Revolving Credit Facility and fixed rate Notes. At December 31, 1999, based on a
hypothetical 10% decrease in interest rates related to the Company's fixed rate
Notes, the Company estimates that the fair value of its fixed rate debt and
would have increased by $1.9 million. At December 31, 1999, the Company had
$16.0 million of borrowings outstanding under its Revolving Credit Facility. A
hypothetical 10% change in interest rates would not have a material effect on
the Company's pretax loss or cash flow.
Additional information regarding the Company's debt is contained in Note 7
to the Consolidated Financial Statement are presented under Item 14 of this
Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and notes thereto are presented
under Item 14 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Information required under PART III (Items 10, 11, 12, and 13) is
incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 9, 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2). Consolidated Financial Statements and Financial Statement
Schedules:
-27-
<PAGE> 31
<TABLE>
<CAPTION>
Page
TWINLAB CORPORATION AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report............................................................................................F-1
(1) Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998......................................................F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997........................F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998
and 1997..........................................................................................................F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................F-5
Notes to Consolidated Financial Statements........................................................................F-6
(2) Financial Statement Schedules
For the Three Years Ended December 31, 1999
Schedule I - Condensed Financial Information of Registrant..............................................................S-1
Schedule II - Valuation and Qualifying Accounts.........................................................................S-4
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this Report.
(c) Exhibits:
Exhibit
Number Description of Exhibit
2.1 -- 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, the Registrant, Natur-Pharma
Inc. and GEI (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, as
amended, filed by the Registrant, Registration No.
333-05191; "Twinlab S-1").
2.1.1 -- Amendment to the Stock Purchase and Sale Agreement, dated
May 6, 1996 (incorporated by reference to Exhibit 2.1.1 to
Twinlab S-1).
3.1 -- Second Amended and Restated Certificate of Incorporation of
the Registrant (incorporated by reference to Exhibit 3.4 to
the Registration Statement on Form S-4, dated June 25,
1996, as amended, filed by Twin, Registration No.
333-06781; "Twin S-4").
3.2 -- Amended and Restated By-laws of the Registrant
(incorporated by reference to Exhibit 3.5 to Twin S-4).
4.1 -- Indenture, dated May 7, 1996, among Twin, and ARP and the
Registrant (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 and the 10 1/4% Senior Subordinated Notes due 2006
issued in exchange therefor (incorporated by reference to
Exhibit 4.2 to Twin S-1).
4.2 -- First Supplemental Indenture, dated as of December 1, 1997,
to the Indenture dated as of
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<PAGE> 32
May 7, 1996, among Twin and ARP, Changes International and
the Registrant, as Guarantors and State Street Bank and
Trust Company (as successor to Fleet National Bank), as
Trustee regarding Twin's 10 1/4% Senior Subordinated Notes
due 2006 (incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-3, dated March 17, 1998,
Registration No. 333-48091).
4.3 -- Second Supplemental Indenture, dated as of May 14, 1998, to
the Indenture dated as of May 7, 1996, among Twin and ARP,
Changes International, Bronson, Health Factors and the
Registrant, as Guarantors and State Street Bank and Trust
Company (as successor to Fleet National Bank), as Trustee
regarding Twin's 10 1/4% Senior subordinated Notes due
2006.*
4.4 -- Third Supplemental Indenture, dated as of September 15,
1998, to the Indenture dated as of May 7, 1996, among Twin
and ARP, Changes International, Bronson, Health Factors,
PR* Nutrition and the Registrant, as Guarantors and State
Street Bank and Trust Company (as successor to Fleet
National Bank), as Trustee regarding Twin's 10 1/4% Senior
Subordinated Notes due 2006.*
10.1 -- Credit and Guarantee Agreement, dated May 7, 1996, among
Twin, the Registrant, 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 Twinlab S-1).
10.2 -- Amended and Restated Credit and Guarantee Agreement, dated
November 15, 1996, among Twin, the Registrant, the
financial institutions named therein, The Chase Manhattan
Bank as Administrative Agent and The Bank of New York as
Documentation Agent (incorporated by reference to Exhibit
10.2 to the Registrant's 1996 Annual Report on Form 10-K;
the "1996 Annual Report").
10.3 -- Guarantee and Collateral Agreement, dated May 7, 1996,
among the Registrant, Twin, and ARP in favor of Chemical
Bank, as Administrative Agent (incorporated by reference to
Exhibit 10.1 to Twinlab S-1).
10.4 -- Form of Revolving Credit Note (incorporated by reference to
Exhibit 10.4 to the 1996 Annual Report).
10.5 -- Form of Swing Line Note (incorporated by reference to
Exhibit 10.5 to the 1996 Annual Report).
10.6 -- Deed of Trust, dated May 7, 1996 (the "Deed of Trust"),
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 Twinlab S-1).
10.7 -- Amendment to Deed of Trust, dated November 20, 1996, among
Twin and The Chase Manhattan Bank (incorporated by
reference to Exhibit 10.7 to the 1996 Annual Report).
10.8 -- Stockholders Agreement, dated May 7, 1996, among Brian
Blechman, Neil Blechman, Ross Blechman, Steve Blechman,
Dean Blechman and Stephen Welling, the Registrant and GEI
(incorporated by reference to Exhibit 10.8 to Twinlab S-1).
10.9 -- Secondary Stockholders Agreement among Brian Blechman, Neil
Blechman, Ross Blechman, Steve Blechman, Dean Blechman and
Stephen Welling, the Registrant, 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
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<PAGE> 33
Employees' Retirement System, Michigan State Police
Retirement System, and Michigan Judges Retirement System
(incorporated by reference to Exhibit 10.9 to Twinlab S-1).
10.10 -- Employment Agreement, dated May 7, 1996, between Twin and
Brian Blechman (incorporated by reference to Exhibit 10.10
to Twinlab S-1).
10.11 -- Employment Agreement, dated May 7, 1996, between Twin and
Neil Blechman (incorporated by reference to Exhibit 10.11
to Twinlab S-1).
10.12 -- Employment Agreement, dated May 7, 1996, between Twin and
Ross Blechman (incorporated by reference to Exhibit 10.12
to Twinlab S-1).
10.13 -- Employment Agreement, dated May 7, 1996, between Twin and
Steve Blechman (incorporated by reference to Exhibit 10.13
to Twinlab S-1).
10.14 -- Employment Agreement, dated May 7, 1996, between Twin and
Dean Blechman (incorporated by reference to Exhibit 10.14
to Twinlab S-1).
10.15 -- Employment Agreement, dated May 7, 1996, between Twin and
Stephen Welling (incorporated by reference to Exhibit 10.15
to Twinlab S-1).
10.16 -- Consulting Agreement, dated May 7, 1996, between Twin and
David Blechman (incorporated by reference to Exhibit 10.16
to Twinlab S-1).
10.17 -- Consulting Agreement, dated May 7, 1996, between Twin and
Jean Blechman (incorporated by reference to Exhibit 10.17
to Twinlab S-1).
10.18 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and David Blechman (incorporated by reference to Exhibit
10.18 to Twinlab S-1).
10.19 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Jean Blechman (incorporated by reference to Exhibit
10.19 to Twinlab S-1).
10.20 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Brian Blechman (incorporated by reference to Exhibit
10.20 to Twinlab S-1).
10.21 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Neil Blechman (incorporated by reference to Exhibit
10.21 to Twinlab S-1).
10.22 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Ross Blechman (incorporated by reference to Exhibit
10.22 to Twinlab S-1).
10.23 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Steve Blechman (incorporated by reference to Exhibit
10.23 to Twinlab S-1).
10.24 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Dean Blechman (incorporated by reference to Exhibit
10.24 to Twinlab S-1).
10.25 -- Noncompetition Agreement, dated May 7, 1996, between Twin
and Stephen Welling (incorporated by reference to Exhibit
10.25 to Twinlab 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 Twinlab S-1).
-30-
<PAGE> 34
10.27 -- Form of Restated Standard Indemnity Agreement, dated August
1992, between Twin and Showa Denko America, Inc.
(incorporated by reference to Exhibit 10.28 to Twinlab
S-1).
10.28 -- Form of SDR Guaranty Agreement, dated August 1992, between
Twin and Showa Denko K.K. (incorporated by reference to
Exhibit 10.29 to Twinlab S-1).
10.29 -- Twinlab Corporation 1996 Stock Incentive Plan (incorporated
by reference to Exhibit 10.30 to Twinlab S-1).
10.30 -- Stock Option Agreement, dated November 5, 1997, between the
Registrant and John McCusker. (incorporated by reference to
Exhibit 10.30 to the Registrant's 1997 Annual Report on
Form 10-K, as amended; the 1997 Annual Report)
10.31 -- Letter, dated October 7, 1997, between the Registrant and
John McCusker. (incorporated by reference to Exhibit 10.31
to the 1997 Annual Report)
10.32 -- Construction Contract, dated February 27, 1998, between
Twin and Interwest Construction Company, Inc. (incorporated
by reference to Exhibit 10.32 to the 1997 Annual Report)
10.33 -- Lease, dated January 16, 1998, between Twin and Reckson
Operating Partnership, L.P. (incorporated by reference to
Exhibit 10.33 to the 1997 Annual Report)
10.34 -- Asset Purchase Agreement, dated as of March 17, 1998, among
Jones Medical Industries, Inc., JMI-Phoenix Laboratories,
Inc., Twin and Bronson Laboratories, Inc. (incorporated by
reference to Exhibit 10.34 to the 1997 Annual Report)
10.35 -- Stock Purchase Agreement, dated as of August 19, 1998, by
and among Twinlab, Twin, William Logue, Sheri Sears and
Barry Nussbaum (incorporated by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K dated,
August 21, 1998).
10.36 -- Twinlab Corporation 1998 Stock Incentive Plan (incorporated
by Reference to Exhibit 10.36 to the 1998 Annual Report)
10.37 -- Employment Agreement, dated May 7, 1999, between Twin and
Steve Welling*
10.38 -- Employment Agreement, dated January 1, 2000, between Twin
and Ross Blechman*
10.39 -- Employment Agreement, dated January 1, 2000, between Twin
and Dean Blechman*
10.40 -- Employment Agreement, dated January 1, 2000, between Twin
and Neil Blechman*
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<PAGE> 35
10.41 -- Employment Agreement, dated January 1, 2000, between Twin
and Steve Blechman*
10.42 -- Non-Competition Agreement, dated March 9, 2000, between
Twin and Brian Blechman*
10.43 -- Fourth Supplemental Indenture, dated as of January 25,
2000, to the Indenture dated May 7, 1996, Twin, ARP,
Changes International, Bronson, Health Factors,
PR*Nutrition, Twinlab FSC and the Registrant, as Guarantors
and State Street Bank and Trust Company (as successor to
Fleet National Bank) as Trustee regarding Twins 10 1/4%
Senior Subordinated Notes due 2006*
10.44 -- First Amendment, dated as of March 22, 1999 to the Amended
and Restated Credit and Guarantee Agreement (dated as of
November 15, 1996) among the Registrant, Twin and several
banks and financial institutions*
10.45 -- Second Amendment, dated as of November 12, 1999, to the
Amended and Restated Credit and Guarantee Agreement (dated
as of November 15, 1996) among the Registrant, Twin and
several banks and financial institutions*
21.1 -- List of Registrant's Subsidiaries.*
23.1 -- Consent of Deloitte & Touche LLP.*
27 -- Financial Data Schedule.*
- ----------
* Filed herewith.
-32-
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
TWINLAB CORPORATION
By: s/ Ross Blechman
-------------------------------------
Ross Blechman Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Ross Blechman Chairman of the Board, Chief March 30, 2000
- --------------------------- Executive Officer, President and Director
Ross Blechman (Principal Executive Officer)
/s/ Neil Blechman Executive Vice President, Secretary March 30, 2000
- --------------------------- and Director
Neil Blechman
/s/ Brian Blechman Executive Vice President, Treasurer March 30, 2000
- --------------------------- and Director
Brian Blechman
/s/ Steve Blechman Executive Vice President and March 30, 2000
- --------------------------- Director
Steve Blechman
/s/ Dean Blechman Executive Vice President and March 30, 2000
- --------------------------- Director
Dean Blechman
/s/ John Bolt Chief Financial Officer (Principal March 30, 2000
- --------------------------- Financial and Accounting Officer)
John Bolt
/s/ Stephen L. Welling Director March 30, 2000
- ---------------------------
Stephen L. Welling
/s/ Jonathan D. Sokoloff Director March 30, 2000
- ---------------------------
Jonathan D. Sokoloff
/s/ John G. Danhakl Director March 30, 2000
- ---------------------------
John G. Danhakl
/s/ William U. Westerfield Director March 30, 2000
- ---------------------------
William U. Westerfield
/s/ Robert Apatoff Director March 30, 2000
- ---------------------------
Robert Apatoff
</TABLE>
-33-
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Twinlab Corporation and subsidiaries
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Twinlab
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedules listed in the Index at Item 14(a)(2).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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 financial position of Twinlab Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Also in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Jericho, New York
February 10, 2000
F-1
<PAGE> 38
TWINLAB CORPORATION AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 and 1998
(In thousands of dollars except share and per share amounts)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS (Note 7)
- ------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,994 $ 12,489
Accounts receivable, net of allowance for bad debts of
$918 and $502, respectively (Note 12) 52,454 60,254
Inventories (Note 3) 71,826 72,355
Deferred tax assets (Note 9) 4,497 1,629
Prepaid taxes 8,183 --
Prepaid expenses and other current assets 2,941 3,207
--------- ---------
Total current assets 143,895 149,934
PROPERTY, PLANT AND EQUIPMENT, Net (Note 4) 46,168 34,181
DEFERRED TAX ASSETS (Note 9) 40,269 45,347
OTHER ASSETS (Note 5) 55,925 60,556
--------- ---------
TOTAL $ 286,257 $ 290,018
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 7) $ 597 $ 80
Accounts payable 33,152 30,959
Accrued expenses and other current liabilities (Note 6) 25,780 10,043
--------- ---------
Total current liabilities 59,529 41,082
LONG-TERM DEBT, less current portion (Note 7) 63,203 43,451
--------- ---------
Total liabilities 122,732 84,533
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued -- --
Common stock, $1.00 par value; 75,000,000 shares authorized;
32,706,233 issued and 28,605,333 outstanding as of
December 31, 1999 and 32,705,049 issued and outstanding
as of December 31, 1998 32,706 32,705
Additional paid-in capital 289,336 289,327
Accumulated deficit (121,723) (116,547)
--------- ---------
200,319 205,485
Treasury stock at cost; 4,100,900 shares (36,794) --
--------- ----
Total shareholders' equity 163,525 205,485
--------- ---------
TOTAL $ 286,257 $ 290,018
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 39
TWINLAB CORPORATION AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(In thousands of dollars except per share amounts)
- --------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES (Note 12) $ 315,604 $ 333,375 $ 229,614
COST OF SALES 168,407 163,433 125,426
--------- --------- ---------
GROSS PROFIT 147,197 169,942 104,188
OPERATING EXPENSES 131,723 106,755 52,072
LITIGATION COSTS (Note 11) 19,000 -- --
MERGER EXPENSES (Note 2) -- 1,462 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (3,526) 61,725 52,116
--------- --------- ---------
OTHER (EXPENSE) INCOME:
Interest income 459 1,421 215
Interest expense (5,289) (8,119) (12,336)
Other 29 (38) 27
--------- --------- ---------
(4,801) (6,736) (12,094)
--------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT
FROM) INCOME TAXES AND EXTRAORDINARY ITEM (8,327) 54,989 40,022
PROVISION FOR (BENEFIT FROM) INCOME TAXES (Note 9) (3,232) 20,357 14,146
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,095) 34,632 25,876
EXTRAORDINARY ITEM, net of income tax benefit of
$50 in 1999 and $3,133 in 1998 (Note 7) (81) (4,941) --
--------- --------- ---------
NET INCOME (LOSS) $ (5,176) $ 29,691 $ 25,876
========= ========= =========
Basic AND DILUTED income per share (Note 8):
Income (loss) before extraordinary item $ (0.16) $ 1.10 $ 0.92
Extraordinary item -- (0.16) --
--------- --------- ---------
Net income (loss) $ (0.16) $ 0.94 $ 0.92
========= ========= =========
Basic weighted average shares outstanding 31,594 31,492 28,192
========= ========= =========
Diluted weighted average shares outstanding 31,594 31,607 28,228
========= ========= =========
PRO FORMA RELATING TO CHANGE IN TAX STATUS (Note 2):
Historical income before provision for income taxes and
extraordinary item $ 54,989 $ 40,022
Pro forma provision for income taxes 21,524 15,429
--------- ---------
Pro forma income relating to change in tax status before
extraordinary item 33,465 24,593
Extraordinary item (4,941) --
--------- ---------
Pro forma net income relating to change in tax status $ 28,524 $ 24,593
========= =========
PRO FORMA BASIC income per share:
Income before extraordinary item $ 1.06 $ 0.87
Extraordinary item (0.15) --
--------- ---------
Net income $ 0.91 $ 0.87
========= =========
Basic weighted average shares outstanding 31,492 28,192
========= =========
PRO FORMA DILUTED income per share:
Income before extraordinary item $ 1.06 $ 0.87
Extraordinary item (0.16) --
--------- ---------
Net income $ 0.90 $ 0.87
========= =========
Diluted weighted average shares outstanding 31,607 28,192
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 40
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1999, 1998 and 1997 (In thousands of dollars except share data)
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
------ ------ ------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 28,150,000 $28,150 $140,252 $(166,035) $ -- $ 2,367
Net income and comprehensive income -- -- -- 25,876 -- 25,876
Distributions to shareholders -- -- -- (3,347) -- (3,347)
Shares issued in connection with the acquisition
of Changes International (Note 2) 312,500 312 5,547 -- -- 5,859
Shares issued in connection with the exercise of
stock options and related tax benefit 7,600 8 118 -- -- 126
---------- ------- -------- --------- -------- ---------
Balance at December 31, 1997 28,470,100 28,470 145,917 (143,506) -- 30,881
Net income and comprehensive income -- -- -- 29,691 -- 29,691
Second public offering of common stock
(Note 8.a.) 4,228,749 4,229 143,277 -- -- 147,506
Shares issued in connection with the exercise of
stock options and related tax benefit 6,200 6 133 -- -- 139
Distributions to shareholders -- -- -- (2,732) -- (2,732)
---------- ------- -------- --------- -------- ---------
Balance at December 31, 1998 32,705,049 32,705 289,327 (116,547) -- 205,485
Net loss and comprehensive loss -- -- -- (5,176) -- (5,176)
Shares issued under Outside Directors
Plan (Note 8.b.) 1,184 1 9 -- -- 10
Purchase of treasury stock (Note 8.d.) -- -- -- -- (36,794) (36,794)
---------- ------- -------- --------- -------- ---------
Balance at December 31, 1999 32,706,233 $32,706 $289,336 $(121,723) $(36,794) $ 163,525
========== ======= ======== ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 41
TWINLAB CORPORATION AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,176) $ 29,691 $ 25,876
Adjustment to reconcile net income to net cash provided
by operating activities:
Extraordinary item 81 4,941 --
Depreciation and amortization 7,584 5,004 2,099
Provision for excess and slow moving inventories 8,084 1,801 375
Bad debt expense 978 35 249
Deferred income taxes 1,622 3,416 3,684
Other 218 -- (3)
Changes in operating assets and liabilities (net of effect
of businesses acquired):
Accounts receivable 6,822 (13,496) (13,568)
Inventories (7,555) (29,619) (7,553)
Prepaid expenses and other current assets (7,917) (1,641) 12
Accounts payable 2,193 12,828 5,800
Accrued expenses and other current liabilities 15,787 946 (2,033)
-------- --------- --------
Net cash provided by operating activities 22,721 13,906 14,938
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired -- (56,104) (3,726)
Proceeds from sales of property, plant and equipment -- -- 3,099
Acquisition of property, plant and equipment (16,177) (18,037) (4,022)
Decrease (increase) in other assets 1,519 407 (462)
-------- --------- --------
Net cash used in investing activities (14,658) (73,734) (5,111)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of senior subordinated notes (3,333) (62,687) --
Proceeds from issuance of debt 8,000 700 400
Net borrowings (repayments) under revolving credit facility 16,000 (13,750) --
Purchase of treasury stock (36,794) -- --
Distributions to shareholders -- (2,732) (3,347)
Payments of debt (431) (856) (6,603)
Issuance of common stock -- 82 126
Net proceeds from public offering of common stock -- 147,506 --
Principal payments of capital lease obligations -- (158) (146)
-------- --------- --------
Net cash (used in) provided by financing activities (16,558) 68,105 (9,570)
-------- --------- --------
Net (decrease) increase in cash and cash equivalents (8,495) 8,277 257
Cash and cash equivalents at beginning of year 12,489 4,212 3,955
-------- --------- --------
Cash and cash equivalents at end of year $ 3,994 $ 12,489 $ 4,212
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest of $585 in 1999 $ 5,125 $ 9,048 $ 12,272
======== ========= ========
Income taxes $ 3,545 $ 15,676 $ 9,807
======== ========= ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 42
TWINLAB CORPORATION AND SUBSIDIARIES
- ------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
1999, 1998 and 1997 (Dollar amounts are in thousands of dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation and principles of consolidation - The
consolidated financial statements of Twinlab Corporation include the
accounts of Twinlab Corporation ("Twinlab") and its direct and
indirect subsidiaries (the "Company"). All intercompany accounts and
transactions are eliminated in consolidation.
The Company is a leading manufacturer and marketer of high-quality,
science-based nutritional supplements sold through domestic health
and natural food stores and various direct sales channels, including
network and catalog marketing and is also engaged in the sale of its
products through national and regional drug store chains,
supermarkets, and mass market retailers.
b. Cash equivalents - Investments with original maturities of three
months or less are considered cash equivalents.
c. Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
d. 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.
e. 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 periods ranging from twenty to forty
years. Other intangible assets acquired in connection with the
acquisitions of Changes International and Bronson are being
amortized on the straight-line method over periods ranging from five
years to thirty years.
f. Income taxes - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting For Income Taxes", which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the Company's
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
F-6
<PAGE> 43
g. Revenue recognition - Revenue from product sales is recognized at
the time of shipment to the customer. Revenue from magazine
subscriptions is recorded as deferred revenue at the time of sale
and a pro rata share is included in revenue as magazines are
delivered to subscribers. Advertising revenue is recognized when the
related magazines are issued.
h. Research and development expenses - The Company charges research and
development expenses to operations as incurred. Research and
development expenses were $1,863, $1,655 and $1,095 for the years
ended December 31, 1999, 1998 and 1997, respectively.
i. Earnings per share - The Company accounts for earnings per share in
accordance with SFAS No. 128, "Earnings Per Share". SFAS No. 128
requires presentation of "basic" and "diluted" earnings per share.
j. Impairment of long-lived assets - The Company reviews its long-lived
assets, including property and equipment, goodwill and intangible
assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets,
the Company evaluates the probability that future undiscounted net
cash flows will be less than the carrying amount of the assets.
Impairment costs, if any, are measured by comparing the carrying
amount of the related assets to their fair value.
k. 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.
l. Reclassifications - Certain prior year balances have been
reclassified to conform with current year classifications.
2. ACQUISITIONS
a. PR*Nutrition - On August 21, 1998, the Company acquired all of the
outstanding capital stock of PR*Nutrition, Inc. ("PR*Nutrition") for
1,150,000 shares of its common stock, having a market value at the
date of acquisition of approximately $39,675. PR*Nutrition develops,
markets and sells nutritionally enhanced food bars and other
nutritional products. This acquisition has been accounted for as a
pooling of interests and accordingly the consolidated financial
statements have been restated to include PR*Nutrition's amounts for
all periods presented. Expenses of approximately $1,462 have been
incurred related to this acquisition.
Prior to being acquired by the Company, PR*Nutrition was an "S"
corporation and as such, Federal and state taxes were generally paid
at the shareholder level only. The pro forma provisions for income
taxes for the years ended December 31, 1998 and 1997 in the
accompanying Consolidated Statements of Operations assume
PR*Nutrition was a "C" corporation for the respective entire fiscal
years.
F-7
<PAGE> 44
b. Bronson - On April 30, 1998, the Company acquired substantially all
of the assets and assumed certain liabilities of the Bronson
division ("Bronson") of Jones Medical Industries, Inc. Bronson,
through Bronson Laboratories, Inc., manufactures, markets and
distributes vitamins, herbs, and nutritional supplements and health
and beauty aids, through catalogs and specialty direct mailings, and
manufactures through Health Factors International, private label
vitamins and nutritional supplements for a number of other companies
on a contract manufacturing basis. The Company paid $56,104 in cash,
including acquisition costs, which was financed through proceeds
from the Offering (as hereinafter defined). This acquisition has
been accounted for as a purchase and, accordingly, the results of
Bronson are included in the Consolidated Statements of Operations of
the Company since the date of acquisition and the purchase price
(including acquisition costs) has been allocated to net assets
acquired based upon their fair values. Goodwill relating to the
acquisition of $14,480 is being amortized over 30 years.
c. Changes International - In November 1997, the Company acquired all
of the outstanding shares of Changes International of Fort Walton
Beach, Inc. ("Changes International"). Changes International is a
network marketer of nutritional supplements. The Company paid $7,888
in cash, including acquisition costs, and issued 312,500 shares of
its common stock (which had a market value of approximately $5,859
on the date of the acquisition). This acquisition has been accounted
for as a purchase and, accordingly, the results of Changes
International are included in the Consolidated Statements of
Operations of the Company since the date of acquisition and the
purchase price (including acquisition costs) has been allocated to
net assets acquired based upon their fair values. Goodwill relating
to the acquisition of $11,301 is being amortized over 20 years.
The following unaudited pro forma information assumes that the
acquisition of Bronson and Changes International had occurred as of
January 1, 1997, including the impact of the amortization expense
associated with intangible assets acquired, increased interest
expense on acquisition debt and related income tax effects. 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 acquisitions in fact,
occurred on January 1, 1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $ 343,392 $ 296,126
Income before extraordinary item $ 35,879 $ 31,704
Basic and diluted income before extraordinary item
per share $ 1.12 $ 1.05
Diluted weighted average shares outstanding (in thousands) 32,041 30,159
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 32,269 $ 36,257
Work in process 9,765 11,337
Finished goods 29,792 24,761
--------- ---------
Total $ 71,826 $ 72,355
========= =========
</TABLE>
F-8
<PAGE> 45
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land, building and leasehold improvements $ 30,352 $ 15,948
Plant equipment 19,364 11,240
Office and computer equipment 10,374 6,162
Automobiles 65 65
Construction in progress 526 11,451
--------- ---------
60,681 44,866
Less: accumulated depreciation and amortization 14,513 10,685
--------- ---------
Property, plant and equipment - net $ 46,168 $ 34,181
========= =========
Depreciation and amortization expense $ 3,972 $ 1,940
========= =========
</TABLE>
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Goodwill, net of accumulated amortization of $2,157
and $1,113, respectively $ 24,327 $ 24,784
Acquired tradenames, net of accumulated amortization
of $1,185 and $474, respectively 20,150 20,861
Acquired customer lists and distribution networks,
net of accumulated amortization of $2,624 and $1,162,
respectively 8,224 9,686
Other 3,224 5,225
--------- ---------
Total $ 55,925 $ 60,556
========= =========
</TABLE>
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accrued salaries, employee benefits and payroll taxes $ 3,034 $ 3,816
Accrued commissions 1,851 2,219
Accrued insurance premium (Note 11.c.) 15,000 --
Other 5,895 4,008
---------- ----------
Total $ 25,780 $ 10,043
========== ==========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving Credit Facility (a) $ 16,000 $ --
Senior subordinated notes (b) 39,915 43,215
Mortgage payable to a bank collateralized by land and building,
payable in monthly installments of $96, including interest at
7.57%, maturing April 2009 7,640 --
Note payable to a power authority, payable in monthly installments
of $2, including interest at 6.38 percent, maturing February 2011 245 251
Other -- 65
--------- ---------
63,800 43,531
Less: current portion 597 80
--------- ---------
Total $ 63,203 $ 43,451
========= =========
</TABLE>
F-9
<PAGE> 46
(a) The revolving credit facility (the "Revolving Credit Facility"), as
amended, expires on May 7, 2002 and provides for borrowings up to
$50,000. Borrowings under the Revolving Credit Facility bear
interest, at the Company's discretion, at either the Alternative
Base Rate, as defined, or at the Eurodollar Rate (maximum six-month
term), plus a margin (currently .75%), as defined. The weighted
average interest rate at December 31, 1999 was 6.85%. Interest rates
are subject to increase or reduction based upon the meeting of
certain financial tests. The proceeds of the Revolving Credit
Facility are available for working capital requirements and for
general corporate purposes, including permitted acquisitions, as
defined, subject to certain conditions and reductions. The Revolving
Credit Facility is secured by first priority security interests in
all of the tangible and intangible assets of Twin Laboratories Inc.
("Twin") and its subsidiaries and is guaranteed by Twinlab and all
subsidiaries of Twin. The Revolving Credit Facility contains certain
restrictive covenants including, among other things, the maintenance
of certain debt and interest coverage ratios, as well as
restrictions on additional indebtedness, dividends and certain other
significant transactions.
(b) In May 1996, Twin issued $100,000 aggregate principal amount of
senior subordinated notes (the "Notes") which mature on May 15,
2006. The Notes bear interest at a rate of 10 1/4 % per annum and
are jointly and severally guaranteed by Twinlab and all subsidiaries
of Twin on a full and unconditional unsecured senior subordinated
basis. The Notes are callable after May 15, 2001 at a premium to par
which declines to par after 2003. Upon a change of control, as
defined, Twin is required to offer to redeem the Notes at 101% of
the principal amount plus accrued and unpaid interest. Restrictive
covenants contained in the indenture governing the Notes (the "Note
Indenture") include, among other things, limitations on additional
indebtedness, investments, dividends and certain other significant
transactions.
In May 1998, Twin redeemed 35% ($35,000 aggregate principal amount)
of the Notes at a redemption price of 109 1/2% with a portion of the
proceeds of the Offering. In addition, in July 1998, September 1998
and September 1999, Twin repurchased an additional $18,136, $3,649
and $3,300 aggregate principal amount, respectively, of Notes at
prices of 112 1/2%, 108 1/2% and 101%, respectively. In connection
with the redemptions and repurchases of the Notes, the Company
recorded extraordinary charges, representing the premium paid and
the write-off of previously deferred finance costs, of approximately
$81 (net of tax benefit of $50) and $4,941 (net of tax benefit of
$3,133) for the years ended December 31, 1999 and 1998,
respectively.
The Revolving Credit Facility and the Note Indenture restrict the
payment of dividends and the making of loans, advances or other
distributions of assets to Twinlab, except in certain limited
circumstances.
F-10
<PAGE> 47
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
2000 $ 597
2001 646
2002 16,697
2003 752
2004 811
Thereafter 44,297
-----------
Total $ 63,800
===========
</TABLE>
The carrying amount of the borrowings under the Revolving Credit
Facility, the mortgage payable and the Notes approximated fair value as of
December 31, 1999 based on borrowing rates available to the Company at
such date for loans with similar terms. The fair value of the Notes
approximated $49,770 at December 31, 1998 based on borrowing rates
available to the Company at such date.
8. SHAREHOLDERS' EQUITY
(a) Public offering - In April 1998, the Company completed a second
public offering of the Company's common stock (the "Offering"). A
total of 9,200,000 shares of common stock were offered to the
public, of which 4,971,251 were sold by certain of the Company's
shareholders. The net proceeds to the Company from the Offering were
approximately $147,506. Of the net proceeds to the Company,
approximately $56,104 was used to pay the purchase price for
Bronson, including related fees and expenses; approximately $40,119
was used to exercise the Company's option to redeem $35,000
aggregate principal amount of the Notes at a redemption price of 109
1/2%, plus accrued and unpaid interest; and approximately $9,900 was
used to reduce outstanding borrowings under the Revolving Credit
Facility, including accrued and unpaid interest. The remaining net
proceeds to the Company were used for working capital and other
general corporate purposes.
(b) Stock incentive plan - In November 1996, the Board and
stockholders of the Company approved and adopted the Twinlab
Corporation 1996 Stock Incentive Plan (the "1996 Plan"). The 1996
Plan provides for the issuance of a total of up to 400,000
authorized and unissued shares of common stock, treasury shares
and/or shares acquired by the Company for purposes of the 1996 Plan.
Awards under the 1996 Plan may be made in the form of (i) incentive
stock options; (ii) nonqualified stock options; (iii) stock
appreciation rights; (iv) restricted stock; and (v) performance
shares. On June 17, 1998, the shareholders approved the Twinlab
Corporation 1998 Stock Incentive Plan (the "1998 Plan"). The 1998
Plan provides initially for the issuance of a total of up to
1,000,000 authorized and unissued shares of common stock, treasury
shares and/or shares acquired by the Company for purposes of the
1998 Plan, and may be increased annually commencing January 1, 1999,
at the discretion of the Board, by an amount up to 1% of the shares
of common stock outstanding at the beginning of the year. The Board
approved an increase of 327,050 shares and 315,662 shares to the
1998 Plan in December 1999 and January 2000, respectively. Awards
under the 1998 Plan may be made in the form of (i) incentive stock
options; (ii) non-qualified stock options; (iii) stock appreciation
rights; (iv) restricted stock; (v) restricted stock units; (vi)
dividend equivalent rights; and (vii) other stock based-awards.
Options issued under the 1996
F-11
<PAGE> 48
Plan and the 1998 Plan become exercisable over five years from the
date of grant at the rate of 20% of the grant each year and expire
up to ten years after the date of grant.
On June 17, 1999, the shareholders of the Company approved the
Twinlab Corporation 1999 Stock Incentive Plan for Outside Directors
(the "Outside Directors Plan"). The Outside Directors Plan provides
for the granting of up to an aggregate of 65,000 shares of common
stock, subject to adjustment in the event of certain capital changes
as defined in the Outside Directors Plan. Shares issued under the
Outside Directors Plan may either be authorized but unissued shares
of common stock or treasury shares of common stock. The Outside
Directors Plan provides for the grant to participants of
nonqualified stock options and restricted shares of common stock.
Awards will be granted each year, as of the day following the day
the Company's annual meeting takes place, to individuals who qualify
as participants as of such date. Options issued under the Outside
Directors Plan become exercisable pro ratably over three years from
the date of grant and expire up to ten years after the date of
grant.
The following table sets forth summarized information concerning
stock option activity relating to the Company's 1996 Plan, 1998 Plan
and the Outside Directors Plan (collectively, the "Plans"):
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise Exercise
of Shares Price Range Price
<S> <C> <C> <C>
Balance, January 1, 1997 120,000 $ 12.00 $ 12.00
Granted 56,000 $ 18.13 - $19.38 $ 19.24
Canceled (6,000) $ 12.00 $ 12.00
Exercised (7,600) $ 12.00 $ 12.00
----------- ---------------- --------
Balance, December 31, 1997 162,400 $ 12.00 - $19.38 $ 14.50
Granted 264,000 $ 25.00 - $29.38 $ 28.55
Canceled (11,400) $ 12.00 - $29.38 $ 25.72
Exercised (6,200) $ 12.00 - $18.13 $ 13.19
----------- ---------------- --------
Balance, December 31, 1998 408,800 $ 12.00 - $29.38 $ 23.28
Granted 895,000 $ 8.00 - $ 9.19 $ 8.10
Canceled (140,750) $ 8.00 - $29.38 $ 15.41
Exercised -- $ - $ --
--------- ---------------- --------
Balance, December 31, 1999 1,163,050 $ 8.00 - $29.38 $ 12.55
========= ================ ========
Shares exercisable at December 31, 1999 94,000 $ 12.00 - $29.38 $ 20.34
========= ================ ========
Shares reserved for issuance at December 31, 1999 1,777,066
=========
Significant option groups outstanding at December 31, 1999 and
related weighted average price and life information were as follows:
Weighted Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Price Outstanding Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 8.00 - $ 9.19 840,250 9.4 $ 8.11 -- $ --
$12.00 - $18.13 86,800 7.0 $12.34 46,800 $ 12.16
$25.00 50,000 8.6 $25.00 10,000 $ 25.00
$29.38 186,000 8.2 $29.38 37,200 $ 29.38
--------- ------
1,163,050 94,000
========= ======
</TABLE>
The Company applies Accounting Principles Board Opinion No.
25, "Accounting For Stock Issued To Employees", and applicable
interpretations in accounting for the Plans. Accordingly, as all
options have been granted at exercise prices equal to fair market
value on the date of grant, no compensation expense has been
recognized by the
F-12
<PAGE> 49
Company in connection with its stock-based compensation plans. Had
compensation cost for the Company's Plans been determined based upon
the fair value at the grant date for awards under the Plans
consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation", the Company's net income would have been reduced by
approximately $1,126, $642 and $188 in 1999, 1998 and 1997,
respectively. The Company's net (loss) and diluted (loss) per share
would have been $(6,302) and $(0.20) per share, respectively, for
1999, and the Company's pro forma net income and diluted earnings
per share would have been $29,000 and $0.92 per share, respectively,
for 1998 and $25,700 and $0.91 per share, respectively, for 1997.
The weighted average fair value of the options granted during 1999,
1998 and 1997 is estimated at $5.62, $19.50 and $10.89 per share,
respectively, on the date of grant (using the Black-Scholes option
pricing model) with the following weighted average assumptions for
1999, 1998 and 1997, respectively: volatility of 67%, 65% and 46%,
risk-free interest rate of 5.51%, 5.71% and 5.75%, and an expected
life of seven years.
(c) Net income per share - Basic income per share is determined by using
the weighted average number of shares of common stock outstanding
during each period. Diluted income per share further assumes the
issuance of common shares for all dilutive outstanding common stock
options. The calculation for income before extraordinary item per
share for each of the three years ended December 31, 1999 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- --------------------------- ----------------------------
Per- Per- Per-
Income Share Share Share
(Loss) Shares Amount Income Shares Amount Income Shares Amount
---------------------------- --------------------------- ----------------------------
(In thousands, except per share data)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic income (loss)
per share
Income (loss)
before extraordinary
item $(5,095) 31,594 $(0.16) $34,632 31,492 $1.10 $25,876 28,192 $ 0.92
====== ===== =======
Effect of Dilutive
Securities:
Options - - - 115 - 36
------- ------- -------- ------- -------- -------
Diluted income
(loss) per share
Income (loss)
before
extraordinary item $(5,095) 31,594 $(0.16) $34,632 31,607 $1.10 $25,876 28,228 $ 0.92
======= ======= ====== ======= ======= ===== ======= ======= =======
</TABLE>
(d) Share repurchase program - On February 25, 1999, the Board approved
a share repurchase program authorizing the Company to purchase up to
the greater of 5 million shares or $40,000 of its common stock. The
Company has used and may use funds available under its Revolving
Credit Facility and internally generated cash to purchase such
shares. The Company will purchase common stock from time to time in
the open market and in individually negotiated transactions. The
amount and timing of any purchase will be dependent upon a number of
factors, including the price and availability of the Company's
shares and general market conditions. As of December 31, 1999, the
Company has purchased 4,100,900 shares at a total cost of $36,794.
F-13
<PAGE> 50
9. INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ (4,106) $ 14,267 $ 8,916
State and local (748) 2,674 1,546
--------- ----------- -----------
(4,854) 16,941 10,462
--------- ----------- -----------
Deferred:
Federal 1,542 2,923 3,515
State and local 80 493 169
--------- ----------- -----------
1,622 3,416 3,684
--------- ----------- -----------
$ (3,232) $ 20,357 $ 14,146
========= =========== ===========
</TABLE>
The difference between the statutory Federal tax rate and the Company's
effective tax rate is as follows (as a percentage of pre-tax income):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate (35.0)% 35.0% 35.0%
State and local income taxes (net of
Federal tax benefit) (5.2) 3.7 2.8
Exempt income due to "S" Corporation
status -- (2.0) (2.8)
Other 1.4 0.3 0.3
----- ----- -----
Effective tax rate (38.8)% 37.0% 35.3%
===== ===== =====
</TABLE>
At December 31, 1999 and 1998, the deferred tax assets consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts receivable $ 423 $ 327
Inventories 3,429 1,064
Property, plant and equipment (1,431) (249)
Intangible and other assets 41,578 45,596
Credit carryforwards 448 --
Other 319 238
--------- ---------
$ 44,766 $ 46,976
========= =========
</TABLE>
No valuation allowance was required at December 31, 1999 and 1998 because
of the Company's history of profitability and anticipated future
profitability.
10. EMPLOYEE BENEFIT PLANS
The Company maintains the Twin Laboratories Inc. 401(k) Plan (the "401(k)
Plan"). Eligible employees may contribute up to 15% of their annual
compensation, subject to certain limitations, and the Company will match
50% of an employee's contribution. The total cost with respect to the
401(k) Plan approximated $653, $518 and $367 for the years ended December
31, 1999, 1998 and 1997, respectively.
F-14
<PAGE> 51
11. COMMITMENTS AND CONTINGENCIES
a. Leases - The Company leases certain office and 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, 1999, 1998 and 1997 was approximately $5,939, $3,476, and $2,006,
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>
2000 $ 5,639
2001 5,080
2002 4,581
2003 3,533
2004 2,399
Thereafter 2,509
----------
Total $ 23,741
==========
</TABLE>
During 1997, the Company entered into several agreements for the sale and
leaseback of certain production equipment. The Company received $3,099
which approximated the net book value of the assets sold. These leases
have been classified as operating leases.
b. Employment contracts - The Company has employment contracts with certain
of its employees and officers with annual remuneration ranging from $110
to $550. Future minimum payments under these contracts are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000 $ 2,525
2001 2,525
2002 1,993
----------
Total $ 7,043
==========
</TABLE>
c. Legal matters - The Company has been named as a defendant in seven
currently pending lawsuits alleging that its Ma Huang-containing products
caused injuries and/or damages, as well as two proceedings seeking class
action certification for alleged deceptive advertising claims related to
its Ma Huang products. The Company intends to vigorously defend these
lawsuits. The Company believes that such claims, if successful, would not
have a material adverse effect on its results of operations or financial
condition.
A shareholder class action lawsuit is pending before the United States
District Court for the Eastern District of New York against the Company
and certain of its officers and directors. The plaintiffs allege that the
Company and the other defendants violated the securities laws by making
material misstatements and failing to state material facts about the
Company's business and financial condition, among other things, in
securities act filings and public statements. The class of plaintiffs
includes all buyers of the Company's stock from March 17, 1998 through
February 24, 1999. In December 1999,
F-15
<PAGE> 52
the Company purchased an insurance product that provides additional
insurance that is expected to substantially cover the potential financial
consequences of the shareholder class action lawsuit. The cost of the
policy to the Company was $15,000, a portion of which may be refundable
depending upon the ultimate settlement or judgment in the action.
On February 11, 1999, the former shareholders of PR*Nutrition commenced a
lawsuit in the United States District Court for the Southern District of
New York against the Company and certain of its officers and directors. In
November 1999, the lawsuit was settled for a cash payment of which the
Company contributed $4,000 with the balance paid through insurance
proceeds. Further, the Company purchased 1,138,800 shares of the Company's
common stock from the former shareholders of PR*Nutrition representing all
of the Company's shares owned by such individuals, at a price of $8.4375
per share for an aggregate purchase price of $9,609. The purchase of such
shares was part of the five million share repurchase program (see Note
8.d.).
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, if any, in connection with these matters,
after taking into consideration the Company's insurance coverage, will not
have a material adverse effect on its results of operations or financial
condition.
12. MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS
During the years ended December 31, 1999, 1998 and 1997, the Company
recognized net sales to significant customers as set forth below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Major customers:
Customer A 20% 14% 22%
Customer B 9 12 18
Customer C 7 12 4
</TABLE>
At December 31, 1999 and 1998, approximately 54% and 47%, respectively, of
accounts receivable related to two large independent distributors of
health and natural food products.
13. SUMMARIZED FINANCIAL INFORMATION
Twin is a direct wholly-owned subsidiary of Twinlab. Advanced
Research Press ("ARP"), Changes International, Bronson Laboratories, Inc.,
Health Factors International, Inc. ("Health Factors"), Twinlab FSC, Inc.,
Changes International (U.K.) Ltd. ("Changes U.K.") and PR*Nutrition are
indirect wholly-owned subsidiaries of Twinlab. Twinlab, ARP, Changes
International, Bronson Laboratories, Inc., Health Factors, Twinlab FSC,
Inc., Changes U.K. and PR*Nutrition have provided joint and several full
and unconditional senior subordinated guarantees of the Notes of Twin (see
Note 7b).
The assets, results of operations and shareholders' equity of Twin
comprise substantially all of the assets, results of operations and
shareholders' equity of Twinlab on a consolidated basis. Twinlab has no
separate operations and has no significant assets other than Twinlab's
investment in its subsidiaries. Twin has no other stockholder than
Twinlab.
F-16
<PAGE> 53
Accordingly, the Company has determined that separate financial statements
of its subsidiaries would not be material to investors and, therefore, are
not included herein.
Summarized financial information for the year ended December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Bronson
Changes Laboratories Health PR
Twin ARP International Inc. Factors Nutrition [a]
---- --- ------------- ---- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 177,402 $ 1,079 $ 11,282 $ 9,953 $ 7,250 $ 2,762
Noncurrent assets 142,363 195 11,985 39,713 5,452 160
Current liabilities 59,529 431 5,000 3,620 1,006 338
Noncurrent liabilities 63,203 -- -- -- -- --
Shareholder's equity 197,033 843 18,267 46,046 11,696 2,584
Net sales 315,604 4,187 46,970 15,383 13,875 12,548
Gross profit 168,407 650 39,098 8,487 1,810 8,387
Net income (loss) (5,059) (444) 314 618 266 710
</TABLE>
- ----------
[a] Effective July 1, 1999, the Ironman Triathlon bar product line was
transferred from PR*Nutrition to Twin.
Summarized financial information for the year ended December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Bronson
Changes Laboratories Health PR
Twin ARP International Inc. Factors Nutrition [a]
---- --- ------------- ---- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 149,611 $ 1,571 $ 9,008 $ 7,279 $ 4,295 $ 3,373
Noncurrent assets 140,084 186 12,520 39,566 7,491 417
Current liabilities 44,152 470 3,575 1,417 356 1,916
Noncurrent liabilities 43,451 -- -- -- -- --
Shareholder's equity 202,092 1,287 17,953 45,428 11,430 1,874
Net sales 333,375 4,670 51,313 11,495 7,192 20,878
Gross profit 169,942 997 42,714 6,601 1,218 14,418
Net income 29,199 263 3,662 719 35 4,070
</TABLE>
Summarized financial information for the year ended December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
Changes PR
Twin ARP International Nutrition
---- --- ------------- ---------
<S> <C> <C> <C> <C>
Current assets $ 89,397 $ 1,399 $ 4,005 $ 1,321
Noncurrent assets 83,444 193 13,026 365
Current liabilities 45,952 568 2,685 1,127
Noncurrent liabilities 100,267 -- -- 22
Shareholder's equity 26,622 1,024 14,346 537
Net sales 229,614 5,661 7,037 16,385
Gross profit 104,188 1,329 5,854 11,906
Net income 26,061 465 598 3,205
</TABLE>
14. OPERATING SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which changed the way
the Company reports information about its operating segments.
The Company has four reportable segments: Twinlab Division; Herbal
Supplements and Teas Division; Changes International Division; and Bronson
Division. The Company
F-17
<PAGE> 54
manufactures and markets nutritional products, including a complete line
of vitamins, herbs, and nutraceuticals, antioxidants, fish and marine
oils, and sports nutrition supplements through its TWINLAB Division; a
full line of herbs, phytonutrients, and teas through its Herbal
Supplements and Teas Division; a line of specially formulated nutritional
supplements through its Changes International Division; and a line of
vitamins, herbs, nutritional supplements and health and beauty aids
through its Bronson Division.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the financial performance of its business units based on
operating income of the respective business units.
Segment information for the years ended December 31, 1999, 1998, and
1997 was as follows:
<TABLE>
<CAPTION>
Herbal
Supplements Changes Inter-
Twinlab and Teas International Bronson company
Division (1) Division Division Division Other (2) Elimination Total
------------ -------- -------- -------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Net sales from external
customers $ 195,639 $30,828 $46,970 $25,876 $16,291 $- $ 315,604
Intersegment net sales 33 2,510 -- -- 444 (2,987) --
Operating income (loss) (8,124) 2,575 390 1,414 219 -- (3,526)
Interest expense 4,813 475 -- -- 1 -- 5,289
Interest income 305 8 124 -- 22 -- 459
Total assets 200,824 69,573 23,267 59,342 4,535 (71,284) 286,257
Capital expenditures 5,284 9,796 455 767 131 (256) 16,177
Depreciation and
amortization 2,084 909 1,585 2,662 88 -- 7,328
1998
Net sales from external
customers $ 172,665 $65,824 $51,313 $18,687 $24,886 $ -- $ 333,375
Intersegment net sales 3,971 300 -- -- 662 (4,933) --
Operating income 30,545 18,873 5,829 1,231 5,247 -- 61,725
Interest expense 8,075 24 -- -- 20 -- 8,119
Interest income 249 -- 157 -- 1,015 -- 1,421
Total assets 174,180 58,683 21,528 58,631 5,870 (28,874) 290,018
Capital expenditures 2,691 9,391 703 368 254 -- 13,407
Depreciation and
amortization 1,048 511 1,019 1,805 168 -- 4,551
1997
Net sales from external
Customers $ 155,982 $45,206 $ 7,037 $ -- $21,389 $ -- $ 229,614
Intersegment net sales 150 82 -- -- 658 (890) --
Operating income 35,486 11,805 832 -- 3,993 -- 52,116
Interest expense 12,294 21 -- -- 21 -- 12,336
Interest income 156 -- 17 -- 41 -- 214
Total assets 130,627 31,496 17,031 -- 3,446 (9,590) 173,010
Capital expenditures 2,570 1,258 13 -- 181 -- 4,022
Depreciation and
amortization 819 433 136 -- 156 -- 1,544
</TABLE>
[1] Interest expense relating to borrowings under the Revolving Credit
Agreement and the Notes has been recorded in the Twinlab Division and not
allocated to the other operating segments.
[2] The "other" column includes corporate-related items and the results of two
divisions, PR*Nutrition and ARP, whose segment information is below the
reportable quantitative thresholds. The Company markets nutritionally
enhanced food bars and other nutritional products through PR*Nutrition and
publishes a sports fitness magazine and health and fitness-related books,
audios and newsletters through ARP.
F-18
<PAGE> 55
The Company primarily distributes its products through two distribution
channels: the retail channel which includes health and natural food
stores, drug store chains, supermarkets and mass market retailers; and the
direct sales channel, which includes network marketing, catalog and direct
response. Net sales by distribution channel were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Retail:
<S> <C> <C> <C>
Health and natural food stores $ 199,849 $ 208,864 $ 193,464
Mass market 44,749 48,630 14,057
Direct sales 67,263 71,873 17,087
Other 3,743 4,008 5,006
--------- ------------- -------------
$ 315,604 $ 333,375 $ 229,614
========= ============= =============
</TABLE>
F-19
<PAGE> 56
SCHEDULE I
TWINLAB CORPORATION AND SUBSIDIARIES
(PARENT COMPANY ONLY)
- ---------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In thousands except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets
Cash $ 338 $ 323
Prepaid expenses and other current assets 2 --
Investment in subsidiaries 163,185 205,162
--------- ---------
Total $ 163,525 $ 205,485
========= =========
Shareholders' Equity
Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued $ -- $ --
Common stock , $1.00 par value; 75,000,000
shares authorized; 32,706,233 issued and 28,605,333
outstanding as of December 31, 1999 and 32,705,049
issued and outstanding as of December 31, 1998 32,706 32,705
Additional paid-in capital 289,336 289,327
Accumulated deficit (121,723) (116,547)
--------- ---------
200,319 205,485
Treasury stock at cost; 4,100,900 shares (36,794) --
--------- ---------
Total $ 163,525 $ 205,485
========= =========
</TABLE>
- ----------
Note: Investment in subsidiaries is accounted for under the equity method of
accounting.
See notes to consolidated financial statements included elsewhere herein.
S-1
<PAGE> 57
SCHEDULE I
TWINLAB CORPORATION AND SUBSIDIARIES
(PARENT COMPANY ONLY)
- ------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Equity interest in net income (loss) of subsidiaries $ (5,059) $ 29,199 $ 26,061
Operating expenses 207 -- --
Interest income 16 981 7
--------- --------- ---------
Income (loss) before provision for income taxes (5,250) 30,180 26,068
Provision for (benefit from) income taxes (74) 489 192
--------- --------- ---------
Net income (loss) $ (5,176) $ 29,691 $ 25,876
========= ========= =========
</TABLE>
See notes to consolidated financial statements included elsewhere herein.
S-2
<PAGE> 58
SCHEDULE I
TWINLAB CORPORATION AND SUBSIDIARIES
(PARENT COMPANY ONLY)
- ------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,176) $ 29,691 $ 25,876
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equity investment in subsidiaries 41,985 (118,289) (18,922)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of business, net of cash acquired -- (56,104) (3,726)
Distributions to shareholders -- (2,732) (3,347)
Issuance of common stock -- 82 126
Purchase of treasury stock (36,794) -- --
Proceeds from public offering of common stock -- 147,506 --
--------- --------- ---------
Net cash (used in) provided by financing activities (36,794) 88,752 (6,947)
--------- --------- ---------
Net increase in cash 15 154 7
Cash at beginning of year 323 169 162
--------- --------- ---------
Cash at end of year $ 338 $ 323 $ 169
========= ========= =========
</TABLE>
See notes to consolidated financial statements included elsewhere herein.
S-3
<PAGE> 59
SCHEDULE II
TWINLAB CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
------------------------
Charged to
Balance at Charged to Other Balance
beginning Cost and Accounts Deductions at end of
Descriptions of Period Expenses - describe - describe Period
------------ --------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for bad debts $ 502 $ 978 $ -- $ 562[1] $ 918
====== ====== === ======== =======
Reserve for excess and
slow moving inventory $2,801 $8,084 $ -- $ 1,977[1] $8,908
====== ====== === ======== =======
Year ended December 31, 1998:
Allowance for bad debts $ 467 $ 35 $ -- $ -- $ 502
====== ====== === ======== =======
Reserve for excess and
slow moving inventory $1,000 $1,801 $ -- $ -- $2,801
====== ====== === ======== =======
Year ended December 31, 1997:
Allowance for bad debts $ 220 $ 249 $ -- $ 2[1] $ 467
====== ====== === ======== =======
Reserve for excess and
slow moving inventory $ 625 $ 375 $ -- $ -- $1,000
====== ====== === ======== =======
</TABLE>
(1) Amounts written off.
S-4
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 7th day of May 1999, between Twin Laboratories Inc. ("Company"),
having its executive offices and principal place of business in Hauppauge, New
York, and Stephen L. Welling, the undersigned individual ("Executive").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the approximate
three-year period commencing as of May 7, 1999 and ending on May 6, 2002 (the
"Agreement Term"); provided, however, that the Agreement Term shall be renewed
automatically for successive additional two-year periods ("Renewal Period") at
the end of such three-year period and at the end of each such two-year Renewal
Period, unless, no later than 180 days prior to any such renewal date, either
the President of the Company or the Executive gives written notice to the other
that the Agreement shall not be so renewed.
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company for the Agreement Term upon the terms and subject to the
conditions set forth in this Agreement.
(b) Performance of Duties. Throughout the Agreement
Term, Executive shall serve as President of the Health and Natural Food Store
Division of the Company and shall have such duties, powers and responsibilities
that are commensurate with his position or as may be assigned by the Board of
Directors ("Board") of Company or the President of Company from time to time
provided such assigned duties are commensurate with his position. In addition,
Executive agrees that he will serve in any similar capacity on behalf of any
existing or future subsidiary or division as is reasonably requested by the
Company. Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire working time
to the business and affairs of the Company, subject to vacations and sick leave
in accordance with Company policy.
(c) Place of Performance. During the Agreement Term,
Executive shall be based at American Fork, Utah. Executive understands and
acknowledges that his duties will require reasonable business travel from time
to time. Executive shall report to Ross Blechman, President of the Company or
such other executive as may be designated by the Company from time to time.
3. Compensation and Benefits.
(a) Base Salary. For the period of May 6, 1999
through May 6, 2002 the Company agrees to pay to Executive for employment
hereunder a base salary ("Base
<PAGE> 2
Salary") at the annual rate of $ 265,000. Beginning January 1, 2000 and on
January 1 of each successive year of this Agreement, the Base Salary shall be
increased by a percentage equal to the percentage increase, if any, in the
Consumer Price Index for All Urban Consumers, All Items ("CPI") for the most
recent twelve month period for which such figures are then available as
promulgated by the Department of Labor Bureau of Statistics; provided however
that the Compensation Committee of the Board of Directors ("Board") of the
Company may, in its sole discretion, increase the Base Salary from time to time
by a sum greater than the CPI proportional increase.
(b) Benefits and Perquisites. Executive shall be
entitled to receive such benefits and perquisites as the Company and the
Executive shall mutually agree from time to time. Nothing in this Agreement
shall preclude the Company from terminating or amending from time to time any
employee benefit plan or program.
(c) Bonus. The Executive shall be entitled to receive
a cash bonus with respect to each calendar year of the Agreement of up to 100%
of Base Salary based on the Bonus Plan attached hereto as Exhibit A.
(d) Stock Options. Company shall cause Executive to
be granted options for 50,000 shares in the Company's common stock. The terms
and conditions of the stock option grant are set forth in the Company stock
option plan, a copy of which has been provided to Executive.
(e) Vacation. Executive shall be entitled to paid
vacation in accordance with the vacation policy of the Company.
(f) Automobile. The Company shall reimburse the
Executive for all reasonable expenses (including lease payment, liability
insurance, maintenance, repair and fuel costs) up to One Thousand Two Hundred
dollars ($1,200) per month incurred in operating an automobile for the
Executive's use in the performance of his duties hereunder and in the conduct of
the affairs of the Company, which automobile shall also be available to the
Executive for personal use.
(g) Standard Benefits. Medical Insurance; Dental
Insurance; Life Insurance; and Long Term Disability Insurance shall be provided
in accordance with the standard policies in effect for full time Company
employees, including all applicable eligibility and contribution requirements.
Company will reimburse Executive for any COBRA payment incurred prior to
eligibility in the Company Medical Insurance or Dental Insurance program.
(h) 401k Program. Executive shall be eligible for
participation in the Company's 401k plan, including the employer contribution
thereto, subject to the terms and conditions of the plan including the waiting
periods contained in the plan.
(i) Travel and Business Expenses. Upon submission of
itemized expense statements consistent with Company procedure, Executive shall
be entitled to reimbursement for reasonable travel and other reasonable business
expenses incurred by Executive in the performance of Executive's duties under
this Agreement in accordance with the policies and procedures established by the
Company from time to time for executives of a substantially similar level as
Executive.
- 2 -
<PAGE> 3
(j) Payment. Payment of all compensation and benefits
to Executive hereunder shall be made in accordance with Company policies in
effect from time to time, including normal payroll practices, and shall be
subject to all applicable employment and withholding taxes.
(k) Cessation of Employment. In the event Executive
shall cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Indemnification. The Executive shall be indemnified by
Company against reasonable expenses, including attorney's fees, actually and
necessarily incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of the
Company on or subsequent to the date hereof, to the full extent permitted by
applicable law. Company shall (upon receipt by Company of an undertaking by or
on behalf of the Executive to repay the expenses described in this Section 4, if
it shall ultimately be determined that he is not entitled to be indemnified by
Company against such expenses) pay reasonable expenses, including attorney's
fees, incurred by the Executive in defending any threatened, pending or
completed action, suit or proceeding, or appearing as a witness at a time when
he has not been named as a defendant or respondent with respect thereto, in
advance of the final deposition of any such action, suit or proceeding. The
foregoing right of indemnification will not be deemed exclusive of any other
rights to which the Executive may be entitled under Company's or any of its
subsidiaries' respective Articles or Certificate of Incorporation or By-laws, as
in effect from time to time, or any agreement or otherwise.
5. Non-competition. During the Agreement Term, including any
unexpired portion thereof and any applicable Renewal Period, and, for a period
of twelve months, thereafter (provided, however, that if Executive is terminated
by the Company for any reason other than "Cause" as defined in paragraph 7(b)
hereinafter or if Executive resigns for Good Reason as defined in paragraph 7(d)
hereafter, than the provisions of this non-competition paragraph shall be for a
period of twelve months commencing with the date of termination or resignation,
whichever is applicable.) Executive shall not, directly or indirectly, own,
manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, distribution, independent contractor, independent representative,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in any state or region (including foreign
jurisdictions) where the Company conducts business or is considering doing
business; provided, however, that ownership of 1% or less of the stock or other
securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 5, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean
any business or venture which is engaged, directly or indirectly, in (i) the
business of developing, manufacturing, marketing (including multi-level
marketing), selling and/or distributing (including wholesale distributing) of
vitamins, minerals, nutritional supplements (including, without limitation,
amino
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<PAGE> 4
acids and proteins), herbal products, phytonutrients, herb teas or food bars,
(ii) the publication of related health, fitness or body-building publications,
(iii) any other business engaged in or being developed by the Company, or being
actively considered by management of the Company, or (iv) any other business
which is substantially similar to the whole or any significant part of the
business conducted by the Company.
6. No Solicitation.
(a) During the Agreement Term, including any
unexpired portion thereof and any applicable Renewal Period, and for a period of
one year thereafter, Executive shall not, directly or indirectly, including on
behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of the Company to terminate its relationship with the
Company for any reason, nor assist any person or entity in doing so, or employ,
engage or otherwise contract with any employee or former employee of the Company
in a Competing Business or any other business unless such former employee shall
not have been employed by the Company for a period of at least one year, (ii)
interfere in any manner with the relationship between any employee and the
Company or (iii) contact, service or solicit any existing clients, customers or
accounts of the Company on behalf of a Competing Business, either as an
individual on his own account, as an investor, or as an officer, director,
partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.
7. Termination of Employment.
(a) Termination or Resignation. The Company may
terminate Executive's employment for Cause (as hereinafter defined), in which
case the provisions of Section 7(b) shall apply. The Company may also terminate
Executive's employment in the event of Executive's Disability (as hereinafter
defined), in which case the provisions of Section 7(c) shall apply. The Company
may also terminate the Executive's employment for any other reason by written
notice to Executive, in which case the provisions of Section 7(e) shall apply.
If Executive's employment is terminated by reason of Executive's death or
retirement, the provisions of Section 7(b) shall apply. Executive may resign for
Good Reason (as hereinafter defined) in which case the provisions of Section
7(e) shall apply. No termination of this Agreement or resignation shall relieve
any party from liability for any breach of this Agreement or defeat or impair
the right of any party to pursue such relief as may otherwise be available to it
as a result of any breach of this Agreement or any term, provision or covenant
contained herein.
(b) Termination for Cause; Termination by Reason of
Death or Retirement. The Executive may be terminated for Cause, upon at least
thirty (30) days' prior written notice from the Board to the Executive for a
termination for Cause pursuant to clause (iv), (v) or (vii) of this paragraph,
and upon at least ten (10) days' prior written notice from the Board to the
Executive for a termination for Cause pursuant to Clause (i), (ii), (iii), (vi),
or (viii), by a vote of the Board, (provided that Executive shall have had the
opportunity (together with Executive's legal counsel) during such period to be
heard at a meeting of the Board with respect to such determination).
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment hereunder is terminated during the Agreement Term (x) by
the Company for Cause or (y) by reason of Executive's death or retirement, then
the Company shall pay to Executive, within thirty (30) days of the date of such
termination, only the
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<PAGE> 5
Base Salary through such date of termination. For purposes of this Agreement,
"Cause" shall mean (i) conviction of, or plea of nolo contendere (no contest)
to, any crime (whether or not involving the Company) constituting a felony in
the jurisdiction involved; (ii) conduct involving moral turpitude; (iii) conduct
related to Executive's employment for which either criminal or civil penalties
against Executive or the Company may be sought; (iv) gross neglect or misconduct
in the performance of Executive's duties hereunder; (v) willful failure or
refusal to perform such duties as may be delegated to Executive commensurate
with Executive's position; (vi) material violation of the Company's policies,
including, without limitation, those relating to sexual harassment, the
disclosure or misuse of Confidential Information (as hereinafter defined), or
those set forth in Company manuals or statements of policy; (vii) conduct which
is materially injurious or materially damaging to the Company or the reputation
of the Company; or (viii) material breach of any provision of this Agreement by
Executive.
(c) Disability. If, as a result of Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from Executive's duties hereunder for either (i) one hundred twenty (120) days
within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability." In that event, the Company shall pay to
Executive, within thirty (30) days, of the date of such termination, only the
Base Salary through such date of termination. During any period that Executive
fails to perform Executive's duties hereunder as a result of incapacity due to
physical or mental illness (a "Disability Period"), Executive shall continue to
receive the compensation and benefits provided by Section 3 hereof (other than
Section 3(c) hereof) until Executive's employment hereunder is terminated;
provided, however, that the amount of compensation and benefits received by
Executive during the Disability Period shall be reduced by the aggregate
amounts, if any, payable to Executive pursuant to Section 3(b) hereof or under
the Social Security or state disability insurance programs.
(d) Resignation For Good Reason. The Executive may
resign for Good Reason, upon at least thirty (30) days' prior written notice
from the Executive to the Board of his intent to resign for Good Reason pursuant
to Clause (iii) of this subparagraph, and upon at least 10 days' prior written
notice from the Executive to the Board of his intent to resign for Good Reason
pursuant to Clause (i), (ii), (iv) or (v) of this subparagraph, provided that
the Executive (together with Executive's legal counsel) shall meet with the
Board, if requested by the Board during such period with respect to his intent
to resign. " Good Reason" shall mean any (i) reduction in the Executive's Base
Salary or opportunity to participate in the Bonus Plan, as set forth herein,
(ii) relocation of the Executive's principal place of business to a location
which is more than 10 miles from its current location in American Fork, Utah
(without the Executive's consent), (iii) material diminution in the Executive's
duties, responsibilities or reporting position with the Company, which
diminution continues after written notice thereof is given to the Board by the
Executive, (iv) failure by the Company to continue in effect any material
benefit or compensation plan, life insurance plan, health and accident plan,
disability plan (or plan providing the Executive with substantially similar
benefits) in which the Executive is participating or the material reduction of
the Executive's benefits under any such plans or (v) failure by Company to
obtain the agreement to assume and perform this Agreement by any successor of
Company.
(e) Termination By The Company For Any Other Reason
or
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<PAGE> 6
Resignation For Good Reason. In the event that Executive's employment hereunder
is terminated by the Company during the Agreement Term for any reason other than
as provided in Sections 7(b) or 7(c) hereof or in the event that Executive
resigns for Good Reason, then the Company shall pay to Executive, within thirty
(30) days of the date of such termination or resignation, only the Base Salary
through such date of termination and, in lieu of any further compensation and
benefits for the balance of the Agreement Term, severance pay equal only to the
Base Salary that Executive would have otherwise received during the period
beginning on such date of termination or resignation and ending on the last day
of the twelfth month following such date of termination or resignation, which
severance pay shall be paid commencing with such date of termination or
resignation at the times and in the amounts such Base Salary would have been
paid if Executive had not been terminated or resigned. Executive shall also
receive his bonus on a pro-rated basis through his last day of employment.
Except as set forth below, during such] twelve month period, Executive shall
also continue to participate in and receive the benefits and perquisites
provided for in Section 3(g) hereof to the same extent as if Executive's
employment hereunder had not been terminated or resigned; provided, however,
that in the event that Executive shall breach Sections 5, 6 or 9 hereof, in
addition to any other remedies the Company may have, the Company' obligation
pursuant to this Section 7(e) to pay severance, bonus, and to continue benefits
and perquisites shall cease and Executive's rights thereto shall terminate and
shall be forfeited and Executive shall reimburse and repay to Company any
severance or bonus paid by Company to Executive between the date of termination
and the date such payments by the Company ceased.
(f) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 7 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment and continuing benefits and
perquisites pursuant to and in accordance with this Section 7 (as applicable),
the Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to Executive or any other person or entity under
this Agreement. The Company shall have the right to condition the payment of any
severance or other amounts pursuant to this Section 7 upon the delivery by
Executive to the Company of a release (in form and substance satisfactory to the
Company) of any and all claims Executive may have against the Company and its
directors, officers, employees, subsidiaries, affiliates, stockholders,
successors, assigns, agents and representatives arising out of or related to
Executive's employment by the Company and termination of such employment.
8. Change of Control.
If subsequent to the date hereof, there is an Acquisition of
Control, as defined hereafter, of the Company, and any time within one year
thereafter, (i) Executive's employment with the Company is terminated by the
Company without Cause or (ii) Executive resigns for Good Reason, as defined
hereinabove, then in either case Executive shall be entitled to receive a
severance equal to one year base salary at the time of termination, which
severance pay shall be paid commencing with such date of termination or
resignation at the time and in the amounts such Base Salary would have been paid
if Executive had not been terminated or resigned and
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<PAGE> 7
the Company shall continue all benefits coverage of you and your dependents
under the Company's medical and other benefits plans or policies (or under other
benefits plans or policies that provide substantially equivalent coverage) for a
period of one year. Subject to the immediately following sentences, the stock
option agreements (the "Stock Option Agreement"), covering the options granted
to you in connection with your employment (the "Options"), will be amended to
provide for an acceleration of the vesting of such options upon the
circumstances described above. Notwithstanding anything to the contrary
contained in this Agreement or the Stock Option Agreements, there shall be no
acceleration of the vesting of any Options to the extent that the Board of
Directors determines that either the amendment of the Stock Option agreements or
the acceleration of the vesting of any of the Options as contemplated in the
immediately preceding sentence could adversely affect the Company or any of its
affiliates' ability to account for any transaction or contemplated transaction
as a pooling of interests.
"Acquisition of Control" shall mean:
(i) a person, including a group, becoming the beneficial owner
of, or acquiring the power to direct the exercise of voting power with
respect to, directly or indirectly securities which represent fifty
percent (50%) or more of the combined voting power of the Company's
outstanding securities thereafter (and "Acquiring Person"); or (ii) the
Incumbent Directors cease at any time to constitute a majority of the
Board of Directors of the Company.
"Cause" shall mean as defined in paragraph 7(b) hereinabove.
"Incumbent Director" shall mean:
any director of the Company serving at May 6, 1999, or one
elected thereafter if nominated by at least two-thirds of the then
Incumbent Directors.
9. Confidential Information.
(a) Confidential Information. "Confidential
Information" shall mean confidential records and information, including, but not
limited to, development, marketing, purchasing, organizational, strategic,
financial, managerial, administrative, manufacturing, production, distribution
and sales information, distribution methods, data, specifications and processes
(including the Transferred Property as hereinafter defined) presently owned or
at any time hereafter developed by the Company or its agents or consultants or
used presently or at any time hereafter in the course of the business of the
Company, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive
hereby sells, transfers and assigns to the Company, or to any person or entity
designated by the Company, all of his entire right, title and interest in and to
all inventions, ideas, disclosures and improvements (the "Inventions"), whether
patented or unpatented, and copyrightable material and all trademarks, trade
names, all goodwill associated therewith and all federal and state registrations
or applications thereof, made, adopted or conceived by Executive solely or
jointly, in whole or in part (collectively, the "Transferred Property"), prior
to or during the Agreement Term which (i) relate to methods, apparatus, designs,
products, processes or devices sold,
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<PAGE> 8
leased, used or under construction or development by the Company or (ii)
otherwise relate to or pertain to the business, products, services, functions or
operations of the Company. Executive shall make adequate written records of all
Inventions, which records shall be the Company's property and shall communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned Inventions.
Whether during the Agreement Term or thereafter, Executive shall execute and
deliver to the Company such formal transfers and assignments and such other
papers and documents as may be required of Executive to permit the Company, or
any person or entity designated by the Company, to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyrights thereon,
and as to trademarks, to record the transfer of ownership of any federal or
state registrations or applications.
(c) Protection of Confidential Information. All such
Confidential Information is considered secret and will be disclosed to the
Executive in confidence, and the Executive acknowledges that, as a consequence
of his employment and position with the Company, the Executive may have access
to and become acquainted with Confidential Information. Except in the
performance of his duties as an employee of the Company, the Executive shall
not, during the Agreement Term and at all times thereafter, directly or
indirectly for any reason whatsoever, disclose or use any such Confidential
Information. All records, files, drawings, documents, equipment and other
tangible items, wherever located, relating in any way to or containing
Confidential Information, which the Executive has prepared, used or encountered
or shall in the future prepare, use or encounter, shall be and remain the
Company's sole and exclusive property and shall be included in the Confidential
Information. Upon termination of this Agreement, or whenever requested by the
Company, the Executive shall promptly deliver to the Company any and all of the
Confidential Information and copies thereof, not previously delivered to the
Company, that may be in the possession or under the control of the Executive.
The foregoing restrictions shall not apply to the use, divulgence, disclosure or
grant of access to Confidential Information to the extent, but only to the
extent, (i) expressly permitted or required pursuant to any other written
agreement between the Executive and the Company, (ii) such Confidential
Information has been publicly disclosed (not due to a breach by the Executive of
his obligations hereunder, or by breach of any other person, of a fiduciary or
confidential obligation to the Company) or (iii) the Executive is required to
disclose Confidential Information by or to any court of competent jurisdiction
or any governmental or quasi-governmental agency, authority or instrumentality
of competent jurisdiction, provided, however, that the Executive shall, prior to
any such disclosure, immediately notify the Company of such requirement and
provided further, however, that the Company shall have the right, at its
expense, to object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
10. Assignment and Transfer.
(a) Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the heirs and representatives of the Executive
and the successors and assigns of Company. Company shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of assets or stock, liquidation, or otherwise), by agreement in form
and substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
Company would be required to perform this Agreement if no such succession had
taken place. Regardless of whether such agreement is executed, this Agreement
shall be binding upon any
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<PAGE> 9
successor of Company in accordance with the operation of law, and such successor
shall be deemed to be the "Company", as appropriate, for purposes of this
Agreement.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment, by operation of
law or otherwise, and any purported assignment, transfer or delegation thereof
shall be void; provided, however, that if Executive shall die, all amounts then
payable to Executive hereunder shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
11. Miscellaneous.
(a) Other Obligations. Executive represents and
warrants that neither Executive's employment with the Company nor Executive's
performance of Executive's obligations hereunder will conflict with or violate
or otherwise be inconsistent with any other obligations, legal or otherwise,
which Executive may have.
(b) Nondisclosure; Other Employers. Executive will
not disclose to the Company, or use or induce the Company to use, any
proprietary information, trade secrets or confidential business information of
others. Executive represents and warrants that Executive has returned all
property, proprietary information, trade secrets and confidential business
information belonging to all prior employers.
(c) Cooperation. Following notice of termination of
employment with the Company, Executive shall cooperate with the Company, as
requested by the Company, to affect a transition of Executive's responsibilities
and to ensure that the Company is aware of all matters being handled by
Executive.
(d) Protection of Reputation. During the Agreement
Term and thereafter, Executive agrees that he will not take action which is
intended or would reasonably be expected to harm the Company or its reputation
or which would reasonably be expected to lead to unwanted or unfavorable
publicity to the Company.
(e) Governing Law/Jurisdiction/Process. This
Agreement, including the validity, interpretation, construction and performance
of this Agreement, shall be governed by and construed in accordance with the
internal laws of the State of New York, without regard to principles of
conflicts of law. All actions and proceedings relating to or arising out of this
Agreement shall be litigated solely in any New York state court or United States
federal court located in Suffolk County, New York. The parties hereto expressly
consent to the jurisdiction of any such court and to venue therein and consent
to the service of process in any such action or proceeding in a manner pursuant
to that set forth in paragraph (m) hereafter for the giving of notices.
(f) Entire Agreement. This Agreement, contains the
entire agreement and understanding between the parties hereto in respect of the
subject matter hereof and supersedes, cancels and annuls any prior or
contemporaneous written or oral agreements, understandings, commitments and
practices between them respecting the subject matter hereof.
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<PAGE> 10
(g) Amendment. This Agreement may be amended only by
a writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Executive and, on behalf of the Company, by its
duly authorized officer.
(h) Severability. If any of the provisions of this
Agreement shall otherwise contravene or be invalid under the laws of any state
or other jurisdiction where it is applicable but for such contravention or
invalidity, such contravention or invalidity shall not invalidate all of the
provisions of this Agreement, but rather the Agreement shall be reformed and
construed, insofar as the laws of that state or jurisdiction are concerned, as
not containing the provisions or provisions but only to the extent that they are
contravening or are invalid under the laws of that state or jurisdiction, and
the rights and obligations created hereby shall be reformed and construed and
enforced accordingly. In particular, if any of the covenants or provisions set
forth in paragraphs 5, 6, or 9 hereunder or any part hereof is held to be
unenforceable because of the duration of such provision or the areas covered
thereby, or otherwise, the parties hereby expressly agree that the court making
such determination shall have the power to reduce the duration and/or the areas
of such provision or otherwise limit any such provision, and, in its reduced
form, such provision shall then be enforceable.
(i) Construction. The headings and captions of this
Agreement are provided for convenience only and shall have no effect in
construing or interpreting this Agreement. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As used
herein, the words "day" or "days" shall mean a calendar day or days.
(j) Non-waiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(k) Remedies for Breach. The parties hereto agree
that Executive is obligated under this Agreement to render personal services
during the Agreement Term of a special, unique, unusual, extraordinary and
intellectual character, thereby giving this Agreement peculiar value, and, in
the event of a breach or threatened breach of any provision of this Agreement by
Executive, the injury or imminent injury to the value and the goodwill of the
Company's business could not be reasonably or adequately compensated in damages
in an action at law. Accordingly, Executive expressly acknowledges that the
Company shall be entitled to specific performance, injunctive relief or any
other equitable remedy against Executive, without the posting of a bond, in the
event of any breach or threatened breach of any provision of this Agreement by
Executive (including Sections 5, 6 and 9 hereof). Without limiting the
generality of the foregoing, if Executive breaches or threatens to breach
Sections 5, 6 or 9 hereof, such breach or threatened breach will entitle the
Company to an Order of the Court enjoining Executive from breaching any of the
provisions of Section 5, 6 or 9, as is appropriate. The rights and remedies of
the parties hereto are cumulative and shall not be exclusive, and each such
party shall be entitled to pursue all legal and equitable rights and remedies
and to secure performance of the obligations and duties of the other under this
Agreement, and the enforcement of one or more of such rights and remedies by a
party shall in no way preclude such party from pursuing, at the same time or
subsequently, any and all other
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<PAGE> 11
rights and remedies available to it.
(l) Reasonableness of Restrictions. Executive agrees
and acknowledges that (i) the provisions of Sections 5, 6 and 9 hereof are
reasonable and necessary for the protection of the Company and do not impose a
greater restraint than is necessary to protect the goodwill or other business
interests of the Company; (ii) such provisions contain reasonable limitations as
to the time and the scope of activity to be restrained; and (iii) the
consideration provided under this Agreement including the grant of stock options
pursuant to 3(d) above, is sufficient to compensate Executive for the
restrictions imposed in Sections 5, 6 and 9 hereof. In consideration of the
foregoing and in light of Executive's education, skills and abilities, Executive
agrees that all defenses by Executive to the strict enforcement of such
provisions are hereby waived by Executive.
(m) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when delivered in person by hand or if
sent by certified or registered mail, return receipt requested, with postage
prepaid or by a nationally recognized overnight courier service, with postage
prepaid to Executive:
Stephen L. Welling
662 S200 West
Orem, UT 84058
or to such other residence address of Executive as is reflected in the Company's
records or as otherwise designated by Executive by notice given pursuant to this
paragraph; and if to Company:
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: Ross Blechman, President and CEO
With a copy to:
Philip M. Kazin
Chief Legal Officer &
General Counsel
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail or upon delivery to such overnight courier
service. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(n) Assistance in Proceedings, Etc. Executive shall,
without additional compensation, during and after expiration of the Agreement
Term, upon reasonable notice, furnish such information and proper assistance to
the Company as may reasonably be required by the Company in connection with any
legal or quasi-legal proceeding, including any external or internal
investigation, involving the Company or any of its affiliates or in which any of
them is, or may become, a party. The Company shall reimburse Executive for all
reasonable
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<PAGE> 12
out-of-pocket expenses incurred by the Executive in connection with services
provided under this Section 9(n).
(o) Survival. The respective obligations of Executive
and rights and benefits afforded to the Company as provided in this Agreement
shall survive cessation or termination of Executive's employment hereunder.
11. Costs and Expenses.
Each party shall pay all of its own costs and
expenses, including reasonable legal fees, in connection with the execution,
delivery, performance and compliance with this Agreement by such party. If an
action or proceeding is commenced by a party to enforce or interpret any
provision of this Agreement, each party shall pay its own costs and expenses of
such action or proceeding, including attorneys' fees.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
TWIN LABORATORIES INC. EXECUTIVE
By:___________________________ By:________________________________
Name: Stephen L. Welling
Title:
Date: _____________ Date: ______________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in Suffolk County, New York as
of the 1st day of January, 2000 ("Effective Date"), between Twin Laboratories
Inc., ("Company") a Utah corporation, having its executive offices and principal
place of business in Hauppauge, New York, and Ross Blechman, the undersigned
individual ("Executive"). As used herein, the term "Twinlab" shall refer,
individually and/or collectively, as applicable, to Twinlab Corporation, a
Delaware corporation and its existing and future direct and indirect
subsidiaries, including but not limited to the Company.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year period commencing on
January 1, 2000 and ending on December 31, 2002 (the "Agreement Term");
provided, however, that the Agreement Term shall be renewed automatically for
successive additional two-year periods (each a "Renewal Term") at the end of the
Agreement Term and at the end of each such two-year Renewal Term, unless, no
later than 180 days prior to the end of the Agreement Term or any applicable
Renewal Term, either the Company or the Executive gives written notice to the
other that the Agreement Term or any applicable Renewal Term shall not be so
renewed. This Agreement supercedes in all respects the Employment Agreement
between the parties dated May 7, 1996 and any amendments thereto (collectively,
"the 1996 Employment Agreement"), and the 1996 Employment Agreement is hereby
deemed to be of no further force or affect.
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by the
Company for the Agreement Term and any applicable Renewal Term (collectively,
the "Term") upon the terms and subject to the conditions set forth in this
Agreement.
(b) Performance of Duties. Throughout the Term, Executive shall serve
as Chief Executive Officer, President and Chairman of the Board of the Company
with powers and responsibilities as are commensurate with the duties of such
titles and as may be assigned from time to time by the Board of Directors
("Board") of the Company. Executive agrees to faithfully and diligently perform
Executive's duties in conformity with the directions of the Board of the Company
and will serve the Company to the best of Executive's ability. Executive shall
devote Executive's entire working time to the business and affairs of the
Company, subject to vacations and sick leave, each in accordance with Company
policy.
3. Compensation and Benefits.
(a) Base Salary. For the period commencing with the Effective Date and
ending December 31, 2000, the Company agrees to pay to Executive a base salary
("Base Salary") at the annual rate of $550,000, payable in accordance with the
Company's regular payroll practices. The Base Salary shall be reviewed annually
and may be increased at the discretion of the Compensation Committee of the
Board of Directors of Twinlab based upon the achievement of performance criteria
by the Executive as may be established from time to time by the Compensation
Committee of the Twinlab Board of Directors.
<PAGE> 2
(b) Bonus. The Executive shall be eligible to receive a bonus with
respect to each year of the Term in accordance with performance criteria as may
be established from time to time by the Compensation Committee and/or the Board
of Directors of Twinlab.
(c) Benefits and Perquisites. Executive shall be entitled to receive
such benefits and perquisites as established for executives at the highest grade
at the Company and such benefits and perquisites shall be at least as favorable
as those offered to any other employee of the Company at the same grade.
(d) Indemnification. The Executive shall be indemnified by the Company
against reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of
Twinlab on or subsequent to the date hereof to the full extent permitted by
applicable law. The Company shall (upon receipt by the Company of an undertaking
by or on behalf of the Executive to repay the expenses described in this
Paragraph 3(d), if it shall ultimately be determined that he is not entitled to
be indemnified by the Company against such expenses) pay reasonable expenses,
including attorney's fees, incurred by the Executive in defending any
threatened, pending or completed action, suit or proceeding, or appearing as a
witness at a time when he has not been named as a defendant or respondent with
respect thereto, in advance of the final disposition of any such action, suit or
proceeding. The foregoing right of indemnification will not be deemed exclusive
of any other rights to which the Executive may be entitled under Twinlab's or
any of its subsidiaries' respective Articles or Certificate of Incorporation or
By-laws, as in effect from time to time, any agreement or otherwise.
4. Cessation of Employment.
(a) Termination For Cause, Resignation, Retirement or Death.
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment is terminated during the Term by the Company for Cause or
by reason of Executive's , resignation or retirement, then the Company shall pay
to Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. In the event of Executive's death,
Executive's estate shall receive, in a lump sum, one year of Executive's Base
Salary at the time of death, payable within thirty days of Executive's death.
(b) For purposes of this Agreement, "Cause" shall mean (i) conviction
of, or plea of nolo contendere (no contest) to, any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
the Executive's engagement in conduct which is fraudulent or illegal with
respect to the Company ; (iii) gross neglect or misconduct in the performance of
Executive's duties hereunder; (iv) willful failure or refusal to perform such
duties as may be delegated to Executive commensurate with Executive's position;
(v) material violation of the Company's policies, including, without limitation,
those relating to sexual harassment, the disclosure or misuse of Confidential
Information (as hereinafter defined), or those set forth in Company's Code of
Ethics, manuals or statements of policy; (vi) conduct which is materially
injurious or materially damaging to the Company or the reputation of the
Company; or (vii) material breach of any provision of this Agreement by
Executive; in each case as determined by the Board of Directors of the Company
which determination shall be final, binding and conclusive.
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(c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties for six (6) months, whether or not consecutive, out of any twelve (12)
month period, and within thirty (30) days after written notice of termination is
given shall not have returned to the performance of Executive's duties on a full
time basis, the Company may terminate Executive's employment hereunder for
"Disability." In that event, the Company shall pay to Executive (i) within
thirty (30) days of the date of such termination, only the Base Salary through
such date of termination and (ii) all benefits accrued by the Executive as of
the date of termination under all qualified and nonqualified retirement,
pension, profit sharing, and similar plans of the Company to such extent in such
manner and at such time as are provided under the terms of such plans and
arrangements. During any period that Executive fails to perform Executive's
duties hereunder as a result of incapacity due to physical or mental illness (a
"Disability Period"), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof unless and until Executive's employment
hereunder is terminated; provided, however, that the amount of compensation and
benefits received by Executive during the Disability Period shall be reduced by
the aggregate amounts, if any, payable to Executive under the Social Security or
state disability insurance programs.
(d) Termination By The Company For Any Other Reason. In the event that
Executive's employment hereunder is terminated by the Company during the Term
for any reason other than as provided in Sections 4(a), (c), or 8 hereof, then
the Company shall pay to Executive, 1) commencing with the date of termination
of employment and continuing for the balance of the Term, severance pay equal to
the Base Salary rate being paid to Executive immediately preceding the
termination of employment, (which shall be paid at the times and in the amounts
such Base Salary would have been paid if Executive had not been terminated); and
2) promptly following any termination under this sub-paragraph, pay to Executive
his targeted bonus for the calendar year at issue (as such Target is established
by the Company's then current bonus program) on a pro-rated basis through his
last day of employment for such year. Executive shall receive no bonus in any
subsequent year of the Term following termination. During the balance of Term
following any termination under this sub-paragraph, Executive shall also
continue to participate in and receive the medical, Executive Medical, dental,
and prescription drug insurance (or their substantial equivalents) benefits as
provided for in Section 3 hereof to the same extent as if Executive's employment
hereunder had not been terminated; provided, however, that notwithstanding
anything to the contrary herein, 1) Base Salary severance payments and benefits
and perquisites pursuant to this sub-paragraph shall not be made or provided by
the Company for a period exceeding twenty-four months following the termination
of employment; and 2) in the event that Executive shall breach any of the
provisions of Sections 4, 5, 6 or 7 hereof, in addition to any other remedies
the Company may have, the Company's obligation pursuant to this Section 4(d) to
pay severance, bonus, and to continue certain benefits and perquisites shall
cease and Executive's rights thereto shall terminate and shall be forfeited and
Executive shall promptly reimburse and repay to Company any severance and bonus
paid by the Company to Executive subsequent to the date of termination.
(e) No Further Liability; Release. Payment made by the Company in
accordance with Section 4 of this Agreement shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability (other than obligations Company may have
pursuant to Company's Stock Incentive and Stock Option Plans) with respect to,
in
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connection with or arising out of Executive's employment and termination of
employment. Other than making payments and continuing any benefits under this
Section 4 , the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives shall
have no further obligation or liability under this Agreement to Executive or any
other person or entity arising out of or related to Executive's employment or
the termination thereof, and Executive waives any and all rights to pursue any
other remedy at law or in equity; provided, however, that this shall not
constitute a waiver or release of any rights provided under any federal, state,
or local laws or regulations relating to discrimination in employment. The
Company shall have the right to condition the payment of any severance or other
amounts pursuant to this Section 4 upon the delivery by Executive to the Company
of a release (in form and substance satisfactory to the Company) of any and all
claims Executive may have against the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives arising out of or related to Executive's employment by the
Company and termination of such employment.
(f) Survival. The provisions of Sections 4, 5, 6 and 7 herein shall
survive termination of this Agreement or termination of employment for any
reason whatsoever.
5. Non-Competition. In consideration of this Agreement, and the benefits granted
hereunder, as well as those stock options granted to Executive at or about the
time of the execution of this Agreement; during Executive's employment with the
Company under this Agreement , and for a period of two years thereafter (the
"Non-Compete Term"), Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
distributor , independent contractor, independent representative, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing
Business (defined below); provided, however, that ownership of less than 5% of
the stock or other securities of a corporation, the stock of which is listed on
a national securities exchange or is quoted on The Nasdaq Stock Market, shall
not constitute a breach of this Section 5, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
As additional consideration for the obligations of Executive set forth
in this paragraph, the Company shall pay Executive, commencing with Executive's
last day of Employment by the Company and continuing for a period of twenty-four
months thereafter, the Base Salary rate being paid to Executive immediately
preceding the termination of employment, such Base Salary to be paid in
accordance with the Company's standard payroll practices.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which is engaged, directly or indirectly, anywhere in the
world, in (i) the business of developing, manufacturing, marketing, selling
and/or distributing vitamins, minerals, nutritional supplements (including,
without limitation, amino acids and proteins), herbal products, phytonutrients,
nutraceuticals, herb teas or food bars, (ii) the publication of related health,
fitness or body-building publications, (iii) any other business engaged in or
being developed by the Company, or being actively considered by management of
the Company, at the time of Executive's termination of employment from the
Company or (iv) any other business which is substantially similar to the whole
or any significant part of the business conducted by the Company.
Notwithstanding the provisions of clause (iii) hereinabove, to the extent that
the Company ceases to develop any such other business which was being developed,
or the
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management of the Company ceases to actively consider any such other business
which was being actively considered at the time of the Executive's termination
of employment, the prohibition set forth herein above shall no longer be
applicable to such other business. At the written request of the Executive, the
Company shall promptly inform the Executive of whether any particular business
or businesses that were being so developed or actively considered at the time of
the Executive's termination of employment have ceased to be so developed or
actively considered.
6. No Solicitation.
(a) During Executive's employment with the Company under this
Agreement, and for a period of two years thereafter, Executive shall not,
directly or indirectly, including on behalf of, for the benefit of, or in
conjunction with, any other person or entity, (i) solicit, assist, advise,
influence, induce or otherwise encourage in any way, any employee of the Company
who is employed in an executive, managerial, administrative or professional
capacity or who possesses Confidential Information (defined below) to leave the
Company, nor assist any person or entity in doing so, or employ, engage or
otherwise contract with any such employee or former employee of the Company in a
Competing Business (defined below) or any other business unless such former
employee shall not have been employed by the Company for a period of at least
one year, (ii) interfere in any manner with the relationship between any
employee and the Company or (iii) contact, service or solicit any existing
clients, customers or accounts of the Company on behalf of a Competing Business
(defined below), either as an individual on his own account, as an investor, or
as an officer, director, partner, joint venturer, consultant, employee, agent or
salesman of any other person or entity.
7. Confidential Information.
(a) Confidential Information. "Confidential Information" shall mean
confidential records and information of or related to Twinlab, its businesses,
employees or business practices, including, but not limited to, development,
marketing, purchasing, organizational, strategic, financial, managerial,
administrative, manufacturing, production, distribution and sales information,
distribution methods, data, specifications, formulations, recipes, product
development concepts, plans, collections of categorized materials, strategies
and processes (including the Transferred Property as hereinafter defined)
presently owned or at any time hereafter developed by Twinlab or its agents or
consultants or used presently or at any time hereafter in the course of the
business of Twinlab, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive hereby transfers and
assigns to the Company, or to any person or entity designated by the Company,
all of his entire right, title and interest in and to all inventions, ideas,
disclosures and improvements (the "Inventions"), whether patented or unpatented,
and copyrightable material and all trademarks, trade names, all goodwill
associated therewith and all federal and state registrations or applications
thereof, made, adopted or conceived by Executive solely or jointly, in whole or
in part (collectively, the "Transferred Property"), prior to or during the
Agreement Term which (i) relate to methods, apparatus, designs, products,
processes or devices sold, leased, used or under construction or development by
Twinlab or (ii) otherwise relate to or pertain to the business, products,
services, functions or operations of Twinlab. Executive shall make adequate
written records of all Inventions, which records shall be the Company's property
and shall communicate promptly and
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disclose to the Company, in such form as the Company requests, all information,
details and data pertaining to the aforementioned Inventions. Whether during the
Term or thereafter, Executive shall execute and deliver to the Company such
formal transfers and assignments and such other papers and documents as may be
required of Executive to permit the Company, or any person or entity designated
by the Company, to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyrights thereon, and as to trademarks, to
record the transfer of ownership of any federal or state registrations or
applications.
(c) Protection of Confidential Information. All such Confidential
Information is considered secret and will be disclosed to the Executive in
confidence, and the Executive acknowledges that, as a consequence of his
employment and position with the Company, the Executive may have access to and
become acquainted with Confidential Information. Except in the performance of
his duties as an employee of the Company, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records,
files, drawings, documents, equipment, papers and other tangible items, wherever
located, relating in any way to or containing Confidential Information, which
the Executive has prepared, used, collected, stored or encountered or shall in
the future prepare, use or encounter, shall be and remain the Company's sole and
exclusive property and shall be included in the Confidential Information. Upon
termination of this Agreement, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of the Confidential
Information and copies thereof, not previously delivered to the Company, that
may be in the possession or under the control of the Executive. The foregoing
restrictions shall not apply to the use, divulgence, disclosure or grant of
access to Confidential Information to the extent, but only to the extent, (i)
expressly permitted or required pursuant to any other written agreement between
the Executive and the Company that expressly references this section of this
Employment Agreement, (ii) such Confidential Information has been publicly
disclosed (not due to a breach by the Executive of his obligations hereunder, or
by breach of any other person, of a fiduciary or confidential obligation to the
Company) or (iii) the Executive is required to disclose Confidential Information
by or to any court of competent jurisdiction or any governmental or
quasi-governmental agency, authority or instrumentality of competent
jurisdiction, provided, however, that the Executive shall, prior to any such
disclosure, immediately notify the Company of such requirement and provided
further, however, that the Company shall have the right, at its expense, to
object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
8. Change of Control Protection. If subsequent to the date hereof, there is an
Acquisition of Control of the Company, and any time within two (2) years
thereafter, (i) your employment with the Company is terminated without Cause or
(ii) you resign for Other Reasons as set forth in paragraph 8 (c), then in
either case you shall be entitled to receive a severance (the "Change of Control
Base Salary Severance") equal to three (3) times your then current Base Salary
as well as an amount equal to three (3) times your "Target Bonus" as defined, at
the time of termination or resignation, in the Company's Bonus Program (the
"Change of Control Bonus Payment") for the calendar year immediately preceding
your termination or resignation under this paragraph. The Company shall
reimburse you for your payments under COBRA for a period of one (1) year
following the date of termination or resignation, should you elect to continue
coverage pursuant to COBRA. The Change of Control Base Salary Severance together
with the Change of Control Bonus Payment (collectively, "the Change of Control
Severance Amount") shall be paid to Executive in equal installments over a
period of two years
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commencing with Executive's termination or resignation date and at the times the
Base Salary would have otherwise been paid had Executive's employment not been
terminated. The payments and benefits provided for in this paragraph shall be in
lieu of and not in addition to any other payments or benefits set forth in this
Agreement, including but not limited to those provided under paragraphs 4(c) and
5. The stock option agreements covering the options granted to you in connection
with your employment (the "Options"), will be amended to provide for an
acceleration of the vesting of such options upon the circumstances described
above.
For the purposes of this paragraph 8 only, the following terms shall
have the meanings set forth below:
(a) "Acquisition of Control" shall mean:
(i) any person, including a group or entity, becoming the
beneficial owner of, or acquiring the power to direct
the exercise of voting power with respect to,
directly or indirectly securities which represent
fifty percent (50%) or more of the combined voting
power of the Company's outstanding securities
thereafter (an "Acquiring Person"); or
(ii) the Incumbent Directors cease at any time to
constitute a majority of the Board of Directors of
the Company; or
(iii) the stockholders of Twinlab approve a merger or
consolidation of Twinlab with any other corporation,
other than a merger or consolidation which would
result in the voting securities of Twinlab
immediately prior to the merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or
more of the combined voting power of the voting
securities of any new company or surviving or parent
entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
(b) "Incumbent Director" shall mean any director of the Company serving
at January 1, 2000, or one elected thereafter if nominated by at least
two-thirds of the then Incumbent Directors.
(c) "Other Reasons" shall mean (a) reduction in your base salary; (b)
material diminution in your duties, which diminution continues after notice
thereof is given to the Company by you; (c) the Company's failure to maintain a
material benefit or compensation plan ( i.e., medical insurance or 401(k)) or
plans that are substantially similar to, or afford substantially similar
benefits as, such benefit or compensation plans; (d) relocation of your primary
work location more than fifty miles from your current location; or (e) failure
by the Company to obtain the agreement to assume and perform this Agreement by
an acquiring Person.
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(d) Gross-Up Only as to 20% Excise Tax. In the event that any payment
or distribution by the Company to or for the benefit of the Executive pursuant
to the terms of this Agreement or pursuant to the Stock Option Agreements
(including the value of accelerated vesting of the stock options granted
pursuant to such Stock Option Agreements) (a "Payment"), will be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (or any successor provision thereto), then the Company will reimburse
the Executive for the tax imposed by such Section up to 20% of such Payment.
Such reimbursement shall be made by the Company no later than (i) the date such
excise tax is due or required to be withheld from the Executive's compensation
or (ii) within a reasonable time after submission by the Executive of his tax
returns to the Company. Such payment is not intended to be made on a
"grossed-up" basis, and any additional tax liability imposed on Executive due to
any Payment, including further taxes imposed on such reimbursement, shall be
borne by Executive.
9. Assignment and Transfer; No Third Party Beneficiary.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any existing or future
subsidiary or affiliate of the Company, any purchaser of all or substantially
all of the Company's business or assets, any successor to the Company or any
assignee thereof (each, a "Successor"), whether direct or indirect, by purchase,
merger, consolidation, operation of law or otherwise. The Company will require
any such Successor by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such purchase, merger, consolidation, succession or assignment had taken
place. Regardless of whether such agreement is executed, this Agreement shall be
binding upon any Successor of the Company in accordance with the operation of
law, and such Successor shall be deemed to be the Company or Twinlab, as
appropriate, for purposes of this Agreement.
(b) Executive. Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer, alienation or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
10. Miscellaneous.
(a) Cooperation. Following notice of termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(b) Protection of Reputation. During the Term and thereafter, Executive
agrees that he will not take action which is intended or would reasonably be
expected to harm the Company or its reputation or which would reasonably be
expected to lead to unwanted or unfavorable publicity to the Company.
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(c) General Release. In exchange for and in consideration of the
payments to be made pursuant to this Employment Agreement, Executive does hereby
release, absolve and discharge the Company and Twinlab, and each of them, as
well as their trustees, directors, officers, agents, servants, employees,
affiliates, stockholders, successors, assigns, and representatives, past and
present, and each of them (hereinafter collectively referred to as "Releasees")
from any and all claims, demands, liens, agreements, contracts, covenants,
actions, suits, causes of action, wages, obligations, commissions, overtime
payments, debts, expenses, damages, judgments, orders and liabilities of
whatever kind or nature in law, equity or otherwise, whether known or unknown,
to Executive arising out of or related to Executive's employment by the Company
which Executive now owns or holds or has at any time before the date of this
Agreement owned or held as against Releasees, or any of them.
(d) Governing Law/Jurisdiction/Process. This Agreement, including the
validity, interpretation, construction and performance of this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of law. All actions and
proceedings relating to or arising out of this Agreement shall be litigated
solely in any New York state court or United States federal court located in
Suffolk County, New York. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint therein directed to Executive or the Company at the
address as provided in Section 9(j) hereof.
(e) Entire Agreement. This Agreement and the Exhibits attached hereto
contain the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and except as is specifically set forth
herein supersede, cancel and annul any prior or contemporaneous written
(including without limitation the Employment Agreement dated as of May 7, 1996
between Company and Executive) or oral agreements, understandings,
representations, commitments and practices between them respecting the subject
matter hereof. However, the provision of the Non-Competition Agreement between
Executive and Twin Laboratories Inc. dated May 6, 1996 is expressly reaffirmed
and shall remain in full force and effect until such agreement expires in
accordance with its terms.
(f) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(g) Non-waiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(h) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Term of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special and extraordinary value, and, in the event of a
breach or threatened breach of any provision of this Agreement by Executive, the
injury or imminent injury to the value and the goodwill of the Company's
business could not be reasonably or adequately compensated in damages in an
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action at law. Accordingly, Executive expressly acknowledges that the Company
shall be entitled to specific performance, injunctive relief and any other
applicable equitable remedy against Executive without the posting of a bond in
the event of any breach or threatened breach of any provision of this Agreement
by Executive. Without limiting the generality of the foregoing, if Executive
breaches or threatens to breach any of the provisions of Sections 5, 6, or 7
hereof, such breach or threatened breach will entitle the Company to enjoin
Executive from engaging in any activities prohibited by such provisions, as is
appropriate. This provision shall not be construed as a waiver of any of the
rights which the Company may have for damages under this Agreement or otherwise,
and all of the Company's rights and remedies shall be unrestricted.
(i) Reasonableness of Restrictions. Executive agrees and acknowledges
that (i) the provisions of Sections 5, 6, and 7 hereof may limit his ability to
earn a livelihood in a business similar to the business of the Company but
nevertheless agrees that such provisions are reasonable and necessary for the
protection of the Company and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company;
(ii) such provisions contain reasonable limitations as to the time and the scope
of activity to be restrained; and (iii) the consideration provided under this
Agreement including the severance, bonus and other benefits and perquisites
pursuant to paragraphs 3 and 5 above, and stock options granted to Executive, is
sufficient to compensate Executive for the restrictions imposed in Sections 5,
6, and 7 hereof. In consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that any defenses by Executive
to the strict enforcement of such provisions are hereby waived by Executive and
Executive agrees that he will not assert that such provisions are void, voidable
or unenforceable.
(j) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, or by a nationally recognized overnight courier
service, with postage prepaid to Executive:
Ross Blechman
41 Setalcott Place
Setauket, New York 11733
or to such other residence address of Executive as is reflected in the Company's
records or as otherwise designated by Executive by notice given pursuant to this
paragraph; and if to Company:
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: John Bolt, Chief Financial Officer
With a copy to:
Philip M. Kazin
General Counsel
Twin Laboratories Inc.
150 Motor Parkway
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Hauppauge, New York 11788
All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail or upon delivery to such overnight courier
service. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(k) Assistance in Proceedings, etc. Executive shall, without additional
compensation, during and after expiration of the Agreement Term and any
applicable renewal period, upon reasonable notice, furnish such information and
proper assistance to the Company as may reasonably be required by the Company in
connection with any legal or quasi-legal proceeding, including any external or
internal investigation, involving the Company or any of its affiliates or in
which any of them is, or may become, a party. The Company shall reimburse
Executive for all reasonable out-of-pocket expenses incurred by the Executive in
connection with services provided under this Section.
(l) Survival. The respective obligations of Executive and rights and
benefits afforded to the Company as provided in this Agreement shall survive
cessation or termination of Executive's employment hereunder.
(m) Costs and Expenses. Each party shall pay all of its own costs and
expenses, including reasonable legal fees, in connection with the execution,
delivery, performance and compliance with this Agreement by such party. If an
action or proceeding is commenced by a party to enforce or interpret any
provision of this Agreement, each party shall pay its own costs and expenses of
such action or proceeding, including attorneys' fees.
(n) Execution In Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instruments, and all signatures need not appear on any one counterpart.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
TWIN LABORATORIES INC. EXECUTIVE
By:________________________________
___________________________
Name: Brian Blechman Ross Blechman
Title: Executive Vice President Date:_____________
Date:______________
Agreed to and Accepted: TWINLAB CORPORATION
By:________________________________
Name: Brian Blechman
Title: Executive Vice President
Date:______________
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EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in Suffolk County, New York as
of the 1st day of January, 2000 ("Effective Date"), between Twin Laboratories
Inc., ("Company") a Utah corporation, having its executive offices and principal
place of business in Hauppauge, New York, and Dean Blechman, the undersigned
individual ("Executive"). As used herein, the term "Twinlab" shall refer,
individually and/or collectively, as applicable, to Twinlab Corporation, a
Delaware corporation and its existing and future direct and indirect
subsidiaries, including but not limited to the Company.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year period commencing on
January 1st, 2000 and ending on December 31, 2002 (the "Agreement Term");
provided, however, that the Agreement Term shall be renewed automatically for
successive additional two-year periods (each a "Renewal Term") at the end of the
Agreement Term and at the end of each such two-year Renewal Term, unless, no
later than 180 days prior to the end of the Agreement Term or any applicable
Renewal Term, either the Company or the Executive gives written notice to the
other that the Agreement Term or any applicable Renewal Term shall not be so
renewed. This Agreement supercedes in all respects the Employment Agreement
between the parties dated May 7, 1996 and any amendments thereto (collectively,
"the 1996 Employment Agreement"), and the 1996 Employment Agreement is hereby
deemed to be of no further force or affect.
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by the
Company for the Agreement Term and any applicable Renewal Term (collectively,
the "Term") upon the terms and subject to the conditions set forth in this
Agreement.
(b) Performance of Duties. Throughout the Term, Executive shall serve
as an Executive Vice President of the Company with powers and responsibilities
as are commensurate with the duties of an Executive Vice President and as may be
assigned from time to time by the Board of Directors ("Board") or the Chief
Executive Officer of the Company. Executive agrees to faithfully and diligently
perform Executive's duties in conformity with the directions of the Chief
Executive Officer and/or President of the Company and will serve the Company to
the best of Executive's ability. Executive shall devote Executive's entire
working time to the business and affairs of the Company, subject to vacations
and sick leave, each in accordance with Company policy.
3. Compensation and Benefits.
(a) Base Salary. For the period commencing with the Effective Date and
ending December 31, 2000, the Company agrees to pay to Executive a base salary
("Base Salary") at the annual rate of $450,000, payable in accordance with the
Company's regular payroll practices. The Base Salary shall be reviewed annually
and may be increased at the discretion of the Compensation Committee of the
Board of Directors of Twinlab based upon the achievement of performance criteria
by the Executive as may be established from time to time by the Compensation
Committee of the Twinlab Board of Directors.
<PAGE> 2
(b) Bonus. The Executive shall be eligible to receive a bonus with
respect to each year of the Term in accordance with performance criteria as may
be established from time to time by the Compensation Committee and/or the Board
of Directors of Twinlab.
(c) Benefits and Perquisites. Executive shall be entitled to receive
such benefits and perquisites as established for executives at the Company of a
similar grade to Executive and such benefits and perquisites shall be at least
as favorable as those offered to any other employee of the Company at the same
grade.
(d) Indemnification. The Executive shall be indemnified by the Company
against reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of
Twinlab on or subsequent to the date hereof to the full extent permitted by
applicable law. The Company shall (upon receipt by the Company of an undertaking
by or on behalf of the Executive to repay the expenses described in this
Paragraph 3(d), if it shall ultimately be determined that he is not entitled to
be indemnified by the Company against such expenses) pay reasonable expenses,
including attorney's fees, incurred by the Executive in defending any
threatened, pending or completed action, suit or proceeding, or appearing as a
witness at a time when he has not been named as a defendant or respondent with
respect thereto, in advance of the final disposition of any such action, suit or
proceeding. The foregoing right of indemnification will not be deemed exclusive
of any other rights to which the Executive may be entitled under Twinlab's or
any of its subsidiaries' respective Articles or Certificate of Incorporation or
By-laws, as in effect from time to time, any agreement or otherwise.
4. Cessation of Employment.
(a) Termination For Cause, Resignation, Retirement or Death.
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment is terminated during the Term by the Company for Cause or
by reason of Executive's, resignation or retirement, then the Company shall pay
to Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. In the event of Executive's death,
Executive's estate shall receive, in a lump sum, one year of Executive's Base
Salary at the time of death, payable within thirty days of Executive's death.
(b) For purposes of this Agreement, "Cause" shall mean (i) conviction
of, or plea of nolo contendere (no contest) to, any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
the Executive's engagement in conduct which is fraudulent or illegal with
respect to the Company; (iii) gross neglect or misconduct in the performance of
Executive's duties hereunder; (iv) willful failure or refusal to perform such
duties as may be delegated to Executive commensurate with Executive's position;
(v) material violation of the Company's policies, including, without limitation,
those relating to sexual harassment, the disclosure or misuse of Confidential
Information (as hereinafter defined), or those set forth in Company's Code of
Ethics, manuals or statements of policy; (vi) conduct which is materially
injurious or materially damaging to the Company or the reputation of the
Company; or (vii) material breach of any provision of this Agreement by
Executive; in each case as determined by the Board of Directors of the Company
which determination shall be final, binding and conclusive.
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<PAGE> 3
(c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties for six (6) months, whether or not consecutive, out of any twelve (12)
month period, and within thirty (30) days after written notice of termination is
given shall not have returned to the performance of Executive's duties on a full
time basis, the Company may terminate Executive's employment hereunder for
"Disability." In that event, the Company shall pay to Executive (i) within
thirty (30) days of the date of such termination, only the Base Salary through
such date of termination and (ii) all benefits accrued by the Executive as of
the date of termination under all qualified and nonqualified retirement,
pension, profit sharing, and similar plans of the Company to such extent in such
manner and at such time as are provided under the terms of such plans and
arrangements. During any period that Executive fails to perform Executive's
duties hereunder as a result of incapacity due to physical or mental illness (a
"Disability Period"), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof unless and until Executive's employment
hereunder is terminated; provided, however, that the amount of compensation and
benefits received by Executive during the Disability Period shall be reduced by
the aggregate amounts, if any, payable to Executive under the Social Security or
state disability insurance programs.
(d) Termination By The Company For Any Other Reason. In the event that
Executive's employment hereunder is terminated by the Company during the Term
for any reason other than as provided in Sections 4(a), (c), or 8 hereof, then
the Company shall pay to Executive, 1) commencing with the date of termination
of employment and continuing for the balance of the Term, severance pay equal to
the Base Salary rate being paid to Executive immediately preceding the
termination of employment, (which shall be paid at the times and in the amounts
such Base Salary would have been paid if Executive had not been terminated); and
2) promptly following any termination under this sub-paragraph, pay to Executive
his targeted bonus for the calendar year at issue (as such Target is established
by the Company's then current bonus program) on a pro-rated basis through his
last day of employment for such year. Executive shall receive no bonus in any
subsequent year of the Term following termination. During the balance of Term
following any termination under this sub-paragraph, Executive shall also
continue to participate in and receive the medical, Executive medical, dental,
and prescription drug insurance (or their substantial equivalents) benefits as
provided for in Section 3 hereof to the same extent as if Executive's employment
hereunder had not been terminated; provided, however, that notwithstanding
anything to the contrary herein, 1) Base Salary severance payments and benefits
pursuant to this sub-paragraph shall not be made or provided by the Company for
a period exceeding twenty-four months following the termination of employment;
and 2) in the event that Executive shall breach any of the provisions of
Sections 4, 5, 6 or 7 hereof, in addition to any other remedies the Company may
have, the Company's obligation pursuant to this Section 4(d) to pay severance,
bonus, and to continue certain benefits shall cease and Executive's rights
thereto shall terminate and shall be forfeited and Executive shall promptly
reimburse and repay to Company any severance and bonus paid by the Company to
Executive subsequent to the date of termination.
(e) No Further Liability; Release. Payment made by the Company in
accordance with Section 4 of this Agreement shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability (other than any obligations Company may have
pursuant to Company's Stock Incentive and Stock Option Plans) with respect to,
in connection with or arising out of Executive's employment and termination of
employment.
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<PAGE> 4
Other than making payments and continuing any benefits under this Section 4,
the Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability under this Agreement to Executive or any other
person or entity arising out of or related to Executive's employment or the
termination thereof, and Executive waives any and all rights to pursue any other
remedy at law or in equity; provided, however, that this shall not constitute a
waiver or release of any rights provided under any federal, state, or local laws
or regulations relating to discrimination in employment. The Company shall have
the right to condition the payment of any severance or other amounts pursuant to
this Section 4 upon the delivery by Executive to the Company of a release (in
form and substance satisfactory to the Company) of any and all claims Executive
may have against the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives arising out of or related to Executive's employment by the
Company and termination of such employment.
(f) Survival. The provisions of Sections 4, 5, 6 and 7 herein shall
survive termination of this Agreement or termination of employment for any
reason whatsoever.
5. Non-Competition. In consideration of this Agreement, and the benefits granted
hereunder, as well as those stock options granted to Executive at or about the
time of the execution of this Agreement; during Executive's employment with the
Company under this Agreement, and for a period of two years thereafter (the
"Non-Compete Term"), Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
distributor , independent contractor, independent representative, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing
Business (defined below); provided, however, that ownership of less than 5% of
the stock or other securities of a corporation, the stock of which is listed on
a national securities exchange or is quoted on The Nasdaq Stock Market, shall
not constitute a breach of this Section 5, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
As additional consideration for the obligations of Executive set forth
in this paragraph, the Company shall pay Executive, commencing with Executive's
last day of Employment by the Company and continuing for a period of twenty-four
months thereafter, the Base Salary rate being paid to Executive immediately
preceding the termination of employment, such Base Salary to be paid in
accordance with the Company's standard payroll practices.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which is engaged, directly or indirectly, anywhere in the
world, in (i) the business of developing, manufacturing, marketing, selling
and/or distributing vitamins, minerals, nutritional supplements (including,
without limitation, amino acids and proteins), herbal products, phytonutrients,
nutraceuticals, herb teas or food bars, (ii) the publication of related health,
fitness or body-building publications, (iii) any other business engaged in or
being developed by the Company, or being actively considered by management of
the Company, at the time of Executive's termination of employment from the
Company or (iv) any other business which is substantially similar to the whole
or any significant part of the business conducted by the Company.
Notwithstanding the provisions of clause (iii) hereinabove, to the extent that
the Company ceases to develop any such other business which was being developed,
or the management of the Company ceases to actively consider any such other
business which was being actively considered at the time of the Executive's
termination of employment, the
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<PAGE> 5
prohibition set forth herein above shall no longer be applicable to such other
business. At the written request of the Executive, the Company shall promptly
inform the Executive of whether any particular business or businesses that were
being so developed or actively considered at the time of the Executive's
termination of employment have ceased to be so developed or actively considered.
6. No Solicitation.
(a) During Executive's employment with the Company and for a period of
two years thereafter, Executive shall not, directly or indirectly, including on
behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of the Company who is employed in an executive,
managerial, administrative or professional capacity or who possesses
Confidential Information (defined below) to leave the Company, nor assist any
person or entity in doing so, or employ, engage or otherwise contract with any
such employee or former employee of the Company in a Competing Business (defined
below) or any other business unless such former employee shall not have been
employed by the Company for a period of at least one year, (ii) interfere in any
manner with the relationship between any employee and the Company or (iii)
contact, service or solicit any existing clients, customers or accounts of the
Company on behalf of a Competing Business (defined below), either as an
individual on his own account, as an investor, or as an officer, director,
partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.
7. Confidential Information.
(a) Confidential Information. "Confidential Information" shall mean
confidential records and information of or related to Twinlab, its businesses,
employees or business practices, including, but not limited to, development,
marketing, purchasing, organizational, strategic, financial, managerial,
administrative, manufacturing, production, distribution and sales information,
distribution methods, data, specifications, formulations, recipes, product
development concepts, plans, collections of categorized materials, strategies
and processes (including the Transferred Property as hereinafter defined)
presently owned or at any time hereafter developed by Twinlab or its agents or
consultants or used presently or at any time hereafter in the course of the
business of Twinlab, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive hereby transfers and
assigns to the Company, or to any person or entity designated by the Company,
all of his entire right, title and interest in and to all inventions, ideas,
disclosures and improvements (the "Inventions"), whether patented or unpatented,
and copyrightable material and all trademarks, trade names, all goodwill
associated therewith and all federal and state registrations or applications
thereof, made, adopted or conceived by Executive solely or jointly, in whole or
in part (collectively, the "Transferred Property"), prior to or during the
Agreement Term which (i) relate to methods, apparatus, designs, products,
processes or devices sold, leased, used or under construction or development by
Twinlab or (ii) otherwise relate to or pertain to the business, products,
services, functions or operations of Twinlab. Executive shall make adequate
written records of all Inventions, which records shall be the Company's property
and shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned Inventions. Whether during the Term or thereafter, Executive
shall execute and deliver to the Company such formal transfers and assignments
and
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<PAGE> 6
such other papers and documents as may be required of Executive to permit the
Company, or any person or entity designated by the Company, to file and
prosecute the patent applications and, as to copyrightable material, to obtain
copyrights thereon, and as to trademarks, to record the transfer of ownership of
any federal or state registrations or applications.
(c) Protection of Confidential Information. All such Confidential
Information is considered secret and will be disclosed to the Executive in
confidence, and the Executive acknowledges that, as a consequence of his
employment and position with the Company, the Executive may have access to and
become acquainted with Confidential Information. Except in the performance of
his duties as an employee of the Company, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records,
files, drawings, documents, equipment, papers and other tangible items, wherever
located, relating in any way to or containing Confidential Information, which
the Executive has prepared, used, collected, stored or encountered or shall in
the future prepare, use or encounter, shall be and remain the Company's sole and
exclusive property and shall be included in the Confidential Information. Upon
termination of this Agreement, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of the Confidential
Information and copies thereof, not previously delivered to the Company, that
may be in the possession or under the control of the Executive. The foregoing
restrictions shall not apply to the use, divulgence, disclosure or grant of
access to Confidential Information to the extent, but only to the extent, (i)
expressly permitted or required pursuant to any other written agreement between
the Executive and the Company that expressly references this section of this
Employment Agreement, (ii) such Confidential Information has been publicly
disclosed (not due to a breach by the Executive of his obligations hereunder, or
by breach of any other person, of a fiduciary or confidential obligation to the
Company) or (iii) the Executive is required to disclose Confidential Information
by or to any court of competent jurisdiction or any governmental or
quasi-governmental agency, authority or instrumentality of competent
jurisdiction, provided, however, that the Executive shall, prior to any such
disclosure, immediately notify the Company of such requirement and provided
further, however, that the Company shall have the right, at its expense, to
object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
8. Change of Control Protection. If subsequent to the date hereof, there is an
Acquisition of Control of the Company, and any time within two (2) years
thereafter, (i) your employment with the Company is terminated without Cause or
(ii) you resign for Other Reasons as set forth in paragraph 8 (c), then in
either case you shall be entitled to receive a severance (the "Change of Control
Base Salary Severance") equal to three (3) times your then current Base Salary
as well as an amount equal to three (3) times your "Target Bonus" as defined, at
the time of termination or resignation, in the Company's Bonus Program (the
"Change of Control Bonus Payment") for the calendar year immediately preceding
your termination or resignation under this paragraph. The Company shall
reimburse you for your payments under COBRA for a period of one (1) year
following the date of termination or resignation, should you elect to continue
coverage pursuant to COBRA. The Change of Control Base Salary Severance together
with the Change of Control Bonus Payment (collectively, "the Change of Control
Severance Amount") shall be paid to Executive in equal installments over a
period of two years commencing with Executive's termination or resignation date
and at the times the Base Salary would have otherwise been paid had Executive's
employment not been terminated. The payments and benefits provided for in this
paragraph shall be in lieu of and not in addition to any other payments or
benefits set forth in this Agreement, including but not limited to those
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provided under paragraphs 4(c) and 5. The stock option agreements covering the
options granted to you in connection with your employment (the "Options"), will
be amended to provide for an acceleration of the vesting of such options upon
the circumstances described above.
For the purposes of this paragraph 8 only, the following terms shall
have the meanings set forth below:
(a) "Acquisition of Control" shall mean:
(i) any person, including a group or entity, becoming the
beneficial owner of, or acquiring the power to direct
the exercise of voting power with respect to,
directly or indirectly securities which represent
fifty percent (50%) or more of the combined voting
power of the Company's outstanding securities
thereafter (an "Acquiring Person"); or
(ii) the Incumbent Directors cease at any time to
constitute a majority of the Board of Directors of
the Company; or
(iii) the stockholders of Twinlab approve a merger or
consolidation of Twinlab with any other corporation,
other than a merger or consolidation which would
result in the voting securities of Twinlab
immediately prior to the merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or
more of the combined voting power of the voting
securities of any new company or surviving or parent
entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
(b) "Incumbent Director" shall mean any director of the Company serving
at January 1, 2000, or one elected thereafter if nominated by at least
two-thirds of the then Incumbent Directors.
(c) "Other Reasons" shall mean (a) reduction in your base salary; (b)
material diminution in your duties, which diminution continues after notice
thereof is given to the Company by you; (c) the Company's failure to maintain a
material benefit or compensation plan ( i.e., medical insurance or 401(k)) or
plans that are substantially similar to, or afford substantially similar
benefits as, such benefit or compensation plans; (d) relocation of your primary
work location more than fifty miles from your current location; or (e) failure
by the Company to obtain the agreement to assume and perform this Agreement by
an acquiring Person.
(d) Gross-Up Only as to 20% Excise Tax. In the event that any payment
or distribution by the Company to or for the benefit of the Executive pursuant
to the terms of this Agreement or pursuant to the Stock Option Agreements
(including the value of accelerated vesting of the stock options granted
pursuant to such Stock Option Agreements) (a "Payment"), will be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
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<PAGE> 8
amended (or any successor provision thereto), then the Company will reimburse
the Executive for the tax imposed by such Section up to 20% of such Payment.
Such reimbursement shall be made by the Company no later than (i) the date such
excise tax is due or required to be withheld from the Executive's compensation
or (ii) within a reasonable time after submission by the Executive of his tax
returns to the Company. Such payment is not intended to be made on a
"grossed-up" basis, and any additional tax liability imposed on Executive due to
any Payment, including further taxes imposed on such reimbursement, shall be
borne by Executive.
9. Assignment and Transfer; No Third Party Beneficiary.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any existing or future
subsidiary or affiliate of the Company, any purchaser of all or substantially
all of the Company's business or assets, any successor to the Company or any
assignee thereof (each, a "Successor"), whether direct or indirect, by purchase,
merger, consolidation, operation of law or otherwise. The Company will require
any such Successor by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such purchase, merger, consolidation, succession or assignment had taken
place. Regardless of whether such agreement is executed, this Agreement shall be
binding upon any Successor of the Company in accordance with the operation of
law, and such Successor shall be deemed to be the Company or Twinlab, as
appropriate, for purposes of this Agreement.
(b) Executive. Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer, alienation or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
10. Miscellaneous.
(a) Cooperation. Following notice of termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(b) Protection of Reputation. During the Term and thereafter, Executive
agrees that he will not take action which is intended or would reasonably be
expected to harm the Company or its reputation or which would reasonably be
expected to lead to unwanted or unfavorable publicity to the Company.
(c) General Release. In exchange for and in consideration of the
payments to be made pursuant to this Employment Agreement, Executive does hereby
release, absolve and discharge the Company and Twinlab, and each of them, as
well as their trustees, directors, officers, agents, servants, employees,
affiliates, stockholders, successors, assigns, and representatives, past and
present, and each of them (hereinafter collectively referred to as "Releasees")
from any and all claims, demands, liens, agreements, contracts, covenants,
actions, suits, causes of action, wages, obligations, commissions, overtime
payments, debts,
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expenses, damages, judgments, orders and liabilities of whatever kind or nature
in law, equity or otherwise, whether known or unknown, to Executive arising out
of or related to Executive's employment by the Company which Executive now owns
or holds or has at any time before the date of this Agreement owned or held as
against Releasees, or any of them.
(d) Governing Law/Jurisdiction/Process. This Agreement, including the
validity, interpretation, construction and performance of this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of law. All actions and
proceedings relating to or arising out of this Agreement shall be litigated
solely in any New York state court or United States federal court located in
Suffolk County, New York. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint therein directed to Executive or the Company at the
address as provided in Section 9(j) hereof.
(e) Entire Agreement. This Agreement and the Exhibits attached hereto
contain the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and except as is specifically set forth
herein supersede, cancel and annul any prior or contemporaneous written
(including without limitation the Employment Agreement dated as of May 7, 1996
between Company and Executive) or oral agreements, understandings,
representations, commitments and practices between them respecting the subject
matter hereof. However, the provision of the Non-Competition Agreement between
Executive and Twin Laboratories Inc. dated May 6, 1996 is expressly reaffirmed
and shall remain in full force and effect until such agreement expires in
accordance with its terms.
(f) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(g) Non-waiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(h) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Term of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special and extraordinary value, and, in the event of a
breach or threatened breach of any provision of this Agreement by Executive, the
injury or imminent injury to the value and the goodwill of the Company's
business could not be reasonably or adequately compensated in damages in an
action at law. Accordingly, Executive expressly acknowledges that the Company
shall be entitled to specific performance, injunctive relief and any other
applicable equitable remedy against Executive without the posting of a bond in
the event of any breach or threatened breach of any provision of this Agreement
by Executive. Without limiting the generality of the foregoing, if Executive
breaches or threatens to breach any of the provisions of Sections 5, 6, or 7
hereof, such breach or threatened breach will entitle the Company to enjoin
Executive from engaging in any activities prohibited by such provisions, as is
appropriate. This provision shall not be construed as a waiver of any of the
rights which the Company may have for damages
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under this Agreement or otherwise, and all of the Company's rights and remedies
shall be unrestricted.
(i) Reasonableness of Restrictions. Executive agrees and acknowledges
that (i) the provisions of Sections 5, 6, and 7 hereof may limit his ability to
earn a livelihood in a business similar to the business of the Company but
nevertheless agrees that such provisions are reasonable and necessary for the
protection of the Company and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company;
(ii) such provisions contain reasonable limitations as to the time and the scope
of activity to be restrained; and (iii) the consideration provided under this
Agreement including the severance, bonus and other benefits and perquisites
pursuant to paragraphs 3 and 5 above, and stock options granted to Executive, is
sufficient to compensate Executive for the restrictions imposed in Sections 5,
6, and 7 hereof. In consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that any defenses by Executive
to the strict enforcement of such provisions are hereby waived by Executive and
Executive agrees that he will not assert that such provisions are void, voidable
or unenforceable.
(j) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, or by a nationally recognized overnight courier
service, with postage prepaid to Executive:
Dean Blechman
4 Stone Gate Court
Setauket, New York 11733
or to such other residence address of Executive as is reflected in the Company's
records or as otherwise designated by Executive by notice given pursuant to this
paragraph; and if to Company:
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: Ross Blechman, President and CEO
With a copy to:
Philip M. Kazin
General Counsel
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail or upon delivery to such overnight courier
service. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(k) Assistance in Proceedings, etc. Executive shall, without additional
compensation, during and after expiration of the Agreement Term and any
applicable renewal period, upon
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reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party. The Company shall reimburse Executive for all reasonable
out-of-pocket expenses incurred by the Executive in connection with services
provided under this Section.
(l) Survival. The respective obligations of Executive and rights and
benefits afforded to the Company as provided in this Agreement shall survive
cessation or termination of Executive's employment hereunder.
(m) Costs and Expenses. Each party shall pay all of its own costs and
expenses, including reasonable legal fees, in connection with the execution,
delivery, performance and compliance with this Agreement by such party. If an
action or proceeding is commenced by a party to enforce or interpret any
provision of this Agreement, each party shall pay its own costs and expenses of
such action or proceeding, including attorneys' fees.
(n) Execution In Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instruments, and all signatures need not appear on any one counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
TWIN LABORATORIES INC. EXECUTIVE
By:_________________________________
___________________________
Name: Ross Blechman Dean Blechman
Title: President Date:___________ Date:______________
Agreed to and Accepted: TWINLAB CORPORATION
By:________________________________
Ross Blechman, President Date:______________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in Suffolk County, New York as
of the 1st day of January, 2000 ("Effective Date"), between Twin Laboratories
Inc., ("Company") a Utah corporation, having its executive offices and principal
place of business in Hauppauge, New York, and Neil Blechman, the undersigned
individual ("Executive"). As used herein, the term "Twinlab" shall refer,
individually and/or collectively, as applicable, to Twinlab Corporation, a
Delaware corporation and its existing and future direct and indirect
subsidiaries, including but not limited to the Company.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year period commencing on
January 1st, 2000 and ending on December 31, 2002 (the "Agreement Term");
provided, however, that the Agreement Term shall be renewed automatically for
successive additional two-year periods (each a "Renewal Term") at the end of the
Agreement Term and at the end of each such two-year Renewal Term, unless, no
later than 180 days prior to the end of the Agreement Term or any applicable
Renewal Term, either the Company or the Executive gives written notice to the
other that the Agreement Term or any applicable Renewal Term shall not be so
renewed. This Agreement supercedes in all respects the Employment Agreement
between the parties dated May 7, 1996 and any amendments thereto (collectively,
"the 1996 Employment Agreement"), and the 1996 Employment Agreement is hereby
deemed to be of no further force or affect.
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by the
Company for the Agreement Term and any applicable Renewal Term (collectively,
the "Term") upon the terms and subject to the conditions set forth in this
Agreement.
(b) Performance of Duties. Throughout the Term, Executive shall serve
as an Executive Vice President of the Company with powers and responsibilities
as are commensurate with the duties of an Executive Vice President and as may be
assigned from time to time by the Board of Directors ("Board") or the Chief
Executive Officer of the Company. Executive agrees to faithfully and diligently
perform Executive's duties in conformity with the directions of the Chief
Executive Officer and/or President of the Company and will serve the Company to
the best of Executive's ability. Executive shall devote Executive's entire
working time to the business and affairs of the Company, subject to vacations
and sick leave, each in accordance with Company policy.
3. Compensation and Benefits.
(a) Base Salary. For the period commencing with the Effective Date and
ending December 31, 2000, the Company agrees to pay to Executive a base salary
("Base Salary") at the annual rate of $450,000, payable in accordance with the
Company's regular payroll practices. The Base Salary shall be reviewed annually
and may be increased at the discretion of the Compensation Committee of the
Board of Directors of Twinlab based upon the achievement of performance criteria
by the Executive as may be established from time to time by the Compensation
Committee of the Twinlab Board of Directors.
<PAGE> 2
(b) Bonus. The Executive shall be eligible to receive a bonus with
respect to each year of the Term in accordance with performance criteria as may
be established from time to time by the Compensation Committee and/or the Board
of Directors of Twinlab.
(c) Benefits and Perquisites. Executive shall be entitled to receive
such benefits and perquisites as established for executives at the Company of a
similar grade to Executive and such benefits and perquisites shall be at least
as favorable as those offered to any other employee of the Company at the same
grade.
(d) Indemnification. The Executive shall be indemnified by the Company
against reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of
Twinlab on or subsequent to the date hereof to the full extent permitted by
applicable law. The Company shall (upon receipt by the Company of an undertaking
by or on behalf of the Executive to repay the expenses described in this
Paragraph 3(d), if it shall ultimately be determined that he is not entitled to
be indemnified by the Company against such expenses) pay reasonable expenses,
including attorney's fees, incurred by the Executive in defending any
threatened, pending or completed action, suit or proceeding, or appearing as a
witness at a time when he has not been named as a defendant or respondent with
respect thereto, in advance of the final disposition of any such action, suit or
proceeding. The foregoing right of indemnification will not be deemed exclusive
of any other rights to which the Executive may be entitled under Twinlab's or
any of its subsidiaries' respective Articles or Certificate of Incorporation or
By-laws, as in effect from time to time, any agreement or otherwise.
4. Cessation of Employment.
(a) Termination For Cause, Resignation, Retirement or Death.
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment is terminated during the Term by the Company for Cause or
by reason of Executive's, resignation or retirement, then the Company shall pay
to Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. In the event of Executive's death,
Executive's estate shall receive, in a lump sum, one year of Executive's Base
Salary at the time of death, payable within thirty days of Executive's death.
(b) For purposes of this Agreement, "Cause" shall mean (i) conviction
of, or plea of nolo contendere (no contest) to, any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
the Executive's engagement in conduct which is fraudulent or illegal with
respect to the Company; (iii) gross neglect or misconduct in the performance of
Executive's duties hereunder; (iv) willful failure or refusal to perform such
duties as may be delegated to Executive commensurate with Executive's position;
(v) material violation of the Company's policies, including, without limitation,
those relating to sexual harassment, the disclosure or misuse of Confidential
Information (as hereinafter defined), or those set forth in Company's Code of
Ethics, manuals or statements of policy; (vi) conduct which is materially
injurious or materially damaging to the Company or the reputation of the
Company; or (vii) material breach of any provision of this Agreement by
Executive; in each case as determined by the Board of Directors of the Company
which determination shall be final, binding and conclusive.
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(c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties for six (6) months, whether or not consecutive, out of any twelve (12)
month period, and within thirty (30) days after written notice of termination is
given shall not have returned to the performance of Executive's duties on a full
time basis, the Company may terminate Executive's employment hereunder for
"Disability." In that event, the Company shall pay to Executive (i) within
thirty (30) days of the date of such termination, only the Base Salary through
such date of termination and (ii) all benefits accrued by the Executive as of
the date of termination under all qualified and nonqualified retirement,
pension, profit sharing, and similar plans of the Company to such extent in such
manner and at such time as are provided under the terms of such plans and
arrangements. During any period that Executive fails to perform Executive's
duties hereunder as a result of incapacity due to physical or mental illness (a
"Disability Period"), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof unless and until Executive's employment
hereunder is terminated; provided, however, that the amount of compensation and
benefits received by Executive during the Disability Period shall be reduced by
the aggregate amounts, if any, payable to Executive under the Social Security or
state disability insurance programs.
(d) Termination By The Company For Any Other Reason. In the event that
Executive's employment hereunder is terminated by the Company during the Term
for any reason other than as provided in Sections 4(a), (c), or 8 hereof, then
the Company shall pay to Executive, 1) commencing with the date of termination
of employment and continuing for the balance of the Term, severance pay equal to
the Base Salary rate being paid to Executive immediately preceding the
termination of employment, (which shall be paid at the times and in the amounts
such Base Salary would have been paid if Executive had not been terminated); and
2) promptly following any termination under this sub-paragraph, pay to Executive
his targeted bonus for the calendar year at issue (as such Target is established
by the Company's then current bonus program) on a pro-rated basis through his
last day of employment for such year. Executive shall receive no bonus in any
subsequent year of the Term following termination. During the balance of Term
following any termination under this sub-paragraph, Executive shall also
continue to participate in and receive the medical, Executive medical, dental,
and prescription drug insurance (or their substantial equivalents) benefits as
provided for in Section 3 hereof to the same extent as if Executive's employment
hereunder had not been terminated; provided, however, that notwithstanding
anything to the contrary herein, 1) Base Salary severance payments and benefits
pursuant to this sub-paragraph shall not be made or provided by the Company for
a period exceeding twenty-four months following the termination of employment;
and 2) in the event that Executive shall breach any of the provisions of
Sections 4, 5, 6 or 7 hereof, in addition to any other remedies the Company may
have, the Company's obligation pursuant to this Section 4(d) to pay severance,
bonus, and to continue certain benefits shall cease and Executive's rights
thereto shall terminate and shall be forfeited and Executive shall promptly
reimburse and repay to Company any severance and bonus paid by the Company to
Executive subsequent to the date of termination.
(e) No Further Liability; Release. Payment made by the Company in
accordance with Section 4 of this Agreement shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability (other than any obligations Company may have
pursuant to Company's Stock Incentive and Stock Option Plans) with respect to,
in connection with or arising out of Executive's employment and termination of
employment.
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<PAGE> 4
Other than making payments and continuing any benefits under this Section 4,
the Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability under this Agreement to Executive or any other
person or entity arising out of or related to Executive's employment or the
termination thereof, and Executive waives any and all rights to pursue any other
remedy at law or in equity; provided, however, that this shall not constitute a
waiver or release of any rights provided under any federal, state, or local laws
or regulations relating to discrimination in employment. The Company shall have
the right to condition the payment of any severance or other amounts pursuant to
this Section 4 upon the delivery by Executive to the Company of a release (in
form and substance satisfactory to the Company) of any and all claims Executive
may have against the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives arising out of or related to Executive's employment by the
Company and termination of such employment.
(f) Survival. The provisions of Sections 4, 5, 6 and 7 herein shall
survive termination of this Agreement or termination of employment for any
reason whatsoever.
5. Non-Competition. In consideration of this Agreement, and the benefits granted
hereunder, as well as those stock options granted to Executive at or about the
time of the execution of this Agreement; during Executive's employment with the
Company under this Agreement, and for a period of two years thereafter (the
"Non-Compete Term"), Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
distributor, independent contractor, independent representative, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing
Business (defined below); provided, however, that ownership of less than 5% of
the stock or other securities of a corporation, the stock of which is listed on
a national securities exchange or is quoted on The Nasdaq Stock Market, shall
not constitute a breach of this Section 5, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
As additional consideration for the obligations of Executive set forth
in this paragraph, the Company shall pay Executive, commencing with Executive's
last day of Employment by the Company and continuing for a period of twenty-four
months thereafter, the Base Salary rate being paid to Executive immediately
preceding the termination of employment, such Base Salary to be paid in
accordance with the Company's standard payroll practices.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which is engaged, directly or indirectly, anywhere in the
world, in (i) the business of developing, manufacturing, marketing, selling
and/or distributing vitamins, minerals, nutritional supplements (including,
without limitation, amino acids and proteins), herbal products, phytonutrients,
nutraceuticals, herb teas or food bars, (ii) the publication of related health,
fitness or body-building publications, (iii) any other business engaged in or
being developed by the Company, or being actively considered by management of
the Company, at the time of Executive's termination of employment from the
Company or (iv) any other business which is substantially similar to the whole
or any significant part of the business conducted by the Company.
Notwithstanding the provisions of clause (iii) hereinabove, to the extent that
the Company ceases to develop any such other business which was being developed,
or the management of the Company ceases to actively consider any such other
business which was being actively considered at the time of the Executive's
termination of employment, the
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<PAGE> 5
prohibition set forth herein above shall no longer be applicable to such other
business. At the written request of the Executive, the Company shall promptly
inform the Executive of whether any particular business or businesses that were
being so developed or actively considered at the time of the Executive's
termination of employment have ceased to be so developed or actively considered.
6. No Solicitation.
(a) During Executive's employment with the Company and for a period of
two years thereafter, Executive shall not, directly or indirectly, including on
behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of the Company who is employed in an executive,
managerial, administrative or professional capacity or who possesses
Confidential Information (defined below) to leave the Company, nor assist any
person or entity in doing so, or employ, engage or otherwise contract with any
such employee or former employee of the Company in a Competing Business (defined
below) or any other business unless such former employee shall not have been
employed by the Company for a period of at least one year, (ii) interfere in any
manner with the relationship between any employee and the Company or (iii)
contact, service or solicit any existing clients, customers or accounts of the
Company on behalf of a Competing Business (defined below), either as an
individual on his own account, as an investor, or as an officer, director,
partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.
7. Confidential Information.
(a) Confidential Information. "Confidential Information" shall mean
confidential records and information of or related to Twinlab, its businesses,
employees or business practices, including, but not limited to, development,
marketing, purchasing, organizational, strategic, financial, managerial,
administrative, manufacturing, production, distribution and sales information,
distribution methods, data, specifications, formulations, recipes, product
development concepts, plans, collections of categorized materials, strategies
and processes (including the Transferred Property as hereinafter defined)
presently owned or at any time hereafter developed by Twinlab or its agents or
consultants or used presently or at any time hereafter in the course of the
business of Twinlab, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive hereby transfers and
assigns to the Company, or to any person or entity designated by the Company,
all of his entire right, title and interest in and to all inventions, ideas,
disclosures and improvements (the "Inventions"), whether patented or unpatented,
and copyrightable material and all trademarks, trade names, all goodwill
associated therewith and all federal and state registrations or applications
thereof, made, adopted or conceived by Executive solely or jointly, in whole or
in part (collectively, the "Transferred Property"), prior to or during the
Agreement Term which (i) relate to methods, apparatus, designs, products,
processes or devices sold, leased, used or under construction or development by
Twinlab or (ii) otherwise relate to or pertain to the business, products,
services, functions or operations of Twinlab. Executive shall make adequate
written records of all Inventions, which records shall be the Company's property
and shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned Inventions. Whether during the Term or thereafter, Executive
shall execute and deliver to the Company such formal transfers and assignments
and
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<PAGE> 6
such other papers and documents as may be required of Executive to permit the
Company, or any person or entity designated by the Company, to file and
prosecute the patent applications and, as to copyrightable material, to obtain
copyrights thereon, and as to trademarks, to record the transfer of ownership of
any federal or state registrations or applications.
(c) Protection of Confidential Information. All such Confidential
Information is considered secret and will be disclosed to the Executive in
confidence, and the Executive acknowledges that, as a consequence of his
employment and position with the Company, the Executive may have access to and
become acquainted with Confidential Information. Except in the performance of
his duties as an employee of the Company, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records,
files, drawings, documents, equipment, papers and other tangible items, wherever
located, relating in any way to or containing Confidential Information, which
the Executive has prepared, used, collected, stored or encountered or shall in
the future prepare, use or encounter, shall be and remain the Company's sole and
exclusive property and shall be included in the Confidential Information. Upon
termination of this Agreement, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of the Confidential
Information and copies thereof, not previously delivered to the Company, that
may be in the possession or under the control of the Executive. The foregoing
restrictions shall not apply to the use, divulgence, disclosure or grant of
access to Confidential Information to the extent, but only to the extent, (i)
expressly permitted or required pursuant to any other written agreement between
the Executive and the Company that expressly references this section of this
Employment Agreement, (ii) such Confidential Information has been publicly
disclosed (not due to a breach by the Executive of his obligations hereunder, or
by breach of any other person, of a fiduciary or confidential obligation to the
Company) or (iii) the Executive is required to disclose Confidential Information
by or to any court of competent jurisdiction or any governmental or
quasi-governmental agency, authority or instrumentality of competent
jurisdiction, provided, however, that the Executive shall, prior to any such
disclosure, immediately notify the Company of such requirement and provided
further, however, that the Company shall have the right, at its expense, to
object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
8. Change of Control Protection. If subsequent to the date hereof, there is an
Acquisition of Control of the Company, and any time within two (2) years
thereafter, (i) your employment with the Company is terminated without Cause or
(ii) you resign for Other Reasons as set forth in paragraph 8 (c), then in
either case you shall be entitled to receive a severance (the "Change of Control
Base Salary Severance") equal to three (3) times your then current Base Salary
as well as an amount equal to three (3) times your "Target Bonus" as defined, at
the time of termination or resignation, in the Company's Bonus Program (the
"Change of Control Bonus Payment") for the calendar year immediately preceding
your termination or resignation under this paragraph. The Company shall
reimburse you for your payments under COBRA for a period of one (1) year
following the date of termination or resignation, should you elect to continue
coverage pursuant to COBRA. The Change of Control Base Salary Severance together
with the Change of Control Bonus Payment (collectively, "the Change of Control
Severance Amount") shall be paid to Executive in equal installments over a
period of two years commencing with Executive's termination or resignation date
and at the times the Base Salary would have otherwise been paid had Executive's
employment not been terminated. The payments and benefits provided for in this
paragraph shall be in lieu of and not in addition to any other payments or
benefits set forth in this Agreement, including but not limited to those
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provided under paragraphs 4(c) and 5. The stock option agreements covering the
options granted to you in connection with your employment (the "Options"), will
be amended to provide for an acceleration of the vesting of such options upon
the circumstances described above.
For the purposes of this paragraph 8 only, the following terms shall
have the meanings set forth below:
(a) "Acquisition of Control" shall mean:
(i) any person, including a group or entity, becoming the
beneficial owner of, or acquiring the power to direct
the exercise of voting power with respect to,
directly or indirectly securities which represent
fifty percent (50%) or more of the combined voting
power of the Company's outstanding securities
thereafter (an "Acquiring Person"); or
(ii) the Incumbent Directors cease at any time to
constitute a majority of the Board of Directors of
the Company; or
(iii) the stockholders of Twinlab approve a merger or
consolidation of Twinlab with any other corporation,
other than a merger or consolidation which would
result in the voting securities of Twinlab
immediately prior to the merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or
more of the combined voting power of the voting
securities of any new company or surviving or parent
entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
(b) "Incumbent Director" shall mean any director of the Company serving
at January 1, 2000, or one elected thereafter if nominated by at least
two-thirds of the then Incumbent Directors.
(c) "Other Reasons" shall mean (a) reduction in your base salary; (b)
material diminution in your duties, which diminution continues after notice
thereof is given to the Company by you; (c) the Company's failure to maintain a
material benefit or compensation plan (i.e., medical insurance or 401(k)) or
plans that are substantially similar to, or afford substantially similar
benefits as, such benefit or compensation plans; (d) relocation of your primary
work location more than fifty miles from your current location; or (e) failure
by the Company to obtain the agreement to assume and perform this Agreement by
an acquiring Person.
(d) Gross-Up Only as to 20% Excise Tax. In the event that any payment or
distribution by the Company to or for the benefit of the Executive pursuant to
the terms of this Agreement or pursuant to the Stock Option Agreements
(including the value of accelerated vesting of the stock options granted
pursuant to such Stock Option Agreements) (a "Payment"), will be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
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amended (or any successor provision thereto), then the Company will reimburse
the Executive for the tax imposed by such Section up to 20% of such Payment.
Such reimbursement shall be made by the Company no later than (i) the date such
excise tax is due or required to be withheld from the Executive's compensation
or (ii) within a reasonable time after submission by the Executive of his tax
returns to the Company. Such payment is not intended to be made on a
"grossed-up" basis, and any additional tax liability imposed on Executive due to
any Payment, including further taxes imposed on such reimbursement, shall be
borne by Executive.
9. Assignment and Transfer; No Third Party Beneficiary.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any existing or future
subsidiary or affiliate of the Company, any purchaser of all or substantially
all of the Company's business or assets, any successor to the Company or any
assignee thereof (each, a "Successor"), whether direct or indirect, by purchase,
merger, consolidation, operation of law or otherwise. The Company will require
any such Successor by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such purchase, merger, consolidation, succession or assignment had taken
place. Regardless of whether such agreement is executed, this Agreement shall be
binding upon any Successor of the Company in accordance with the operation of
law, and such Successor shall be deemed to be the Company or Twinlab, as
appropriate, for purposes of this Agreement.
(b) Executive. Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer, alienation or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
10. Miscellaneous.
(a) Cooperation. Following notice of termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(b) Protection of Reputation. During the Term and thereafter, Executive
agrees that he will not take action which is intended or would reasonably be
expected to harm the Company or its reputation or which would reasonably be
expected to lead to unwanted or unfavorable publicity to the Company.
(c) General Release. In exchange for and in consideration of the
payments to be made pursuant to this Employment Agreement, Executive does hereby
release, absolve and discharge the Company and Twinlab, and each of them, as
well as their trustees, directors, officers, agents, servants, employees,
affiliates, stockholders, successors, assigns, and representatives, past and
present, and each of them (hereinafter collectively referred to as "Releasees")
from any and all claims, demands, liens, agreements, contracts, covenants,
actions, suits, causes of action, wages, obligations, commissions, overtime
payments, debts,
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expenses, damages, judgments, orders and liabilities of whatever kind or nature
in law, equity or otherwise, whether known or unknown, to Executive arising out
of or related to Executive's employment by the Company which Executive now owns
or holds or has at any time before the date of this Agreement owned or held as
against Releasees, or any of them.
(d) Governing Law/Jurisdiction/Process. This Agreement, including the
validity, interpretation, construction and performance of this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of law. All actions and
proceedings relating to or arising out of this Agreement shall be litigated
solely in any New York state court or United States federal court located in
Suffolk County, New York. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint therein directed to Executive or the Company at the
address as provided in Section 9(j) hereof.
(e) Entire Agreement. This Agreement and the Exhibits attached hereto
contain the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and except as is specifically set forth
herein supersede, cancel and annul any prior or contemporaneous written
(including without limitation the Employment Agreement dated as of May 7, 1996
between Company and Executive) or oral agreements, understandings,
representations, commitments and practices between them respecting the subject
matter hereof. However, the provision of the Non-Competition Agreement between
Executive and Twin Laboratories Inc. dated May 6, 1996 is expressly reaffirmed
and shall remain in full force and effect until such agreement expires in
accordance with its terms.
(f) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(g) Non-waiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(h) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Term of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special and extraordinary value, and, in the event of a
breach or threatened breach of any provision of this Agreement by Executive, the
injury or imminent injury to the value and the goodwill of the Company's
business could not be reasonably or adequately compensated in damages in an
action at law. Accordingly, Executive expressly acknowledges that the Company
shall be entitled to specific performance, injunctive relief and any other
applicable equitable remedy against Executive without the posting of a bond in
the event of any breach or threatened breach of any provision of this Agreement
by Executive. Without limiting the generality of the foregoing, if Executive
breaches or threatens to breach any of the provisions of Sections 5, 6, or 7
hereof, such breach or threatened breach will entitle the Company to enjoin
Executive from engaging in any activities prohibited by such provisions, as is
appropriate. This provision shall not be construed as a waiver of any of the
rights which the Company may have for damages
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under this Agreement or otherwise, and all of the Company's rights and remedies
shall be unrestricted.
(i) Reasonableness of Restrictions. Executive agrees and acknowledges
that (i) the provisions of Sections 5, 6, and 7 hereof may limit his ability to
earn a livelihood in a business similar to the business of the Company but
nevertheless agrees that such provisions are reasonable and necessary for the
protection of the Company and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company;
(ii) such provisions contain reasonable limitations as to the time and the scope
of activity to be restrained; and (iii) the consideration provided under this
Agreement including the severance, bonus and other benefits and perquisites
pursuant to paragraphs 3 and 5 above, and stock options granted to Executive, is
sufficient to compensate Executive for the restrictions imposed in Sections 5,
6, and 7 hereof. In consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that any defenses by Executive
to the strict enforcement of such provisions are hereby waived by Executive and
Executive agrees that he will not assert that such provisions are void, voidable
or unenforceable.
(j) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, or by a nationally recognized overnight courier
service, with postage prepaid to Executive:
Neil Blechman
30 Setalcott Place
Setauket, New York 11733
or to such other residence address of Executive as is reflected in the Company's
records or as otherwise designated by Executive by notice given pursuant to this
paragraph; and if to Company:
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: Ross Blechman, President and CEO
With a copy to:
Philip M. Kazin
General Counsel
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail or upon delivery to such overnight courier
service. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(k) Assistance in Proceedings, etc. Executive shall, without additional
compensation, during and after expiration of the Agreement Term and any
applicable renewal period, upon
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reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party. The Company shall reimburse Executive for all reasonable
out-of-pocket expenses incurred by the Executive in connection with services
provided under this Section.
(l) Survival. The respective obligations of Executive and rights and
benefits afforded to the Company as provided in this Agreement shall survive
cessation or termination of Executive's employment hereunder.
(m) Costs and Expenses. Each party shall pay all of its own costs and
expenses, including reasonable legal fees, in connection with the execution,
delivery, performance and compliance with this Agreement by such party. If an
action or proceeding is commenced by a party to enforce or interpret any
provision of this Agreement, each party shall pay its own costs and expenses of
such action or proceeding, including attorneys' fees.
(n) Execution In Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instruments, and all signatures need not appear on any one counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
TWIN LABORATORIES INC. EXECUTIVE
By:_________________________________ ____________________________________
Name: Ross Blechman Neil Blechman
Title: President Date:_____________ Date:______________
Agreed to and Accepted: TWINLAB CORPORATION
By:________________________________
Ross Blechman, President Date:______________
11
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in Suffolk County, New York as
of the 1st day of January, 2000 ("Effective Date"), between Twin Laboratories
Inc., ("Company") a Utah corporation, having its executive offices and principal
place of business in Hauppauge, New York, and Steve Blechman, the undersigned
individual ("Executive"). As used herein, the term "Twinlab" shall refer,
individually and/or collectively, as applicable, to Twinlab Corporation, a
Delaware corporation and its existing and future direct and indirect
subsidiaries, including but not limited to the Company.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year period commencing on
January 1, 2000 and ending on December 31, 2002 (the "Agreement Term");
provided, however, that the Agreement Term shall be renewed automatically for
successive additional two-year periods (each a "Renewal Term") at the end of the
Agreement Term and at the end of each such two-year Renewal Term, unless, no
later than 180 days prior to the end of the Agreement Term or any applicable
Renewal Term, either the Company or the Executive gives written notice to the
other that the Agreement Term or any applicable Renewal Term shall not be so
renewed. This Agreement supercedes in all respects the Employment Agreement
between the parties dated May 7, 1996 and any amendments thereto (collectively,
"the 1996 Employment Agreement"), and the 1996 Employment Agreement is hereby
deemed to be of no further force or affect.
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by the
Company for the Agreement Term and any applicable Renewal Term (collectively,
the "Term") upon the terms and subject to the conditions set forth in this
Agreement.
(b) Performance of Duties. Throughout the Term, Executive shall serve
as an Executive Vice President of the Company with powers and responsibilities
as are commensurate with the duties of an Executive Vice President and as may be
assigned from time to time by the Board of Directors ("Board") or the Chief
Executive Officer of the Company including serving as President and Chief
Executive Officer of Advanced Research Press, Inc. ("ARP") for so long as the
Company owns a majority of the shares of stock of ARP and substantially all of
ARP's assets. Executive agrees to faithfully and diligently perform Executive's
duties in conformity with the directions of the Chief Executive Officer and/or
President of the Company and will serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time to the business
and affairs of the Company, subject to vacations and sick leave, each in
accordance with Company policy.
3. Compensation and Benefits.
(a) Base Salary. For the period commencing with the Effective Date and
ending December 31, 2000, the Company agrees to pay to Executive a base salary
("Base Salary") at the annual rate of $450,000, payable in accordance with the
Company's regular payroll practices. The Base Salary shall be reviewed annually
and may be increased at the discretion of the Compensation Committee of the
Board of Directors of Twinlab based upon the
<PAGE> 2
achievement of performance criteria by the Executive as may be established from
time to time by the Compensation Committee of the Twinlab Board of Directors.
(b) Bonus. The Executive shall be eligible to receive a bonus with
respect to each year of the Term in accordance with performance criteria as may
be established from time to time by the Compensation Committee and/or the Board
of Directors of Twinlab.
(c) Benefits and Perquisites. Executive shall be entitled to receive
such benefits and perquisites as established for executives at the Company of a
similar grade to Executive and such benefits and perquisites shall be at least
as favorable as those offered to any other employee of the Company at the same
grade.
(d) Indemnification. The Executive shall be indemnified by the Company
against reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of
Twinlab on or subsequent to the date hereof to the full extent permitted by
applicable law. The Company shall (upon receipt by the Company of an undertaking
by or on behalf of the Executive to repay the expenses described in this
Paragraph 3(d), if it shall ultimately be determined that he is not entitled to
be indemnified by the Company against such expenses) pay reasonable expenses,
including attorney's fees, incurred by the Executive in defending any
threatened, pending or completed action, suit or proceeding, or appearing as a
witness at a time when he has not been named as a defendant or respondent with
respect thereto, in advance of the final disposition of any such action, suit or
proceeding. The foregoing right of indemnification will not be deemed exclusive
of any other rights to which the Executive may be entitled under Twinlab's or
any of its subsidiaries' respective Articles or Certificate of Incorporation or
By-laws, as in effect from time to time, any agreement or otherwise.
4. Cessation of Employment.
(a) Termination For Cause, Resignation, Retirement or Death.
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment is terminated during the Term by the Company for Cause or
by reason of Executive's , resignation or retirement, then the Company shall pay
to Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. In the event of Executive's death,
Executive's estate shall receive, in a lump sum, one year of Executive's Base
Salary at the time of death, payable within thirty days of Executive's death.
(b) For purposes of this Agreement, "Cause" shall mean (i) conviction
of, or plea of nolo contendere (no contest) to, any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
the Executive's engagement in conduct which is fraudulent or illegal with
respect to the Company ; (iii) gross neglect or misconduct in the performance of
Executive's duties hereunder; (iv) willful failure or refusal to perform such
duties as may be delegated to Executive commensurate with Executive's position;
(v) material violation of the Company's policies, including, without limitation,
those relating to sexual harassment, the disclosure or misuse of Confidential
Information (as hereinafter defined), or those set forth in Company's Code of
Ethics, manuals or statements of policy; (vi) conduct which is materially
injurious or materially damaging to the Company or the reputation of the
Company; or (vii) material breach of any provision of this Agreement by
Executive; in each case as determined by
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<PAGE> 3
the Board of Directors of the Company which determination shall be final,
binding and conclusive.
(c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties for six (6) months, whether or not consecutive, out of any twelve (12)
month period, and within thirty (30) days after written notice of termination is
given shall not have returned to the performance of Executive's duties on a full
time basis, the Company may terminate Executive's employment hereunder for
"Disability." In that event, the Company shall pay to Executive (i) within
thirty (30) days of the date of such termination, only the Base Salary through
such date of termination and (ii) all benefits accrued by the Executive as of
the date of termination under all qualified and nonqualified retirement,
pension, profit sharing, and similar plans of the Company to such extent in such
manner and at such time as are provided under the terms of such plans and
arrangements. During any period that Executive fails to perform Executive's
duties hereunder as a result of incapacity due to physical or mental illness (a
"Disability Period"), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof unless and until Executive's employment
hereunder is terminated; provided, however, that the amount of compensation and
benefits received by Executive during the Disability Period shall be reduced by
the aggregate amounts, if any, payable to Executive under the Social Security or
state disability insurance programs.
(d) Termination By The Company For Any Other Reason. In the event that
Executive's employment hereunder is terminated by the Company during the Term
for any reason other than as provided in Sections 4(a), (c), or 8 hereof, then
the Company shall pay to Executive, 1) commencing with the date of termination
of employment and continuing for the balance of the Term, severance pay equal to
the Base Salary rate being paid to Executive immediately preceding the
termination of employment, (which shall be paid at the times and in the amounts
such Base Salary would have been paid if Executive had not been terminated); and
2) promptly following any termination under this sub-paragraph, pay to Executive
his targeted bonus for the calendar year at issue (as such Target is established
by the Company's then current bonus program) on a pro-rated basis through his
last day of employment for such year. Executive shall receive no bonus in any
subsequent year of the Term following termination. During the balance of Term
following any termination under this sub-paragraph, Executive shall also
continue to participate in and receive the medical, Executive Medical, dental
and prescription drug insurance (or their substantial equivalents) benefits as
provided for in Section 3 hereof to the same extent as if Executive's employment
hereunder had not been terminated; provided, however, that notwithstanding
anything to the contrary herein, 1) Base Salary severance payments and benefits
and perquisites pursuant to this sub-paragraph shall not be made or provided by
the Company for a period exceeding twenty-four months following the termination
of employment; and 2) in the event that Executive shall breach any of the
provisions of Sections 4, 5, 6 or 7 hereof, in addition to any other remedies
the Company may have, the Company's obligation pursuant to this Section 4(d) to
pay severance, bonus, and to continue certain benefits and perquisites shall
cease and Executive's rights thereto shall terminate and shall be forfeited and
Executive shall promptly reimburse and repay to Company any severance and bonus
paid by the Company to Executive subsequent to the date of termination.
(e) No Further Liability; Release. Payment made by the Company in
accordance with Section 4 of this Agreement shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability (other than any obligations Company may have
pursuant to Company's Stock Incentive and Stock Option Plans) with respect to,
in
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<PAGE> 4
connection with or arising out of Executive's employment and termination of
employment. Other than making payments and continuing any benefits under this
Section 4 , the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives shall
have no further obligation or liability under this Agreement to Executive or any
other person or entity arising out of or related to Executive's employment or
the termination thereof, and Executive waives any and all rights to pursue any
other remedy at law or in equity; provided, however, that this shall not
constitute a waiver or release of any rights provided under any federal, state,
or local laws or regulations relating to discrimination in employment. The
Company shall have the right to condition the payment of any severance or other
amounts pursuant to this Section 4 upon the delivery by Executive to the Company
of a release (in form and substance satisfactory to the Company) of any and all
claims Executive may have against the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives arising out of or related to Executive's employment by the
Company and termination of such employment.
(f) Survival. The provisions of Sections 4, 5, 6 and 7 herein shall
survive termination of this Agreement or termination of employment for any
reason whatsoever.
5. Non-Competition. In consideration of this Agreement, and the benefits granted
hereunder, as well as those stock options granted to Executive at or about the
time of the execution of this Agreement; during Executive's employment with the
Company under this Agreement , and for a period of two years thereafter (the
"Non-Compete Term"), Executive shall not, directly or indirectly, own, manage,
operate, join, control, participate in, invest in or otherwise be connected or
associated with, in any manner, including as an officer, director, employee,
distributor , independent contractor, independent representative, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing
Business (defined below); provided, however, that ownership of less than 5% of
the stock or other securities of a corporation, the stock of which is listed on
a national securities exchange or is quoted on The Nasdaq Stock Market, shall
not constitute a breach of this Section 4, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
As additional consideration for the obligations of Executive set forth
in this paragraph, the Company shall pay Executive, commencing with Executive's
last day of Employment by the Company and continuing for a period of twenty-four
months thereafter, the Base Salary rate being paid to Executive immediately
preceding the termination of employment, such Base Salary to be paid in
accordance with the Company's standard payroll practices.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which is engaged, directly or indirectly, anywhere in the
world, in (i) the business of developing, manufacturing, marketing, selling
and/or distributing vitamins, minerals, nutritional supplements (including,
without limitation, amino acids and proteins), herbal products, phytonutrients,
nutraceuticals, herb teas or food bars, (ii) the publication of related health,
fitness or body-building publications, (iii) any other business engaged in or
being developed by the Company, or being actively considered by management of
the Company, at the time of Executive's termination of employment from the
Company or (iv) any other business which is substantially similar to the whole
or any significant part of the business conducted by the Company.
Notwithstanding the provisions of clause (iii) hereinabove, to the extent that
the Company ceases to develop any such other business which was
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<PAGE> 5
being developed, or the management of the Company ceases to actively consider
any such other business which was being actively considered at the time of the
Executive's termination of employment, the prohibition set forth herein above
shall no longer be applicable to such other business. At the written request of
the Executive, the Company shall promptly inform the Executive of whether any
particular business or businesses that were being so developed or actively
considered at the time of the Executive's termination of employment have ceased
to be so developed or actively considered.
6. No Solicitation.
(a) During Executive's employment with the Company , and for a period
of two years thereafter, Executive shall not, directly or indirectly, including
on behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of the Company who is employed in an executive,
managerial, administrative or professional capacity or who possesses
Confidential Information (defined below) to leave the Company, nor assist any
person or entity in doing so, or employ, engage or otherwise contract with any
such employee or former employee of the Company in a Competing Business (defined
below) or any other business unless such former employee shall not have been
employed by the Company for a period of at least one year, (ii) interfere in any
manner with the relationship between any employee and the Company or (iii)
contact, service or solicit any existing clients, customers or accounts of the
Company on behalf of a Competing Business (defined below), either as an
individual on his own account, as an investor, or as an officer, director,
partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.
7. Confidential Information.
(a) Confidential Information. "Confidential Information" shall mean
confidential records and information of or related to Twinlab, its businesses,
employees or business practices, including, but not limited to, development,
marketing, purchasing, organizational, strategic, financial, managerial,
administrative, manufacturing, production, distribution and sales information,
distribution methods, data, specifications, formulations, recipes, product
development concepts, plans, collections of categorized materials, strategies
and processes (including the Transferred Property as hereinafter defined)
presently owned or at any time hereafter developed by Twinlab or its agents or
consultants or used presently or at any time hereafter in the course of the
business of Twinlab, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive hereby transfers and
assigns to the Company, or to any person or entity designated by the Company,
all of his entire right, title and interest in and to all inventions, ideas,
disclosures and improvements (the "Inventions"), whether patented or unpatented,
and copyrightable material and all trademarks, trade names, all goodwill
associated therewith and all federal and state registrations or applications
thereof, made, adopted or conceived by Executive solely or jointly, in whole or
in part (collectively, the "Transferred Property"), prior to or during the
Agreement Term which (i) relate to methods, apparatus, designs, products,
processes or devices sold, leased, used or under construction or development by
Twinlab or (ii) otherwise relate to or pertain to the business, products,
services, functions or operations of Twinlab. Executive shall make adequate
written records of all Inventions, which records shall be the Company's property
and shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned Inventions. Whether during the Term or thereafter,
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<PAGE> 6
Executive shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be required of Executive
to permit the Company, or any person or entity designated by the Company, to
file and prosecute the patent applications and, as to copyrightable material, to
obtain copyrights thereon, and as to trademarks, to record the transfer of
ownership of any federal or state registrations or applications.
(c) Protection of Confidential Information. All such Confidential
Information is considered secret and will be disclosed to the Executive in
confidence, and the Executive acknowledges that, as a consequence of his
employment and position with the Company, the Executive may have access to and
become acquainted with Confidential Information. Except in the performance of
his duties as an employee of the Company, the Executive shall not, during the
Term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records,
files, drawings, documents, equipment, papers and other tangible items, wherever
located, relating in any way to or containing Confidential Information, which
the Executive has prepared, used, collected, stored or encountered or shall in
the future prepare, use or encounter, shall be and remain the Company's sole and
exclusive property and shall be included in the Confidential Information. Upon
termination of this Agreement, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of the Confidential
Information and copies thereof, not previously delivered to the Company, that
may be in the possession or under the control of the Executive. The foregoing
restrictions shall not apply to the use, divulgence, disclosure or grant of
access to Confidential Information to the extent, but only to the extent, (i)
expressly permitted or required pursuant to any other written agreement between
the Executive and the Company that expressly references this section of this
Employment Agreement, (ii) such Confidential Information has been publicly
disclosed (not due to a breach by the Executive of his obligations hereunder, or
by breach of any other person, of a fiduciary or confidential obligation to the
Company) or (iii) the Executive is required to disclose Confidential Information
by or to any court of competent jurisdiction or any governmental or
quasi-governmental agency, authority or instrumentality of competent
jurisdiction, provided, however, that the Executive shall, prior to any such
disclosure, immediately notify the Company of such requirement and provided
further, however, that the Company shall have the right, at its expense, to
object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
8. Change of Control Protection. If subsequent to the date hereof, there is an
Acquisition of Control of the Company, and any time within two (2) years
thereafter, (i) your employment with the Company is terminated without Cause or
(ii) you resign for Other Reasons as set forth in paragraph 8 (c), then in
either case you shall be entitled to receive a severance (the "Change of Control
Base Salary Severance") equal to three (3) times your then current Base Salary
as well as an amount equal to three (3) times your "Target Bonus" as defined, at
the time of termination or resignation, in the Company's Bonus Program (the
"Change of Control Bonus Payment") for the calendar year immediately preceding
your termination or resignation under this paragraph. The Company shall
reimburse you for your payments under COBRA for a period of one (1) year
following the date of termination or resignation, should you elect to continue
coverage pursuant to COBRA. The Change of Control Base Salary Severance together
with the Change of Control Bonus Payment (collectively, "the Change of Control
Severance Amount") shall be paid to Executive in equal installments over a
period of two years commencing with Executive's termination or resignation date
and at the times the Base Salary would have otherwise been paid had Executive's
employment not been terminated. The payments and benefits provided for in this
paragraph shall be in lieu of and not in addition to
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any other payments or benefits set forth in this Agreement, including but not
limited to those provided under paragraphs 4(c) and 5. The stock option
agreements covering the options granted to you in connection with your
employment (the "Options"), will be amended to provide for an acceleration of
the vesting of such options upon the circumstances described above.
For the purposes of this paragraph 8 only, the following terms shall
have the meanings set forth below:
(a) "Acquisition of Control" shall mean:
(i) any person, including a group or entity, becoming the
beneficial owner of, or acquiring the power to direct
the exercise of voting power with respect to,
directly or indirectly securities which represent
fifty percent (50%) or more of the combined voting
power of the Company's outstanding securities
thereafter (an "Acquiring Person"); or
(ii) the Incumbent Directors cease at any time to
constitute a majority of the Board of Directors of
the Company; or
(iii) the stockholders of Twinlab approve a merger or
consolidation of Twinlab with any other corporation,
other than a merger or consolidation which would
result in the voting securities of Twinlab
immediately prior to the merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or
more of the combined voting power of the voting
securities of any new company or surviving or parent
entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
(b) "Incumbent Director" shall mean any director of the Company serving
at January 1, 2000, or one elected thereafter if nominated by at least
two-thirds of the then Incumbent Directors.
(c) "Other Reasons" shall mean (a) reduction in your base salary; (b)
material diminution in your duties, which diminution continues after notice
thereof is given to the Company by you; (c) the Company's failure to maintain a
material benefit or compensation plan ( i.e., medical insurance or 401(k)) or
plans that are substantially similar to, or afford substantially similar
benefits as, such benefit or compensation plans; (d) relocation of your primary
work location more than fifty miles from your current location; or (e) failure
by the Company to obtain the agreement to assume and perform this Agreement by
an acquiring Person.
(d) Gross-Up Only as to 20% Excise Tax. In the event that any payment
or distribution by the Company to or for the benefit of the Executive pursuant
to the terms of this Agreement or pursuant to the Stock Option Agreements
(including the value of accelerated vesting of the stock options granted
pursuant to such Stock Option Agreements) (a "Payment"), will be
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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (or any successor provision thereto), then the Company will
reimburse the Executive for the tax imposed by such Section up to 20% of such
Payment. Such reimbursement shall be made by the Company no later than (i) the
date such excise tax is due or required to be withheld from the Executive's
compensation or (ii) within a reasonable time after submission by the Executive
of his tax returns to the Company. Such payment is not intended to be made on a
"grossed-up" basis, and any additional tax liability imposed on Executive due to
any Payment, including further taxes imposed on such reimbursement, shall be
borne by Executive.
9. Assignment and Transfer; No Third Party Beneficiary.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any existing or future
subsidiary or affiliate of the Company, any purchaser of all or substantially
all of the Company's business or assets, any successor to the Company or any
assignee thereof (each, a "Successor"), whether direct or indirect, by purchase,
merger, consolidation, operation of law or otherwise. The Company will require
any such Successor by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such purchase, merger, consolidation, succession or assignment had taken
place. Regardless of whether such agreement is executed, this Agreement shall be
binding upon any Successor of the Company in accordance with the operation of
law, and such Successor shall be deemed to be the Company or Twinlab, as
appropriate, for purposes of this Agreement.
(b) Executive. Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer, alienation or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
10. Miscellaneous.
(a) Cooperation. Following notice of termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(b) Protection of Reputation. During the Term and thereafter, Executive
agrees that he will not take action which is intended or would reasonably be
expected to harm the Company or its reputation or which would reasonably be
expected to lead to unwanted or unfavorable publicity to the Company.
(c) General Release. In exchange for and in consideration of the
payments to be made pursuant to this Employment Agreement, Executive does hereby
release, absolve and discharge the Company and Twinlab, and each of them, as
well as their trustees, directors, officers, agents, servants, employees,
affiliates, stockholders, successors, assigns, and representatives, past and
present, and each of them (hereinafter collectively referred to as
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"Releasees") from any and all claims, demands, liens, agreements, contracts,
covenants, actions, suits, causes of action, wages, obligations, commissions,
overtime payments, debts, expenses, damages, judgments, orders and liabilities
of whatever kind or nature in law, equity or otherwise, whether known or
unknown, to Executive arising out of or related to Executive's employment by the
Company which Executive now owns or holds or has at any time before the date of
this Agreement owned or held as against Releasees, or any of them.
(d) Governing Law/Jurisdiction/Process. This Agreement, including the
validity, interpretation, construction and performance of this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of law. All actions and
proceedings relating to or arising out of this Agreement shall be litigated
solely in any New York state court or United States federal court located in
Suffolk County, New York. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint therein directed to Executive or the Company at the
address as provided in Section 9(j) hereof.
(e) Entire Agreement. This Agreement and the Exhibits attached hereto
contain the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and except as is specifically set forth
herein supersede, cancel and annul any prior or contemporaneous written
(including without limitation the Employment Agreement dated as of May 7, 1996
between Company and Executive) or oral agreements, understandings,
representations, commitments and practices between them respecting the subject
matter hereof. However, the provision of the Non-Competition Agreement between
Executive and Twin Laboratories Inc. dated May 6, 1996 is expressly reaffirmed
and shall remain in full force and effect until such agreement expires in
accordance with its terms.
(f) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(g) Non-waiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(h) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Term of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement special and extraordinary value, and, in the event of a
breach or threatened breach of any provision of this Agreement by Executive, the
injury or imminent injury to the value and the goodwill of the Company's
business could not be reasonably or adequately compensated in damages in an
action at law. Accordingly, Executive expressly acknowledges that the Company
shall be entitled to specific performance, injunctive relief and any other
applicable equitable remedy against Executive without the posting of a bond in
the event of any breach or threatened breach of any provision of this Agreement
by Executive. Without limiting the generality of the foregoing, if Executive
breaches or threatens to breach any of the provisions of Sections 5, 6, or 7
hereof, such breach or threatened breach will entitle the Company to enjoin
Executive from
9
<PAGE> 10
engaging in any activities prohibited by such provisions, as is appropriate.
This provision shall not be construed as a waiver of any of the rights which the
Company may have for damages under this Agreement or otherwise, and all of the
Company's rights and remedies shall be unrestricted.
(i) Reasonableness of Restrictions. Executive agrees and acknowledges
that (i) the provisions of Sections 5, 6, and 7 hereof may limit his ability to
earn a livelihood in a business similar to the business of the Company but
nevertheless agrees that such provisions are reasonable and necessary for the
protection of the Company and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company;
(ii) such provisions contain reasonable limitations as to the time and the scope
of activity to be restrained; and (iii) the consideration provided under this
Agreement including the severance, bonus and other benefits and perquisites
pursuant to paragraphs 3 and 5 above, and stock options granted to Executive, is
sufficient to compensate Executive for the restrictions imposed in Sections 5,
6, and 7 hereof. In consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that any defenses by Executive
to the strict enforcement of such provisions are hereby waived by Executive and
Executive agrees that he will not assert that such provisions are void, voidable
or unenforceable.
(j) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, or by a nationally recognized overnight courier
service, with postage prepaid to Executive:
Steve Blechman
11 White Pine Lane
Poquott, New York 11733
or to such other residence address of Executive as is reflected in the Company's
records or as otherwise designated by Executive by notice given pursuant to this
paragraph; and if to Company:
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: Ross Blechman, President and CEO
With a copy to:
Philip M. Kazin
General Counsel
Twin Laboratories Inc.
150 Motor Parkway
Hauppauge, New York 11788
All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail or upon delivery to such overnight courier
service. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
10
<PAGE> 11
(k) Assistance in Proceedings, etc. Executive shall, without additional
compensation, during and after expiration of the Agreement Term and any
applicable renewal period, upon reasonable notice, furnish such information and
proper assistance to the Company as may reasonably be required by the Company in
connection with any legal or quasi-legal proceeding, including any external or
internal investigation, involving the Company or any of its affiliates or in
which any of them is, or may become, a party. The Company shall reimburse
Executive for all reasonable out-of-pocket expenses incurred by the Executive in
connection with services provided under this Section.
(l) Survival. The respective obligations of Executive and rights and
benefits afforded to the Company as provided in this Agreement shall survive
cessation or termination of Executive's employment hereunder.
(m) Costs and Expenses. Each party shall pay all of its own costs and
expenses, including reasonable legal fees, in connection with the execution,
delivery, performance and compliance with this Agreement by such party. If an
action or proceeding is commenced by a party to enforce or interpret any
provision of this Agreement, each party shall pay its own costs and expenses of
such action or proceeding, including attorneys' fees.
(n) Execution In Counterparts. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instruments, and all signatures need not appear on any one counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
TWIN LABORATORIES INC. EXECUTIVE
By:____________________________________ ____________________________________
Name: Steve Blechman
Title: Date:_____________ Date:______________
Agreed to and Accepted: TWINLAB CORPORATION
By:________________________________
Ross Blechman, President Date:______________
11
<PAGE> 1
EXECUTIVE'S CONFIDENTIALITY, NON COMPETE
AND EMPLOYMENT AT WILL AGREEMENT
TWIN LABORATORIES INC.
AGREEMENT, entered into this day of , 2000 between TWIN
LABORATORIES INC., a Utah corporation, having its principal offices at 150 Motor
Parkway, Hauppauge, New York 11788, including without limitation all of its
current and future direct and indirect subsidiaries, divisions and businesses
such as Nature's Herbs, Alvita, Advanced Research Press, Inc., Bronson
Laboratories Inc., PR*Nutrition, Changes International Inc. and Health Factors
International (hereinafter collectively referred to as "Twin" or "Company") and
Brian Blechman residing at 6 Pine Point, Lloyd Harbor, New York 11743
hereinafter referred to as "Executive".
1. CONFIDENTIAL INFORMATION
A. Executive acknowledges that Executive may come into contact with or
have access to confidential matters and proprietary information and "know-how"
pertaining to Twin's business including without limitation Twin's product
formulas and recipes; research and development programs and concepts for future
products or changes to existing products; analytical and microbiological test
results; supplier, distributor and customer lists and information; sales,
distribution, production, product, purchasing and marketing information and
strategies; financial information and projections; computer programs and
technical information; methods of doing business (all of which are collectively
referred to as "Confidential Information"). Executive acknowledges that
Confidential Information may be in any form including without limitation in
writing, on computer tapes, disks, and in computer programs.
B. Executive acknowledges that the Confidential Information is not
under lock and key because of use by Twin and its employees and that because of
such access, Twin is relying upon the Executive's good faith to ensure that
Confidential Information is not used improperly or to the disadvantage of Twin.
C. Executive shall not, during Executive's employment by Twin or at any
time thereafter, divulge, furnish or make accessible to any person or entity or
make use of (other than in the regular course of Twin's business) any knowledge
or information with respect to any Confidential Information.
D. Executive will not disclose to Twin or induce Twin to use any
proprietary information, trade secrets, or confidential information of others.
Executive represents that Executive has returned all proprietary trade secrets
and confidential information belonging to any prior employer.
2. EMPLOYMENT AT WILL
The Employment provided for herein shall be deemed at will and the
Executive's employment With Twin may be terminated without cause at any time by
written notice given by the Executive to Twin or by Twin to the Executive. The
Executive acknowledges and agrees that the termination of his employment for any
reason whatsoever shall not release him from any of Executive's obligations,
agreements and understandings as set forth in this Agreement.
<PAGE> 2
Executive's Confidentiality and Employment at Will Agreement
Page 2
3. OTHER OBLIGATIONS
Executive represents that neither Executive's employment with Twin nor
Executive's obligations hereunder conflict with or violate or are otherwise
inconsistent with any other obligations, legal or otherwise, which Executive may
have.
4. TRANSFER OF PROPERTY BY EXECUTIVE
Executive hereby sells, transfer and assigns to Twin all of his right,
title and interest in and to all inventions, ideas, disclosures and improvements
(the "Inventions"), whether patented or unpatented, and copyrightable material
and all trademarks, trade names, all goodwill associated therewith and all
federal and state registrations or applications thereof, made, adopted or
conceived by Executive, in whole or in part (collectively, the "Transferred
Property"), prior to or during his employment with Twin which (i) relate to
methods, apparatus, designs, products, processes or devices sold, leased, used
or under development by Twin or (ii) otherwise relate to or pertain to the
business, products, services, functions or operations of Twin. Executive shall
make adequate written records of all inventions, which records shall be Twin's
property and shall disclose to Twin, in such form as Twin requests, all
information and data pertaining to the aforementioned Inventions. Whether during
his employment or thereafter, Executive shall execute and deliver to Twin such
formal transfer and assignments and such other papers and documents as may be
required of Executive to permit Twin, or any person or entity designated by
Twin, to file and prosecute the patent applications and, as to copyrightable
material, to obtain copyrights thereon, and as to trademarks, to record the
transfer of ownership of any federal or state registrations or applications.
5. NON-COMPETITION
During your employment by Twin, and for a period of two years
thereafter, Executive shall not, directly or indirectly, own, manage, operate,
join, control, participate in, invest in or otherwise be connected or associated
with, in any manner, including as a officer, director, employee, distributor,
independent contractor, independent representative, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business located
in the United States of America or in any foreign nation or region where Twin
conducts business or is considering doing business; provided, however, that
ownership of 1% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
Nasdaq Stock Market, shall not constitute a breach of this Section 5 so long as
Executive does not in fact have the power to control, or direct the management,
of, or is not
<PAGE> 3
Executive's Confidentiality and Employment at Will Agreement
Page 3
otherwise associated with, such corporation.
For the purpose hereof, the term, "Competing Business" shall mean any
business or venture which is engaged, directly or indirectly, in (i) the
business of developing, manufacturing, marketing (including catalogue and mail
order marketing), selling and/or distributing (including wholesale distributing)
of vitamins, minerals, nutritional supplements (including, without limitation,
amino acids and proteins), herbal products, phytonutrients, herb teas or food
bars, (ii) the publication of related health, fitness or body-building
publications, (iii) any other business engaged in or being developed by Twin, or
being actively considered by management of Twin, or (iv) any other business
which is substantially similar to the whole or any significant part of the
business conducted by Twin.
As additional consideration for the obligations of Executive set forth
in paragraphs 5 and 6 hereof, the Company shall pay Executive, commencing with
the day following Executive's last day of employment by the Company and
continuing for a period of twelve months thereafter, the Base Salary rate being
paid to Executive immediately preceding the termination of employment, such Base
Salary to be paid to Executive in accordance with the Company's standard payroll
practices.
6. NO SOLICITATION
During Executive's employment by Twin, and for a period of two years
thereafter, Executive shall not, directly or indirectly, including on behalf of,
for the benefit of, or in conjunction with, any other person or entity, (i)
solicit, assist, advise, influence, induce, or otherwise encourage in any way,
any employee of the Company to terminate its relationship with the Company for
any reason, nor assist any person or entity in doing so, or employ, engage or
otherwise contract with any employee or former employee of the Company in a
Competing Business or any other business unless such former employee shall not
have been employed by the Company for a period of at least one year, (ii)
interfere in any manner with the relationship between any employee and the
Company or (iii) contact, service or solicit any existing clients, customers, or
account of the Company on behalf of a Competing Business, either as an
individual on his own account, or as an investor, or as an officer, director,
partner, joint venture, consultant, employee, agent or salesperson, of any other
person or entity.
During the Executive's employment with the Company and for a period of
two years thereafter, Executive shall not, directly or indirectly, including on
behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, influence, induce or otherwise encourage in any
way, any Distributor to terminate its relationship with the Company for any
reason, not assist any person or entity in doing so, or employ, engage or
otherwise contract with any Distributor in a Competing Business or any other
business; or (ii) interfere in any manner with the relationship between any
Distributor and the Company. The term "Distributor" shall mean (i) distributor,
independent contractor, independent representative or other person or entity
which sells and/or distributes the Company's products, and (iii) any former
distributor, independent contractor, independent representative or other person
or entity which sold and/or distributed the Company's products, unless such
person or entity shall not have sold and/or distributed the Company's products
or been employed
<PAGE> 4
Executive's Confidentiality and Employment at Will Agreement
Page 4
or engaged by, or otherwise been under contract with, the Company for a period
of at least one year.
7. REASONABLENESS OF RESTRICTIONS
Executive agrees and acknowledges that (i) the provisions of Sections 5
and 6 hereof may limit his ability to earn a livelihood in a business similar to
the business of Twin's but nevertheless agrees that such provisions are
reasonable and necessary for the protection of Twin and do not impose a greater
restraint than is necessary to protect the goodwill or other important business
interests of Twin; (ii) such provisions contain reasonable limitations as to the
time and scope of activity to be restrained; and (iii) the consideration
provided to Executive concurrently with this Agreement in connection with his
employment relationship with Twin including the compensation and other benefits
and perquisites is sufficient to compensate Executive for the restrictions
imposed in Sections 5 and 6 hereof. In consideration of the foregoing and in
light of Executive's education, skills and abilities, Executive agrees that any
defense by Executive to the strict enforcement of such provisions are hereby
waived by Executive and Executive agrees that he will not assert that such
provisions are void, voidable, or unenforceable.
8. ENFORCEMENT
Executive expressly agrees, that in addition to any other remedies
which may be available to Twin, Twin shall be entitled to injunctive and/or
other equitable relief to prevent or remedy a breach or threatened breach of any
of the provisions this Agreement and to secure their enforcement. For such
purposes, and for the purpose of resolving any dispute or conflict arising from
or out of this Agreement, the parties agree to submit exclusively to the
jurisdiction and venue of either 1) the Supreme Court of the State of New York,
County of Suffolk and/or Nassau, or 2) the United States District Court for the
Eastern District of New York located in the County of Suffolk or Nassau, and the
parties agree to abide by and comply with the terms and provisions of any order
or judgement which may be entered by said court in connection with the
enforcement of the rights of the parties hereto. The parties consent to the
service of process in any such action or proceeding in a manner pursuant to that
set forth in paragraph 14 "Miscellaneous" hereinafter for the giving of notices.
9. REMEDIES CUMULATIVE
The remedies provided for herein are cumulative and not exclusive. Twin
may exercise the remedies set forth in paragraph 8 hereof, as well as any other
remedies which it may have at any time. No failure or delay by Twin in
exercising any right or remedy hereunder shall operate as a waiver of such right
or remedy, nor shall any single or partial exercise thereof preclude any other
or further exercise thereof.
10. SEVERABILITY
If any term, provision or covenant of the Agreement or part thereof, or
the application thereof to any person, place or circumstances, shall be held to
be invalid, unenforceable or void by a court of competent jurisdiction, the
remainder of this Agreement and such term, provision or covenant shall remain in
full force and effect, and any such invalid, unenforceable or void term,
provision or covenant shall be deemed, without further action on the part of the
parties hereto, modified, amended and limited, and the court shall have the
power to modify, amend and limit any such term, provision or covenant, to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.
<PAGE> 5
Executive's Confidentiality and Employment at Will Agreement
Page 5
11. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding between
the parties hereto in respect of the subject matter hereof and except as is
specifically set forth herein supersedes, cancels and annuls any prior or
contemporaneous written (including without limitation the Employment Agreement
dated as of May 7, 1996 between Company and Executive) or oral agreements,
understandings, representations, commitments and practices between them
respecting the subject matter hereof. However, the provision of the
Non-Competition Agreement between the Executive and Twin Laboratories Inc. dated
May 6, 1996 is expressly reaffirmed and shall remain in full force and effect
until such agreement expires in accordance with its term.
12. AMENDMENT
This Agreement may be amended only by a writing which makes express
reference to this Agreement as the subject of such amendment and which is signed
by Executive and, on behalf of the company, by its duly authorized officer.
13. NON-WAIVER
Neither any course of dealing nor any failure or neglect of either
party hereto in any instance to exercise any right, power or privilege hereunder
or under law shall constitute a waiver of any other right, power or privilege or
of the same right, power or privilege in any other instance. All waivers by
either party hereto must be contained in a written instrument signed by the
party to be charged and, in the case of the Company, by its duly authorized
officer.
14. MISCELLANEOUS
This Agreement shall be deemed to be executed in New York State and
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of choice law. Any notices hereunder by
either party shall be in writing and delivered in person by hand or sent by
nationally recognized express carrier or by certified or registered mail,
postage prepaid addressed to the parties at the addresses set forth in this
Agreement or to such other address as may be furnished to a party in like manner
or if to Executive, to the last address of Executive as listed in the records of
the Company. All notices to Twin shall be addressed to the attention of Mr. Ross
Blechman, President. In case any one or more of the provisions of this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
IN WITNESS HEREOF, the parties have executed this Agreement as of the day first
hereinabove set forth.
TWIN LABORATORIES, INC.
__________________________________
Executive Signature
By:________________________________
Brian Blechman
_________________________________
Type or Print Name
Title: President and CEO
Date:_____________________________ __________________________
<PAGE> 6
Executive's Confidentiality and Employment at Will Agreement
Page 6
I have received a countersigned copy of this Agreement:
______________________________
Executive Signature
<PAGE> 7
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 7th day of May 1999, between Twin Laboratories Inc. ("Company"),
having its executive offices and principal place of business in Hauppauge, New
York, and Stephen L. Welling, the undersigned individual ("Executive").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the approximate
three-year period commencing as of May 7, 1999 and ending on May 6, 2002 (the
"Agreement Term"); provided, however, that the Agreement Term shall be renewed
automatically for successive additional two-year periods ("Renewal Period") at
the end of such three-year period and at the end of each such two-year Renewal
Period, unless, no later than 180 days prior to any such renewal date, either
the President of the Company or the Executive gives written notice to the other
that the Agreement shall not be so renewed.
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company for the Agreement Term upon the terms and subject to the
conditions set forth in this Agreement.
(b) Performance of Duties. Throughout the Agreement
Term, Executive shall serve as President of the Health and Natural Food Store
Division of the Company and shall have such duties, powers and responsibilities
that are commensurate with his position or as may be assigned by the Board of
Directors ("Board") of Company or the President of Company from time to time
provided such assigned duties are commensurate with his position. In addition,
Executive agrees that he will serve in any similar capacity on behalf of any
existing or future subsidiary or division as is reasonably requested by the
Company. Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire working time
to the business and affairs of the Company, subject to vacations and sick leave
in accordance with Company policy.
(c) Place of Performance. During the Agreement Term,
Executive shall be based at American Fork, Utah. Executive understands and
acknowledges that his duties will require reasonable business travel from time
to time. Executive shall report to Ross Blechman, President of the Company or
such other executive as may be designated by the Company from time to time.
3. Compensation and Benefits.
(a) Base Salary. For the period of May 6, 1999
through May 6, 2002 the Company agrees to pay to Executive for employment
hereunder a base salary ("Base
<PAGE> 8
Salary") at the annual rate of $ 265,000. Beginning January 1, 2000 and on
January 1 of each successive year of this Agreement, the Base Salary shall be
increased by a percentage equal to the percentage increase, if any, in the
Consumer Price Index for All Urban Consumers, All Items ("CPI") for the most
recent twelve month period for which such figures are then available as
promulgated by the Department of Labor Bureau of Statistics; provided however
that the Compensation Committee of the Board of Directors ("Board") of the
Company may, in its sole discretion, increase the Base Salary from time to time
by a sum greater than the CPI proportional increase.
(b) Benefits and Perquisites. Executive shall be
entitled to receive such benefits and perquisites as the Company and the
Executive shall mutually agree from time to time. Nothing in this Agreement
shall preclude the Company from terminating or amending from time to time any
employee benefit plan or program.
(c) Bonus. The Executive shall be entitled to receive
a cash bonus with respect to each calendar year of the Agreement of up to 100%
of Base Salary based on the Bonus Plan attached hereto as Exhibit A.
(d) Stock Options. Company shall cause Executive to
be granted options for 50,000 shares in the Company's common stock. The terms
and conditions of the stock option grant are set forth in the Company stock
option plan, a copy of which has been provided to Executive.
(e) Vacation. Executive shall be entitled to paid
vacation in accordance with the vacation policy of the Company.
(f) Automobile. The Company shall reimburse the
Executive for all reasonable expenses (including lease payment, liability
insurance, maintenance, repair and fuel costs) up to One Thousand Two Hundred
dollars ($1,200) per month incurred in operating an automobile for the
Executive's use in the performance of his duties hereunder and in the conduct of
the affairs of the Company, which automobile shall also be available to the
Executive for personal use.
(g) Standard Benefits. Medical Insurance; Dental
Insurance; Life Insurance; and Long Term Disability Insurance shall be provided
in accordance with the standard policies in effect for full time Company
employees, including all applicable eligibility and contribution requirements.
Company will reimburse Executive for any COBRA payment incurred prior to
eligibility in the Company Medical Insurance or Dental Insurance program.
(h) 401k Program. Executive shall be eligible for
participation in the Company's 401k plan, including the employer contribution
thereto, subject to the terms and conditions of the plan including the waiting
periods contained in the plan.
(i) Travel and Business Expenses. Upon submission of
itemized expense statements consistent with Company procedure, Executive shall
be entitled to reimbursement for reasonable travel and other reasonable business
expenses incurred by Executive in the performance of Executive's duties under
this Agreement in accordance with the policies and procedures established by the
Company from time to time for executives of a substantially similar level as
Executive.
- 2 -
<PAGE> 9
(j) Payment. Payment of all compensation and benefits
to Executive hereunder shall be made in accordance with Company policies in
effect from time to time, including normal payroll practices, and shall be
subject to all applicable employment and withholding taxes.
(k) Cessation of Employment. In the event Executive
shall cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Indemnification. The Executive shall be indemnified by
Company against reasonable expenses, including attorney's fees, actually and
necessarily incurred by him in connection with the defense of any action, suit,
investigation or proceeding or similar legal activity, regardless of whether
criminal, civil, administrative or investigative in nature, to which he is made
a party by reason of his then being or having been an officer or director of the
Company on or subsequent to the date hereof, to the full extent permitted by
applicable law. Company shall (upon receipt by Company of an undertaking by or
on behalf of the Executive to repay the expenses described in this Section 4, if
it shall ultimately be determined that he is not entitled to be indemnified by
Company against such expenses) pay reasonable expenses, including attorney's
fees, incurred by the Executive in defending any threatened, pending or
completed action, suit or proceeding, or appearing as a witness at a time when
he has not been named as a defendant or respondent with respect thereto, in
advance of the final deposition of any such action, suit or proceeding. The
foregoing right of indemnification will not be deemed exclusive of any other
rights to which the Executive may be entitled under Company's or any of its
subsidiaries' respective Articles or Certificate of Incorporation or By-laws, as
in effect from time to time, or any agreement or otherwise.
5. Non-competition. During the Agreement Term, including any
unexpired portion thereof and any applicable Renewal Period, and, for a period
of twelve months, thereafter (provided, however, that if Executive is terminated
by the Company for any reason other than "Cause" as defined in paragraph 7(b)
hereinafter or if Executive resigns for Good Reason as defined in paragraph 7(d)
hereafter, than the provisions of this non-competition paragraph shall be for a
period of twelve months commencing with the date of termination or resignation,
whichever is applicable.) Executive shall not, directly or indirectly, own,
manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, distribution, independent contractor, independent representative,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in any state or region (including foreign
jurisdictions) where the Company conducts business or is considering doing
business; provided, however, that ownership of 1% or less of the stock or other
securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 5, so long as Executive does not in fact
have the power to control, or direct the management of, or is not otherwise
associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean
any business or venture which is engaged, directly or indirectly, in (i) the
business of developing, manufacturing, marketing (including multi-level
marketing), selling and/or distributing (including wholesale distributing) of
vitamins, minerals, nutritional supplements (including, without limitation,
amino
- 3 -
<PAGE> 10
acids and proteins), herbal products, phytonutrients, herb teas or food bars,
(ii) the publication of related health, fitness or body-building publications,
(iii) any other business engaged in or being developed by the Company, or being
actively considered by management of the Company, or (iv) any other business
which is substantially similar to the whole or any significant part of the
business conducted by the Company.
6. No Solicitation.
(a) During the Agreement Term, including any
unexpired portion thereof and any applicable Renewal Period, and for a period of
one year thereafter, Executive shall not, directly or indirectly, including on
behalf of, for the benefit of, or in conjunction with, any other person or
entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of the Company to terminate its relationship with the
Company for any reason, nor assist any person or entity in doing so, or employ,
engage or otherwise contract with any employee or former employee of the Company
in a Competing Business or any other business unless such former employee shall
not have been employed by the Company for a period of at least one year, (ii)
interfere in any manner with the relationship between any employee and the
Company or (iii) contact, service or solicit any existing clients, customers or
accounts of the Company on behalf of a Competing Business, either as an
individual on his own account, as an investor, or as an officer, director,
partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.
7. Termination of Employment.
(a) Termination or Resignation. The Company may
terminate Executive's employment for Cause (as hereinafter defined), in which
case the provisions of Section 7(b) shall apply. The Company may also terminate
Executive's employment in the event of Executive's Disability (as hereinafter
defined), in which case the provisions of Section 7(c) shall apply. The Company
may also terminate the Executive's employment for any other reason by written
notice to Executive, in which case the provisions of Section 7(e) shall apply.
If Executive's employment is terminated by reason of Executive's death or
retirement, the provisions of Section 7(b) shall apply. Executive may resign for
Good Reason (as hereinafter defined) in which case the provisions of Section
7(e) shall apply. No termination of this Agreement or resignation shall relieve
any party from liability for any breach of this Agreement or defeat or impair
the right of any party to pursue such relief as may otherwise be available to it
as a result of any breach of this Agreement or any term, provision or covenant
contained herein.
(b) Termination for Cause; Termination by Reason of
Death or Retirement. The Executive may be terminated for Cause, upon at least
thirty (30) days' prior written notice from the Board to the Executive for a
termination for Cause pursuant to clause (iv), (v) or (vii) of this paragraph,
and upon at least ten (10) days' prior written notice from the Board to the
Executive for a termination for Cause pursuant to Clause (i), (ii), (iii), (vi),
or (viii), by a vote of the Board, (provided that Executive shall have had the
opportunity (together with Executive's legal counsel) during such period to be
heard at a meeting of the Board with respect to such determination).
Notwithstanding anything to the contrary contained herein, in the event that
Executive's employment hereunder is terminated during the Agreement Term (x) by
the Company for Cause or (y) by reason of Executive's death or retirement, then
the Company shall pay to Executive, within thirty (30) days of the date of such
termination, only the
- 4 -
<PAGE> 11
Base Salary through such date of termination. For purposes of this Agreement,
"Cause" shall mean (i) conviction of, or plea of nolo contendere (no contest)
to, any crime (whether or not involving the Company) constituting a felony in
the jurisdiction involved; (ii) conduct involving moral turpitude; (iii) conduct
related to Executive's employment for which either criminal or civil penalties
against Executive or the Company may be sought; (iv) gross neglect or misconduct
in the performance of Executive's duties hereunder; (v) willful failure or
refusal to perform such duties as may be delegated to Executive commensurate
with Executive's position; (vi) material violation of the Company's policies,
including, without limitation, those relating to sexual harassment, the
disclosure or misuse of Confidential Information (as hereinafter defined), or
those set forth in Company manuals or statements of policy; (vii) conduct which
is materially injurious or materially damaging to the Company or the reputation
of the Company; or (viii) material breach of any provision of this Agreement by
Executive.
(c) Disability. If, as a result of Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from Executive's duties hereunder for either (i) one hundred twenty (120) days
within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability." In that event, the Company shall pay to
Executive, within thirty (30) days, of the date of such termination, only the
Base Salary through such date of termination. During any period that Executive
fails to perform Executive's duties hereunder as a result of incapacity due to
physical or mental illness (a "Disability Period"), Executive shall continue to
receive the compensation and benefits provided by Section 3 hereof (other than
Section 3(c) hereof) until Executive's employment hereunder is terminated;
provided, however, that the amount of compensation and benefits received by
Executive during the Disability Period shall be reduced by the aggregate
amounts, if any, payable to Executive pursuant to Section 3(b) hereof or under
the Social Security or state disability insurance programs.
(d) Resignation For Good Reason. The Executive may
resign for Good Reason, upon at least thirty (30) days' prior written notice
from the Executive to the Board of his intent to resign for Good Reason pursuant
to Clause (iii) of this subparagraph, and upon at least 10 days' prior written
notice from the Executive to the Board of his intent to resign for Good Reason
pursuant to Clause (i), (ii), (iv) or (v) of this subparagraph, provided that
the Executive (together with Executive's legal counsel) shall meet with the
Board, if requested by the Board during such period with respect to his intent
to resign. " Good Reason" shall mean any (i) reduction in the Executive's Base
Salary or opportunity to participate in the Bonus Plan, as set forth herein,
(ii) relocation of the Executive's principal place of business to a location
which is more than 10 miles from its current location in American Fork, Utah
(without the Executive's consent), (iii) material diminution in the Executive's
duties, responsibilities or reporting position with the Company, which
diminution continues after written notice thereof is given to the Board by the
Executive, (iv) failure by the Company to continue in effect any material
benefit or compensation plan, life insurance plan, health and accident plan,
disability plan (or plan providing the Executive with substantially similar
benefits) in which the Executive is participating or the material reduction of
the Executive's benefits under any such plans or (v) failure by Company to
obtain the agreement to assume and perform this Agreement by any successor of
Company.
(e) Termination By The Company For Any Other Reason
or
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<PAGE> 12
Resignation For Good Reason. In the event that Executive's employment hereunder
is terminated by the Company during the Agreement Term for any reason other than
as provided in Sections 7(b) or 7(c) hereof or in the event that Executive
resigns for Good Reason, then the Company shall pay to Executive, within thirty
(30) days of the date of such termination or resignation, only the Base Salary
through such date of termination and, in lieu of any further compensation and
benefits for the balance of the Agreement Term, severance pay equal only to the
Base Salary that Executive would have otherwise received during the period
beginning on such date of termination or resignation and ending on the last day
of the twelfth month following such date of termination or resignation, which
severance pay shall be paid commencing with such date of termination or
resignation at the times and in the amounts such Base Salary would have been
paid if Executive had not been terminated or resigned. Executive shall also
receive his bonus on a pro-rated basis through his last day of employment.
Except as set forth below, during such] twelve month period, Executive shall
also continue to participate in and receive the benefits and perquisites
provided for in Section 3(g) hereof to the same extent as if Executive's
employment hereunder had not been terminated or resigned; provided, however,
that in the event that Executive shall breach Sections 5, 6 or 9 hereof, in
addition to any other remedies the Company may have, the Company' obligation
pursuant to this Section 7(e) to pay severance, bonus, and to continue benefits
and perquisites shall cease and Executive's rights thereto shall terminate and
shall be forfeited and Executive shall reimburse and repay to Company any
severance or bonus paid by Company to Executive between the date of termination
and the date such payments by the Company ceased.
(f) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 7 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment and continuing benefits and
perquisites pursuant to and in accordance with this Section 7 (as applicable),
the Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to Executive or any other person or entity under
this Agreement. The Company shall have the right to condition the payment of any
severance or other amounts pursuant to this Section 7 upon the delivery by
Executive to the Company of a release (in form and substance satisfactory to the
Company) of any and all claims Executive may have against the Company and its
directors, officers, employees, subsidiaries, affiliates, stockholders,
successors, assigns, agents and representatives arising out of or related to
Executive's employment by the Company and termination of such employment.
8. Change of Control.
If subsequent to the date hereof, there is an Acquisition of
Control, as defined hereafter, of the Company, and any time within one year
thereafter, (i) Executive's employment with the Company is terminated by the
Company without Cause or (ii) Executive resigns for Good Reason, as defined
hereinabove, then in either case Executive shall be entitled to receive a
severance equal to one year base salary at the time of termination, which
severance pay shall be paid commencing with such date of termination or
resignation at the time and in the amounts such Base Salary would have been paid
if Executive had not been terminated or resigned and
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<PAGE> 13
the Company shall continue all benefits coverage of you and your dependents
under the Company's medical and other benefits plans or policies (or under other
benefits plans or policies that provide substantially equivalent coverage) for a
period of one year. Subject to the immediately following sentences, the stock
option agreements (the "Stock Option Agreement"), covering the options granted
to you in connection with your employment (the "Options"), will be amended to
provide for an acceleration of the vesting of such options upon the
circumstances described above. Notwithstanding anything to the contrary
contained in this Agreement or the Stock Option Agreements, there shall be no
acceleration of the vesting of any Options to the extent that the Board of
Directors determines that either the amendment of the Stock Option agreements or
the acceleration of the vesting of any of the Options as contemplated in the
immediately preceding sentence could adversely affect the Company or any of its
affiliates' ability to account for any transaction or contemplated transaction
as a pooling of interests.
"Acquisition of Control" shall mean:
(i) a person, including a group, becoming the beneficial owner
of, or acquiring the power to direct the exercise of voting power with
respect to, directly or indirectly securities which represent fifty
percent (50%) or more of the combined voting power of the Company's
outstanding securities thereafter (and "Acquiring Person"); or (ii) the
Incumbent Directors cease at any time to constitute a majority of the
Board of Directors of the Company.
"Cause" shall mean as defined in paragraph 7(b) hereinabove.
"Incumbent Director" shall mean:
any director of the Company serving at May 6, 1999, or one
elected thereafter if nominated by at least two-thirds of the then
Incumbent Directors.
9. Confidential Information.
(a) Confidential Information. "Confidential
Information" shall mean confidential records and information, including, but not
limited to, development, marketing, purchasing, organizational, strategic,
financial, managerial, administrative, manufacturing, production, distribution
and sales information, distribution methods, data, specifications and processes
(including the Transferred Property as hereinafter defined) presently owned or
at any time hereafter developed by the Company or its agents or consultants or
used presently or at any time hereafter in the course of the business of the
Company, that are not otherwise part of the public domain.
(b) Transfer of Property by Executive. Executive
hereby sells, transfers and assigns to the Company, or to any person or entity
designated by the Company, all of his entire right, title and interest in and to
all inventions, ideas, disclosures and improvements (the "Inventions"), whether
patented or unpatented, and copyrightable material and all trademarks, trade
names, all goodwill associated therewith and all federal and state registrations
or applications thereof, made, adopted or conceived by Executive solely or
jointly, in whole or in part (collectively, the "Transferred Property"), prior
to or during the Agreement Term which (i) relate to methods, apparatus, designs,
products, processes or devices sold,
- 7 -
<PAGE> 14
leased, used or under construction or development by the Company or (ii)
otherwise relate to or pertain to the business, products, services, functions or
operations of the Company. Executive shall make adequate written records of all
Inventions, which records shall be the Company's property and shall communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned Inventions.
Whether during the Agreement Term or thereafter, Executive shall execute and
deliver to the Company such formal transfers and assignments and such other
papers and documents as may be required of Executive to permit the Company, or
any person or entity designated by the Company, to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyrights thereon,
and as to trademarks, to record the transfer of ownership of any federal or
state registrations or applications.
(c) Protection of Confidential Information. All such
Confidential Information is considered secret and will be disclosed to the
Executive in confidence, and the Executive acknowledges that, as a consequence
of his employment and position with the Company, the Executive may have access
to and become acquainted with Confidential Information. Except in the
performance of his duties as an employee of the Company, the Executive shall
not, during the Agreement Term and at all times thereafter, directly or
indirectly for any reason whatsoever, disclose or use any such Confidential
Information. All records, files, drawings, documents, equipment and other
tangible items, wherever located, relating in any way to or containing
Confidential Information, which the Executive has prepared, used or encountered
or shall in the future prepare, use or encounter, shall be and remain the
Company's sole and exclusive property and shall be included in the Confidential
Information. Upon termination of this Agreement, or whenever requested by the
Company, the Executive shall promptly deliver to the Company any and all of the
Confidential Information and copies thereof, not previously delivered to the
Company, that may be in the possession or under the control of the Executive.
The foregoing restrictions shall not apply to the use, divulgence, disclosure or
grant of access to Confidential Information to the extent, but only to the
extent, (i) expressly permitted or required pursuant to any other written
agreement between the Executive and the Company, (ii) such Confidential
Information has been publicly disclosed (not due to a breach by the Executive of
his obligations hereunder, or by breach of any other person, of a fiduciary or
confidential obligation to the Company) or (iii) the Executive is required to
disclose Confidential Information by or to any court of competent jurisdiction
or any governmental or quasi-governmental agency, authority or instrumentality
of competent jurisdiction, provided, however, that the Executive shall, prior to
any such disclosure, immediately notify the Company of such requirement and
provided further, however, that the Company shall have the right, at its
expense, to object to such disclosures and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine.
10. Assignment and Transfer.
(a) Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the heirs and representatives of the Executive
and the successors and assigns of Company. Company shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of assets or stock, liquidation, or otherwise), by agreement in form
and substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
Company would be required to perform this Agreement if no such succession had
taken place. Regardless of whether such agreement is executed, this Agreement
shall be binding upon any
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<PAGE> 15
successor of Company in accordance with the operation of law, and such successor
shall be deemed to be the "Company", as appropriate, for purposes of this
Agreement.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment, by operation of
law or otherwise, and any purported assignment, transfer or delegation thereof
shall be void; provided, however, that if Executive shall die, all amounts then
payable to Executive hereunder shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
11. Miscellaneous.
(a) Other Obligations. Executive represents and
warrants that neither Executive's employment with the Company nor Executive's
performance of Executive's obligations hereunder will conflict with or violate
or otherwise be inconsistent with any other obligations, legal or otherwise,
which Executive may have.
(b) Nondisclosure; Other Employers. Executive will
not disclose to the Company, or use or induce the Company to use, any
proprietary information, trade secrets or confidential business information of
others. Executive represents and warrants that Executive has returned all
property, proprietary information, trade secrets and confidential business
information belonging to all prior employers.
(c) Cooperation. Following notice of termination of
employment with the Company, Executive shall cooperate with the Company, as
requested by the Company, to affect a transition of Executive's responsibilities
and to ensure that the Company is aware of all matters being handled by
Executive.
(d) Protection of Reputation. During the Agreement
Term and thereafter, Executive agrees that he will not take action which is
intended or would reasonably be expected to harm the Company or its reputation
or which would reasonably be expected to lead to unwanted or unfavorable
publicity to the Company.
(e) Governing Law/Jurisdiction/Process. This
Agreement, including the validity, interpretation, construction and performance
of this Agreement, shall be governed by and construed in accordance with the
internal laws of the State of New York, without regard to principles of
conflicts of law. All actions and proceedings relating to or arising out of this
Agreement shall be litigated solely in any New York state court or United States
federal court located in Suffolk County, New York. The parties hereto expressly
consent to the jurisdiction of any such court and to venue therein and consent
to the service of process in any such action or proceeding in a manner pursuant
to that set forth in paragraph (m) hereafter for the giving of notices.
(f) Entire Agreement. This Agreement, contains the
entire agreement and understanding between the parties hereto in respect of the
subject matter hereof and supersedes, cancels and annuls any prior or
contemporaneous written or oral agreements, understandings, commitments and
practices between them respecting the subject matter hereof.
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<PAGE> 16
(g) Amendment. This Agreement may be amended only by
a writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Executive and, on behalf of the Company, by its
duly authorized officer.
(h) Severability. If any of the provisions of this
Agreement shall otherwise contravene or be invalid under the laws of any state
or other jurisdiction where it is applicable but for such contravention or
invalidity, such contravention or invalidity shall not invalidate all of the
provisions of this Agreement, but rather the Agreement shall be reformed and
construed, insofar as the laws of that state or jurisdiction are concerned, as
not containing the provisions or provisions but only to the extent that they are
contravening or are invalid under the laws of that state or jurisdiction, and
the rights and obligations created hereby shall be reformed and construed and
enforced accordingly. In particular, if any of the covenants or provisions set
forth in paragraphs 5, 6, or 9 hereunder or any part hereof is held to be
unenforceable because of the duration of such provision or the areas covered
thereby, or otherwise, the parties hereby expressly agree that the court making
such determination shall have the power to reduce the duration and/or the areas
of such provision or otherwise limit any such provision, and, in its reduced
form, such provision shall then be enforceable.
(i) Construction. The headings and captions of this
Agreement are provided for convenience only and shall have no effect in
construing or interpreting this Agreement. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As used
herein, the words "day" or "days" shall mean a calendar day or days.
(j) Non-waiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(k) Remedies for Breach. The parties hereto agree
that Executive is obligated under this Agreement to render personal services
during the Agreement Term of a special, unique, unusual, extraordinary and
intellectual character, thereby giving this Agreement peculiar value, and, in
the event of a breach or threatened breach of any provision of this Agreement by
Executive, the injury or imminent injury to the value and the goodwill of the
Company's business could not be reasonably or adequately compensated in damages
in an action at law. Accordingly, Executive expressly acknowledges that the
Company shall be entitled to specific performance, injunctive relief or any
other equitable remedy against Executive, without the posting of a bond, in the
event of any breach or threatened breach of any provision of this Agreement by
Executive (including Sections 5, 6 and 9 hereof). Without limiting the
generality of the foregoing, if Executive breaches or threatens to breach
Sections 5, 6 or 9 hereof, such breach or threatened breach will entitle the
Company to an Order of the Court enjoining Executive from breaching any of the
provisions of Section 5, 6 or 9, as is appropriate. The rights and remedies of
the parties hereto are cumulative and shall not be exclusive, and each such
party shall be entitled to pursue all legal and equitable rights and remedies
and to secure performance of the obligations and duties of the other under this
Agreement, and the enforcement of one or more of such rights and remedies by a
party shall in no way preclude such party from pursuing, at the same time or
subsequently, any and all other
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<PAGE> 1
Exhibit 10.43
- --------------------------------------------------------------------------------
TWIN LABORATORIES INC., as Issuer,
and
THE GUARANTORS NAMED HEREIN
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
FOURTH SUPPLEMENTAL INDENTURE
Dated as of January 25, 2O00
to
INDENTURE
Dated As of May 7, 1996 as supplemented as of
December 1, 1997, as of May 14, 1998
and as of September 15, 1998
----------
10-1/4% Senior Subordinated Notes due 2006
<PAGE> 2
FOURTH SUPPLEMENTAL INDENTURE, dated as of January 25, 2000, by and
among TWIN LABORATORIES INC., a Utah corporation (the "Company"), ADVANCED
RESEARCH PRESS, INC., a New York corporation ("Advanced"), TWINLAB CORPORATION,
a Delaware corporation formerly named TLG Laboratories Holding Corp. ("Holding
Company"), CHANGES INTERNATIONAL OF FORT WALTON BEACH, INC., a Florida
corporation ("Changes"), BRONSON LABORATORIES INC., a Delaware Corporation
("Bronson"), HEALTH FACTORS INTERNATIONAL, INC., a Delaware corporation ("Health
Factors"), PR NUTRITION, INC., a California corporation ("PR Nutrition"), and
Twinlab FSC Inc., a Barbados corporation ("FSC"), as Guarantors, and State
Street Bank and Trust Company, a Massachusetts bank and trust company (successor
to Fleet National Bank), as Trustee (the "Trustee").
WHEREAS, the Company, Advanced, Holding Company and Fleet National
Bank, as Trustee, executed an Indenture, dated as of May 7, 1996 (the
"Indenture"), in respect of $100,000,000 aggregate principal amount of the
Company's 10-1/4% Senior Subordinated Notes due 2006 (the "Securities");
WHEREAS, State Street Bank and Trust Company is the successor to
Fleet National Bank, as Trustee under the Indenture;
WHEREAS, the Company, Advanced, Holding Company, Changes and the
Trustee executed the First Supplemental Indenture dated as of December 1, 1997
(the "First Supplemental Indenture");
WHEREAS, the Company, Advanced, Holding Company, Changes, Bronson,
Health Factors and the Trustee executed the Second Supplemental Indenture dated
as of May 14, 1998 (the "Second Supplemental Indenture");
WHEREAS, the Company, Advanced, Holding Company, Changes, Bronson,
Health Factors, PR Nutrition and the Trustee executed the Third Supplemental
Indenture dated as of September 15, 1998 (the "Third Supplemental Indenture");
WHEREAS, the term Indenture as hereinafter used in this Fourth
Supplemental Indenture shall mean the Indenture as amended by the First
Supplemental Indenture, the Second Supplemental Indenture and the Third
Supplemental Indenture;
WHEREAS, Section 11.3 of the Indenture requires, under circumstances
specified in Section 11.3, that certain Subsidiaries of the Company execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Subsidiaries of the Company shall be named as additional Subsidiary Guarantors;
and
WHEREAS, all conditions and requirements necessary to make this
Fourth Supplemental Indenture a valid, binding and legal instrument in
accordance with its terms have
<PAGE> 3
been performed and fulfilled and the execution and delivery hereof have been in
all respects duly authorized.
NOW, THEREFORE, in consideration of the above premises, each party
agrees, for the benefit of each other party and for the equal and ratable
benefit of the Holders of the Securities, as follows:
ARTICLE I
AMENDMENTS
Section 1. The Company, Advanced, Holding Company, Changes, Bronson,
Health Factors, PR Nutrition and FSC and the Trustee hereby amend the Indenture
and agree that FSC shall be a Subsidiary Guarantor, a Guarantor and a Future
Subsidiary Guarantor for all purposes under the Indenture and each of the terms
"Subsidiary Guarantor", "Guarantor" and "Future Subsidiary Guarantor" shall for
all purposes under the Indenture specifically include FSC.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1. Terms Defined. For all purposes of this Fourth
Supplemental Indenture, except as otherwise defined or unless the context
otherwise requires, terms used in capitalized form in this Fourth Supplemental
Indenture and defined in the Indenture have the meanings specified in the
Indenture.
Section 2.2. Indenture. Except as amended hereby, the Indenture and
the Securities are in all respects ratified and confirmed and all their terms
shall remain in full force and effect.
Section 2.3. Governing Law. THIS FOURTH SUPPLEMENTAL INDENTURE 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 CONFLICT OF LAWS.
Section 2.4. Successors and Assigns. All agreements of the Company,
Advanced, Holding Company, Changes, Bronson, Health Factors, PR Nutrition and
FSC in this Fourth Supplemental Indenture and the Securities shall bind their
respective successors and assigns.
- 3 -
<PAGE> 4
Section 2.5. Multiple Counterparts. This Fourth Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
Section 2.6. Effectiveness. The provisions of this Fourth
Supplemental Indenture shall become effective immediately upon its execution and
delivery by the Trustee in accordance with the provisions of Article IX of the
Indenture.
Section 2.7. Trustee Disclaimer. The Trustee accepts the amendment
of the Indenture effected by this Fourth Supplemental Indenture and agrees to
execute the trust created by the Indenture as hereby amended, but only upon the
terms and conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liabilities and responsibilities of the
Trustee, which terms and provisions shall in like manner define and limit its
liabilities and responsibilities in the performance of the trust created by the
Indenture as hereby amended, and, without limiting the generality of the
foregoing, the Trustee shall not be responsible in any mariner whatsoever for or
with respect to any of the recitals (other than the second recital) or
statements contained herein, all of which recitals or statements are made solely
by the Company, Advanced, Holding Company, Changes, Bronson, Health Factors, PR
Nutrition and FSC or for or with respect to (i) the validity, efficacy or
sufficiency of this Fourth Supplemental Indenture or any of the terms or
provisions hereof, (ii) the proper authorization hereof by the Company,
Advanced, Holding Company, Changes, Bronson, Health Factors, PR Nutrition and
FSC by corporate action or otherwise, (iii) the due execution hereof by the
Company, Advanced, Holding Company, Changes, Bronson, Health Factors, PR
Nutrition and FSC, or (iv) the consequences (direct or indirect and whether
deliberate or inadvertent) of any amendment herein provided for, and the Trustee
makes no representation with respect to any such matters.
Section 2.8 Headings. The headings of the Articles and Sections of
this Fourth Supplemental Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[Remainder of Page Intentionally Blank]
- 4 -
<PAGE> 5
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed, all as of the date first written
above.
TWIN LABORATORIES INC., TWINLAB CORPORATION,
as Issuer
By: /s/ Ross Blechman By: /s/ Ross Blechman
-------------------------------- ----------------------------------
Name: Ross Blechman Name: Ross Blechman
Title: Chairman, CEO, President Title: Chairman, CEO, President
ADVANCED RESEARCH PRESS, CHANGES INTERNATIONAL OF
INC. FORT WALTON BEACH, INC.
By: /s/ Ross Blechman By: /s/ Ross Blechman
-------------------------------- ----------------------------------
Name: Ross Blechman Name: Ross Blechman
Title: Executive Vice President Title: Chairman
BRONSON LABORATORIES, INC. HEALTH FACTORS
INTERNATIONAL, INC.
By: /s/ Ross Blechman By: /s/ Ross Blechman
-------------------------------- ----------------------------------
Name: Ross Blechman Name: Ross Blechman
Title: Chairman, CEO, President Title: Chairman, CEO, President
TWINLAB FSC INC. PR NUTRITION, INC.
By: /s/ Ross Blechman By: /s/ Ross Blechman
-------------------------------- ----------------------------------
Name: Ross Blechman Name: Ross Blechman
Title: Title: Chairman & CEO
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ Elizabeth C. Hammer
--------------------------------
Name: Elizabeth C. Hammer
Title: VICE PRESIDENT
- 5 -
<PAGE> 1
Exhibit 10.44
ORIGINAL
FIRST AMENDMENT AND WAIVER
FIRST AMENDMENT AND WAIVER, dated as of March 22, 1999 (this
"Amendment"), to the Amended and Restated Credit and Guarantee Agreement, dated
as of November 15, 1996 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Twinlab Corporation, a Delaware
corporation ("Holdings"), Twin Laboratories Inc., a Utah corporation (the
"Borrower"), the several banks and other financial institutions parties to the
Credit Agreement (the "Lenders"), The Bank of New York, as documentation agent
for the Lenders thereunder (in such capacity, the "Documentation Agent"), and
The Chase Manhattan Bank, as administrative agent for the Lenders thereunder (in
such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Administrative Agent
and the Lenders amend the Credit Agreement (i) to allow Holdings to repurchase
up to 5 million shares of its common stock in the open market or in privately
negotiated transactions for an aggregate amount of up to $40,000,000; and (ii)
to waive certain covenants and defaults arising from the Borrower's failure to
deliver certain financial statements in accordance with GAAP or to give prompt
notice of pending or threatened claims, litigations and proceedings, and confirm
that the terms of the financing from Zions First National Bank are reasonably
satisfactory to them;
WHEREAS, the Administrative Agent and the Lenders are willing to
agree to the requested amendments and waivers on the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement shall have their defined meanings when used herein.
2. Amendments to the Credit Agreement. (a) Subsection 4.2 of the
Credit Agreement is hereby amended by changing the date in clause (a) thereof to
the following:
"September 30, 1998 (after giving effect to the restatement of the
consolidated financial statements of the Borrower for the fiscal quarter
then ended as described in the press release of Holdings dated February
24, 1999)."
(b) Subsection 4.6 of the Credit Agreement is hereby amended by
inserting the phrase "and Schedule 4.6A" immediately following the phrase
"Schedule 4.6" therein.
(c) Subsection 4.16 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing immediately prior to subclause (iv) of said
subsection; (ii)
<PAGE> 2
2
inserting a ";" at the end of subclause (iii) of said subsection; (iii)
replacing the period at the end of subclause (iv) of said subsection with a ";"
and (iv) inserting the following new clause following subclause (iv) of said
subsection:
"and (v) amounts used to make Restricted Payments pursuant to
subsection 7.7(f)."
(d) Section 4 of the Credit Agreement is hereby amended by adding
the following subsection after subsection 4.22:
"4.23 Year 2000 Matters. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning
would otherwise be impaired by the occurrence of the year 2000) in and
following the year 2000 of computer systems and other equipment containing
embedded microchips, in either case owned or operated by the Borrower or
any of its Subsidiaries in the conduct of their business (including any
such systems and other equipment supplied by others), and the testing of
all such systems and other equipment as so reprogrammed, will be completed
by September 30, 1999. The costs to the Borrower and its Subsidiaries that
have not been incurred as of the date hereof for such reprogramming and
testing and for the other reasonably foreseeable consequences to them of
any improper functioning of other computer systems and equipment
containing embedded microchips due to the occurrence of the year 2000
could not reasonably be expected to result in a Default or Event of
Default or to have a Material Adverse Effect. Except for any reprogramming
referred to above, the computer systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Credit Agreement to be, sufficient in all
material aspects for the conduct of their business as currently
conducted."
(e) Subsection 7.7 of the Credit Agreement is hereby amended by (i)
inserting "or Holdings" immediately before the phrase "or any warrants or
options to purchase any such Stock" in the introductory paragraph of said
subsection; and (ii) inserting the following phrase immediately before the
phrase "except that" in the introductory paragraph of said subsection:
"or enter into any derivatives or other transaction with any financial
institution, commodities or stock exchange or clearinghouse (a
"Derivatives Counterparty") obligating it to make payments to such
Derivatives Counterparty as a result of any change in market value of any
such Capital Stock (any such transaction, an "Equity Derivatives
Transaction"),"
(f) Subsection 7.7 of the Credit Agreement is further amended by (i)
deleting the word "and" appearing immediately prior to subclause (e) of said
subsection, (ii) replacing the period at the end of subclause (e) with "; and"
and (iii) inserting the following new clause following subclause (e):
<PAGE> 3
3
"(f) the Borrower may make any Restricted Payment to enable Holdings
to repurchase its common stock, provided that, after giving effect to any
such Restricted Payment: (i) no Default or Event of Default shall have
occurred and be continuing; (ii) the Restricted Payments made under this
paragraph (f) after the Amendment Effective Date (as defined in the First
Amendment and Waiver to this Credit Agreement) do not exceed $40,000,000;
(iii) the amount available for borrowing by the Borrower under the
Revolving Credit Commitments is not less than $15,000,000 and (iv) the
Borrower shall be in pro forma compliance with the covenants in subsection
7.1 as of the end of the most recent fiscal quarter for which financial
statements are available (assuming that the Restricted Payments made under
this paragraph (f) had been made as of the first day of the four-fiscal
quarter period ended with such most recent fiscal quarter).
(g) Subsection 8.1 of the Credit Agreement is hereby amended by
inserting the following phrase before the word "and" that appears immediately
before subclause (iii)(E) of said subsection:
", and the repurchase of its common stock in respect of which Restricted
Payments were or may be made by the Borrower under subsection 7.7(f) in an
amount sufficient to cover the maximum amount payable by Holdings
thereunder."
(h) The Credit Agreement is hereby amended by adding thereto a new
Schedule 4.6A as set forth in Annex A to this Amendment setting forth certain
additional litigation (the "New Scheduled Litigation").
3. Waivers to the Credit Agreement. (a) Waiver of Covenants. The
Administrative Agent and the Lenders hereby waive compliance by the Borrower
with the provisions of subsections 6.1, 6.2, 6.6 and 6.7 of the Credit
Agreement, solely insofar as the Borrower's failure to (i) deliver monthly or
quarterly financial statements in accordance with GAAP for the first three
fiscal quarters of its 1998 fiscal year or (ii) give prompt notice to the
Administrative Agent of pending or threatened claims, litigations or proceedings
affecting the Borrower and Holdings as disclosed on Schedule 4.6A might
otherwise be deemed to result in a breach of any of the covenants contained in
such subsections.
(b) Waiver of Representations and Warranties. The Administrative
Agent and the Lenders hereby waive any breach by the Borrower of any
representation or warranty made or deemed to be made by it pursuant to
subsection 5.2 of the Credit Agreement, solely insofar as such breach arises out
of the matters described in clauses (i) and (ii) of Section 3(a) of this
Amendment or the New Scheduled Litigation.
(c) Waiver of Certain Defaults. The Administrative Agent and the
Lenders hereby agree that the waivers contained in Sections 3(a) and 3(b) of
this Amendment shall have effect for purposes of subsections 10(b) and 10(d) of
the Credit Agreement.
4. Agreement of Required Lenders. By their execution of this
Amendment, the Required Lenders confirm (a) for purposes of subsection 7.2(1) of
the Credit Agreement, that the terms of the financing from Zions First National
Bank described in the term sheet attached
<PAGE> 4
4
hereto as Annex B to this Amendment are reasonably satisfactory to them and (b)
that the Administrative Agent is authorized in its discretion to enter into a
subordination agreement on terms acceptable to the Administrative Agent
subordinating the lien benefitting the Administrative Agent and the lenders on
the property referred to in said term sheet to a lien thereon benefitting Zions
First National Bank and securing its financing.
5. Conditions to Effectiveness. This Amendment shall be effective on
the conditions that (a) the Administrative Agent shall have received
counterparts hereof, duly executed and delivered by the Borrower and Holdings
and consented to by the Required Lenders and the Grantors under the Guarantee
and Collateral Agreement dated as of May 7, 1996 (the "Guarantee and Collateral
Agreement") among Holdings, the Borrower, the Subsidiary Guarantors named
therein and the Administrative Agent; (b) the Administrative Agent shall have
received, for the account of each Lender which executes and delivers this
Amendment, an amendment fee in the amount of $7,500 per Lender; (c) no Default
or Event of Default shall have occurred and be continuing on the date hereof
after giving effect to this Amendment; and (d) the Administrative Agent shall
have received drafts of restated consolidated financial statements for the first
three fiscal quarters of the 1998 fiscal year of the Borrower, together with
certificates with respect thereto, as contemplated by subsection 6.2(b) of the
Credit Agreement, and such financial statements shall be consistent with the
press release of Holdings dated February 24, 1999. The date on which all of the
above conditions are met shall be the date of effectiveness of this Amendment
(the "Amendment Effective Date").
6. Representations and Warranties. In order to induce the
Administrative Agent and the Lenders to enter into this Amendment, the Borrower
and Holdings hereby represent and warrant to the Administrative Agent and the
Lenders that (a) the representations and warranties of the Borrower and Holdings
contained in the Loan Documents are true and correct in all material respects on
and as of the Amendment Effective Date (after giving effect hereto) as if made
on and as of the Amendment Effective Date (except where such representations and
warranties expressly relate to an earlier date in which case such
representations and warranties were true and correct in all material respects as
of such earlier date); provided that all references to the "Credit Agreement" in
any Loan Document shall be and are deemed to mean the Credit Agreement as
amended hereby; and (b) the financial statements delivered to the Administrative
Agent and the Lenders pursuant to Section 5(d) of this Amendment will present
fairly in accordance with GAAP the consolidated financial conditions of the
Borrower and Holdings as at such date and the consolidated results of their
operations for the fiscal quarter then ended.
7. Notice of Effectiveness. The Administrative Agent shall promptly
advise the Lenders and the Borrower that this Amendment has become effective.
8. Applicable Law and Jurisdiction. This Amendment has been executed
and delivered in New York, New York, and the rights and obligations of the
parties hereto shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of New York.
<PAGE> 5
5
9. Counterparts. This Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
10. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the Borrower and Holdings and their respective
successors and assigns, and upon the Administrative Agent and the Lenders and
their successors and assigns. The execution and delivery of this Amendment by
any Lender prior to the Amendment Effective Date shall be binding upon its
successors and assigns and shall be effective as to any loans or commitments
assigned to it after such execution and delivery.
11. Continuing Effect. Except as expressly amended hereby, the
Credit Agreement as amended by this Amendment shall continue to be and shall
remain in full force and effect in accordance with its terms. This Amendment
shall not constitute an amendment or waiver of any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as an
amendment, waiver or consent to any action on the part of the Borrower and
Holdings that would require an amendment, waiver or consent of the
Administrative Agent or the Lenders except as expressly stated herein. Any
reference to the "Credit Agreement" in the Loan Documents or any related
documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment.
<PAGE> 6
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By:
-------------------------------------------
Name:
Title:
TWIN LABORATORIES INC.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By:
-------------------------------------------
Name:
Title:
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 7
7
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 8
8
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG,
GRAND CAYMAN ISLAND BRANCH, as a Lender
By:
------------------------------
Name:
Title:
ZIONS FIRST NATIONAL BANK, as a Lender
By:
------------------------------
Name:
Title:
ADVANCED RESEARCH PRESS, INC., as a Grantor
By:
------------------------------
Name:
Title:
<PAGE> 9
ANNEX A
Schedule 4.6A
New Scheduled Litigation
<PAGE> 10
ANNEX B
Financing from Zions First National Bank
[See Attached Term Sheet]
<PAGE> 11
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By: /s/ Kristen Burke
------------------------------
Name: Kristen Burke
Title: Vice President
<PAGE> 12
5
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By:
-------------------------------------------
Name:
Title:
TWIN LABORATORIES INC.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By:
-------------------------------------------
Name:
Title:
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By: /s/ Steven E. Ratner
------------------------------
Name: Steven E. Ratner
Title: Vice President
<PAGE> 13
7
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
-----------------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By: /s/ John W. Sweeney
-----------------------------------------
Name: JOHN W. SWEENEY
Title: ASSISTANT VICE PRESIDENT
By: /s/ Beverly G. Cason
-----------------------------------------
Name: BEVERLY G. CASON
Title: VICE PRESIDENT
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
-----------------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By:
-----------------------------------------
Name:
Title:
<PAGE> 14
7
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
-----------------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By: /s/ Kurt D. Egertson
------------------------------------------
Name: Kurt D. Egertson
Title: Vice President
EUROPEAN AMERICAN BANK, as a Lender
By:
-----------------------------------------
Name:
Title:
<PAGE> 15
7
GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN, GRAND CAYMAN
ISLAND BRANCH, as a Lender
By:
-----------------------------------------
Name:
Title:
ZIONS FIRST NATIONAL BANK, as a Lender
By: /s/ P. Boyd Hales
-----------------------------------------
Name: P. Boyd Hales
Title: Vice President
ADVANCED RESEARCH PRESS, INC., as a Grantor
By:
-----------------------------------------
Name:
Title:
<PAGE> 16
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By:
-------------------------------------------
Name:
Title:
TWIN LABORATORIES INC.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By: /s/ Dawn Lee Lum
-------------------------------------------
Name: Dawn Lee Lum
Title: Vice President
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 17
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By: /s/ Linda E.C. Alto
---------------------------------
Name: LINDA E.C. ALTO
Title: VP
DRESDNER BANK A.G. NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
FIRST BANK NATIONAL ASSOCIATION, as a Lender
By:
------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 18
8
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG, GRAND CAYMAN ISLAND
BRANCH, as a Lender
By: /s Rima Terradista /s/ John S. Runnion
--------------------------------------------
Name: RIMA TERRADISTA JOHN S. RUNNION
Title: Vice President FIRST VICE PRESIDENT
ZIONS FIRST NATIONAL BANK, as a Lender
By:
-------------------------------------------
Name:
Title:
ADVANCED RESEARCH PRESS, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.45
EXECUTION COPY
SECOND AMENDMENT
SECOND AMENDMENT, dated as of November 12, 1999 (this "Amendment"),
to the Amended and Restated Credit and Guarantee Agreement, dated as of November
15, 1996 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Twinlab Corporation, a Delaware corporation
("Holdings"), Twin Laboratories Inc., a Utah corporation (the "Borrower"), the
several banks and other financial institutions parties to the Credit Agreement
(the "Lenders"), The Bank of New York, as co-agent for the Lenders thereunder
(in such capacity, the "Co Agent"), and The Chase Manhattan Bank, as
administrative agent for the Lenders thereunder (in such capacity, the
"Administrative Agent").
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Lenders, the Co-Agent and the
Administrative Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Administrative Agent,
with the consent of the Required Lenders, amend certain provisions of the Credit
Agreement; and
WHEREAS, the Administrative Agent and the Lenders are willing to
agree to the requested amendments on the terms and conditions contained herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement shall have their defined meanings when used herein.
2. Amendment to Subsection 4.23 of the Credit Agreement. Subsection
4.23 of the Credit Agreement is hereby amended by deleting the date "September
30, 1999" therein and substituting, in lieu thereof, "November 30, 1999".
3. Amendment to Subsection 7.1 of the Credit Agreement. Subsection
7.1 of the Credit Agreement is hereby amended by deleting such subsection in its
entirety and substituting, in lieu thereof, the following:
"7.1 Financial Condition Covenants.
(a) Leverage Ratio. Permit the ratio of (i) Consolidated Total Debt
at the last day of any fiscal quarter ending during any "Test Period" set
forth below to (ii)
<PAGE> 2
2
Consolidated EBITDA for the period of four consecutive fiscal quarters ending on
such date to be greater than the amount set forth opposite such period below:
<TABLE>
<CAPTION>
Test Period Ending Leverage Ratio
------------------ --------------
<S> <C>
12/31/96 4.25 to 1.00
12/31/97 4.00 to 1.00
12/31/98 3.75 to 1.00
12/23/99 and thereafter 3.00 to 1.00
</TABLE>
(b) Interest Coverage Ratio. Permit for any period of four
consecutive fiscal quarters ending on the last day of any fiscal year the
ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated Cash
Interest Expense for such period to be less than the amount set forth
opposite such period below:
<TABLE>
<CAPTION>
Test Period Ending Interest Coverage Ratio
------------------ -----------------------
<S> <C>
12/31/96 1.75 to 1.00
12/31/97 2.20 to 1.00
12/31/98 2.60 to 1.00
12/23/99 - 1/08/00 2.90 to 1.00
12/23/00- 1/08/01 3.00 to 1.00
12/23/01 and thereafter 3.00 to 1.00"
</TABLE>
4. Amendments to Subsection 7.2 of the Credit Agreement. (a)
Subsection 7.2(c) of the Credit Agreement is hereby amended by deleting the
amount "$5,000,000" therein and substituting, in lieu thereof, "$10,000,000".
(b)Subsection 7.2(1) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and substituting, in lieu thereof, the
following:
"(1) so long as no Default or Event of Default is continuing at the
time thereof, or would occur as a result thereof, the incurrence of
Indebtedness (including without limitation Indebtedness in respect of
Sale/Leaseback Transactions or Financing Lease Obligations) in an
aggregate principal amount not to exceed $15,000,000 at any time
outstanding to finance (or to reimburse the Borrower or its Subsidiaries
for amounts expended to finance), on terms reasonably satisfactory to the
Required Lenders, the expansion, renovation or relocation of their
manufacturing, warehouse or office facilities (including, without
limitation, any equipment related thereto), provided that, at the time of
incurrence of such Indebtedness, the Borrower shall have provided
projections to the Lenders showing that after giving effect thereto it
will be in compliance with all covenants set forth in subsection 8.1 on a
pro forma basis for each future year during the remaining term of this
Agreement;"
<PAGE> 3
3
5. Amendment to Subsection 7.8 of the Credit Agreement. Subsection
7.8 of the Credit Agreement is hereby amended by deleting such subsection
in its entirety and substituting, in lieu thereof, the following:
"7.8 Limitation on Capital Expenditures. Make or commit to make any
Capital Expenditures other than Capital Expenditures in an aggregate
amount not to exceed (i) $6,000,000 for the Borrower and its Subsidiaries
during the fiscal year of the Borrower ending on or about December 31,
1999; provided, that the Borrower and its Subsidiaries may make, or commit
to make, additional Capital Expenditures in the amount of up to
$12,500,000 in the aggregate, to be used to finance the expansion,
renovation or relocation of their manufacturing, warehouse or office
facilities (including, without limitation, any equipment related thereto);
(ii) $20,000,000 for the Borrower and its Subsidiaries during the fiscal
year of the Borrower ending on or about December 31, 2000; and (iii)
$12,000,000 per annum for the Borrower and its Subsidiaries during any
subsequent fiscal year of the Borrower; provided, that, commencing with
the fiscal year of the Borrower ending on or about December 31, 2000, (a)
Capital Expenditures not in excess of $2,000,000 permitted to be made
during any fiscal year (and not carried over from a prior fiscal year) and
not made during such fiscal year may be carried over and expended during
the next succeeding fiscal year and (b) Capital Expenditures made during
any fiscal year shall be first deemed made in respect of amounts carried
over from the prior fiscal year and then deemed made in respects of
amounts permitted for such fiscal year."
6. Amendment to Subsection 7.10 of the Credit Agreement. Subsection
7.10 of the Credit Agreement is hereby amended by deleting such subsection in
its entirety and substituting, in lieu thereof, the following:
"7.10 Limitation on Optional Payments and Modifications of Debt
Instruments and other Obligations. (a) Make any optional payment or
prepayment on or redemption, defeasance or purchase of any Senior
Subordinated Notes except (i) in accordance with the provisions of
subsection 3.1 (b)(i)(u), (ii) with the proceeds of Indebtedness permitted
under subsections 7.2(e) (in connection with the incurrence of Refinancing
Indebtedness under subsection 7.2(o)) and 7.2(o), (iii) as long as no
Default or Event of Default has occurred and is continuing, in an
aggregate cash amount not to exceed $15,000,000 unless the ratio of
Consolidated Total Debt to Consolidated EBITDA (calculated on the terms
set forth in subsection 7.1(a)) for the most recent completed four fiscal
quarters prior to any such optional payment, prepayment, redemption,
defeasance or purchase is less than or equal to 2.0 to 1.0 and then in an
aggregate cash amount not to exceed $30,000,000, and (iv) so long as (x)
no Default or Event of Default has occurred and is continuing, (y) the
amount available for borrowing by the Borrower under the Revolving Credit
Commitments is not less than $15,000,000 and (z) the ratio of Consolidated
Total Debt to Consolidated EBITDA (calculated on the terms set forth in
subsection 7.1(a)) for the most recent completed four fiscal quarters
prior to any such optional payment, prepayment, redemption, defeasance or
purchase is less than or equal to 1.5 to 1.0, in an aggregate cash amount
not to exceed $40,000,000; (b) amend, modify or change, or
<PAGE> 4
4
consent or agree to any amendment, modification or change to any of the
terms of the Senior Subordinated Note Indenture (other than any such
amendment, modification or change which (i) would extend the maturity or
reduce the amount of any payment of principal thereof or would reduce the
rate or extend the date for payment of interest thereon or (ii) does not
in any way adversely affect the interests of the Administrative Agent or
the Lenders hereunder, thereunder or under the other Loan Documents or
(iii) is of a technical or clarifying nature); (c) designate any
Indebtedness having a principal amount in excess of $20,000,000 as "Senior
Debt" under and as defined in the Senior Subordinated Note Indenture
without the consent of the Administrative Agent; or (d) amend, modify or
change, or consent or agree to any amendment, modification or change to
the articles of incorporation (or such similar charter documents) of the
Borrower or any Subsidiary in any material respect."
7. Amendment to Subsection 7.12 of the Credit Agreement. Subsection
7.12 of the Credit Agreement is hereby amended by deleting such subsection in
its entirety and substituting, in lieu thereof, the following:
"7.12 Limitation on Changes in Fiscal Year. Permit the fiscal year
of the Borrower to end on a day not falling within the period from and
including December 23 to and including January 8."
8. Amendment to Subsection 12.16 of the Credit Agreement. Subsection
12.16(a) of the Credit Agreement is hereby amended by deleting such subsection
in its entirety and substituting, in lieu thereof, the following:
"(a) The obligations arising under the Guarantee and Collateral
Agreement shall be unconditional and binding on each of Holdings and the
Borrower pursuant to the terms therein; provided that if either (i) on the
last day of any period of four fiscal quarters the ratio of Consolidated
Total Debt to consolidated EBITDA (as calculated according to the
provisions of subsection 7.1(a)) is less than 1.5 to 1.0 or (ii) ratings
of BBB- and Baa3 or above are attained by the Borrower or Holdings from
Standard & Poor's Ratings Group and Moody's Investors Services,
respectively, the Collateral pledged (but not the Guarantee contained) in
such Guarantee and Collateral Agreement shall, upon the prior written
consent of the Administrative Agent and the Required Lenders (in each
case, which consent shall not be unreasonably withheld), be released; and
provided further that if such performance criteria at any time thereafter
are not maintained, any such Collateral that has been released shall again
be pledged in favor of the Administrative Agent, for the ratable benefit
of the Lenders, pursuant to the Guarantee and Collateral Agreement."
9. Conditions to Effectiveness. This Amendment shall be effective on
the conditions that (a) the Administrative Agent shall have received
counterparts hereof, duly executed and delivered by Holdings and the Borrower
and consented to by the Required Lenders and the Grantors under the Guarantee
and Collateral Agreement dated as of May 7, 1996 (the "Guarantee and Collateral
Agreement") among Holdings, the Borrower, the Subsidiary Guarantors named
therein and the Administrative Agent; (b) the Administrative Agent shall have
<PAGE> 5
5
received, for the account of each Lender which executes and delivers this
Amendment, an amendment fee in the amount of $7,500 per Lender; and (c) no
Default or Event of Default shall have occurred and be continuing on the date
hereof after giving effect to this Amendment. The date on which all of the above
conditions are met shall be the date of effectiveness of this Amendment (the
"Amendment Effective Date").
10. Representations and Warranties. In order to induce the
Administrative Agent and the Lenders to enter into this Amendment, Holdings and
the Borrower hereby represent and warrant to the Administrative Agent and the
Lenders that the representations and warranties of Holdings, the Borrower and
the other Loan Parties contained in the Loan Documents are true and correct in
all material respects on and as of the Amendment Effective Date (after giving
effect hereto) as if made on and as of the Amendment Effective Date (except
where such representations and warranties expressly relate to an earlier date in
which case such representations and warranties were true and correct in all
material respects as of such earlier date); provided that all references to the
"Credit Agreement" in any Loan Document shall be and are deemed to mean the
Credit Agreement as amended hereby.
11. Notice of Effectiveness. The Administrative Agent shall promptly
advise the Lenders and the Borrower that this Amendment has become effective.
12. Applicable Law and Jurisdiction. This Amendment has been
executed and delivered in New York, New York, and the rights and obligations of
the parties hereto shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of New York.
13. Counterparts. This Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
14. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of Holdings and the Borrower and their respective
successors and assigns, and upon the Administrative Agent and the Lenders and
their respective successors and assigns. The execution and delivery of this
Amendment by any Lender prior to the Amendment Effective Date shall be binding
upon its successors and assigns and shall be effective as to any loans or
commitments assigned to it after such execution and delivery.
15. Continuing Effect. Except as expressly amended hereby, the
Credit Agreement as amended by this Amendment shall continue to be and shall
remain in full force and effect in accordance with its terms. This Amendment
shall not constitute an amendment or waiver of any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as an
amendment, waiver or consent to any action on the part of Holdings or the
Borrower that would require an amendment, waiver or consent of the
Administrative Agent or the Lenders except as expressly stated herein. Any
reference to the "Credit Agreement" in the Loan Documents or any related
documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment.
<PAGE> 6
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By: /s/ Ross Blechman
-------------------------------------------
Name: ROSS BLECHMAN
Title: PRESIDENT
TWIN LABORATORIES INC.
By: /s/ Ross Blechman
-------------------------------------------
Name: ROSS BLECHMAN
Title: PRESIDENT
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By:
-------------------------------------------
Name:
Title:
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 7
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By:
-------------------------------------------
Name:
Title:
TWIN LABORATORIES INC.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By: /s/ Dawn Lee Lum
-------------------------------------------
Name: DAWN LEE LUM
Title: VICE PRESIDENT
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By:
------------------------------
Name:
Title:
<PAGE> 8
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
TWINLAB CORPORATION
By:
-------------------------------------------
Name:
Title:
TWIN LABORATORIES INC.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK as
Administrative Agent, Issuing Bank, Swing Line
Lender and as a Lender
By: /s/ Dawn Lee Lum
-------------------------------------------
Name: DAWN LEE LUM
Title: VICE PRESIDENT
Consented to:
THE BANK OF NEW YORK, as Co-Agent and as a Lender
By: /s/ Mary S. McGovern
-----------------------------
Name:
Title:
<PAGE> 9
7
BANKBOSTON, N.A. formerly known as
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By: /s/ Richard D. Hill, Jr.
-----------------------------------
Name: RICHARD D. HILL, JR.
Title: Managing Director
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH, as a Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
-----------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By:
-----------------------------------
Name:
Title:
<PAGE> 10
7
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
-----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH, as a Lender
By: /s/ Anthony C. Caraballo
-----------------------------------
Name: ANTHONY C. CARABALLO
Title: VICE PRESIDENT
By: /s/ John R. Morrison
-----------------------------------
Name: JOHN R. MORRISON
Title: VICE PRESIDENT
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
-----------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By:
-----------------------------------
Name:
Title:
<PAGE> 11
7
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
By:
-----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH, as a Lender
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
-----------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK, as a Lender
By: /s/ Jennifer J. Raman
-----------------------------------
Name: Jennifer J. Raman
Title: Assistant Vice President
<PAGE> 12
8
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG,
GRAND CAYMAN ISLAND BRANCH, as a Lender
By: /s/ Rima Terradista /s/ John S. Runnion
------------------------
Name: RIMA TERRADISTA JOHN S. RUNNION
Title: Vice President FIRST VICE PRESIDENT
ZIONS FIRST NATIONAL BANK, as a Lender
By:
-------------------------------------------
Name:
Title:
ADVANCED RESEARCH PRESS, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
CHANGES INTERNATIONAL OF FORT WALTON BEACH, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
HEALTH FACTORS INTERNATIONAL, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
<PAGE> 13
8
ERSTE BANK DER OESTER REICHISCHEN SPARKASSEN AG,
GRAND CAYMAN ISLAND BRANCH, as a Lender
By:
-------------------------------------------
Name:
Title:
ZIONS FIRST NATIONAL BANK, as a Lender
By: /s/ P. Boyd Hales
-------------------------------------------
Name: P. Boyd Hales
Title: Vice President
ADVANCED RESEARCH PRESS, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
CHANGES INTERNATIONAL OF FORT WALTON BEACH, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
HEALTH FACTORS INTERNATIONAL, INC., as a Grantor
By:
-------------------------------------------
Name:
Title:
<PAGE> 14
8
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG,
GRAND CAYMAN ISLAND BRANCH, as a Lender
By:
-------------------------------------------
Name:
Title:
ZIONS FIRST NATIONAL BANK, as a Lender
By:
-------------------------------------------
Name:
Title:
ADVANCED RESEARCH PRESS, INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: ROSS BLECHMAN
Title: PRESIDENT
CHANGES INTERNATIONAL OF FORT WALTON BEACH, INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: ROSS BLECHMAN
Title: PRESIDENT
HEALTH FACTORS INTERNATIONAL, INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: ROSS BLECHMAN
Title: PRESIDENT
<PAGE> 15
9
BRONSON LABORATORIES INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: Ross Blechman
Title: President
PR NUTRITION, INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: Ross Blechman
Title: President
TWINLAB FSC INC., as a Grantor
By: /s/ Ross Blechman
-------------------------------------------
Name: Ross Blechman
Title: President
<PAGE> 1
Exhibit 21.1
Subsidiaries
Twin Laboratories Inc.
Advanced Research Press, Inc.
Changes International, Inc.
Health Factors International, Inc.
Bronson Laboratories, Inc.
PR*Nutrition, Inc.
Changes International (U.K.) Ltd.
Twinlab F.S.C., Inc.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-94831, 333-93939, 333-93937, 333-87355, 333-65933 and 333-18047 of Twinlab
Corporation each on Form S-8 of our report dated February 10, 2000, appearing in
this Annual Report on Form 10-K of Twinlab Corporation for the year ended
December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
March 27, 2000
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