<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1997
REGISTRATION NO. 333-12929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEIDER NUTRITION INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5149 87-0563574
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
ROBERT K. REYNOLDS, EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND SECRETARY
WEIDER NUTRITION INTERNATIONAL, INC.
1960 SOUTH 4250 WEST 1960 SOUTH 4250 WEST
SALT LAKE CITY, UTAH 84104-4836 SALT LAKE CITY, UTAH 84104-4836
(801) 975-5000 (801) 975-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROGER H. KIMMEL LOUIS M. CASTRUCCIO
LATHAM & WATKINS IRELL & MANELLA LLP
885 THIRD AVENUE 1800 AVENUE OF THE STARS, SUITE 900
NEW YORK, NEW YORK 10022 LOS ANGELES, CALIFORNIA 90067-4276
(212) 906-1200 (310) 277-1010
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 2, 1997
5,600,000 Shares
LOGO
WEIDER NUTRITION INTERNATIONAL, INC.
Class A Common Stock
($.01 par value)
------------------
All of the shares of Class A Common Stock, par value $.01 (the "Class A Common
Stock"), of Weider Nutrition International, Inc. (the "Company") offered hereby
are being sold by the Company. Of the 5,600,000 shares of Class A Common Stock
being offered, 4,480,000 shares are initially being offered in the United States
and Canada (the "U.S. Shares") by the U.S. Underwriters (the "U.S. Offering")
and 1,120,000 shares are initially being concurrently offered outside the United
States and Canada (the "International Shares") by the Managers (the
"International Offering" and, together with the U.S. Offering, the "Offerings").
The offering price and underwriting discounts and commissions of the U.S.
Offering and the International Offering are identical.
Prior to the Offerings, there has been no public market for the Class A Common
Stock. It is currently estimated that the initial public offering price will be
between $13.50 and $16.50 per share. For information relating to the factors to
be considered in determining the initial public offering price of the Class A
Common Stock, see "Underwriting."
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the
symbol "WNI," subject to official notice of issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN
INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted to the U.S. Underwriters and the Managers options,
each exercisable by Credit Suisse First Boston Corporation for 30 days from
the date of this prospectus, to purchase an aggregate maximum of 840,000
additional shares to cover over-allotments of shares. If the options are
exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , and Proceeds to
the Company will be $ .
The U.S. Shares are offered by the several U.S. Underwriters when, as and
if issued by the Company, delivered to and accepted by the U.S. Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
the U.S. Shares will be ready for delivery on or about , 1997, against
payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST
Prospectus dated , 1997
<PAGE> 3
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Information contained in this Prospectus contains "forward-looking statements"
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology or by discussions
of strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. This Prospectus also contains
important cautionary statements identifying factors with respect to such
forward-looking statements. See "Risk Factors." Unless otherwise indicated, all
information contained herein assumes no exercise by the U.S. Underwriters and
the Managers of their over-allotment options. Unless the context otherwise
requires, all references to the "Company" mean Weider Nutrition International,
Inc. and its subsidiaries and all references to "Weider" or the "Parent" mean
Weider Health and Fitness, the principal stockholder of the Company. All
references to numbers of shares of Common Stock reflect the exchange of all
outstanding common stock of Weider Nutrition Group, Inc. ("Weider Nutrition")
for Common Stock of the Company and a 14,371.3-for-one stock split of the Common
Stock.
THE COMPANY
The Company is a leading manufacturer of branded and private label
nutritional supplements and is a leading marketer of multiple brands of
nutritional supplements through multiple distribution channels. The Company
manufactures a broad range of capsules and tablets, powdered drink mixes,
bottled beverages and nutrition bars and markets branded products in four
principal categories: sports nutrition; vitamins, minerals and herbs; diet; and
healthy snacks. The Company markets its branded products through each key
distribution channel and is one of the leading marketers of nutritional
supplement products to the mass volume retail channel, one of the most
significant and growing distribution channels in the nutritional supplement
industry. Consistent with management's multi-channel strategy, sales of the
Company's products in fiscal 1996 were balanced among mass volume retailers,
health food stores and a combination of other channels, including health clubs
and gyms, international markets and private label manufacturing. According to a
1996 survey conducted by Packaged Facts, an independent consumer market research
firm, the principal domestic markets in which the Company's products compete
totalled approximately $6.5 billion in 1996 and grew at a compound annual growth
rate of approximately 15% from 1992 through 1996. Because of the Company's broad
portfolio of leading brands, multiple distribution channels and state-of-the art
manufacturing capabilities, the Company believes that it is uniquely positioned
to capitalize on the anticipated growth in the nutritional supplement industry.
The Company's products are currently sold in over 38,000 retail outlets in
all 50 states. The Company's customers in the mass volume retail channel
include: mass merchandisers -- Wal-Mart, Target and Kmart; drug
stores -- Walgreens, CVS, American Drug and Thrifty/Payless; warehouse
clubs -- Price Costco and Sam's Club; and supermarkets -- Albertson's, Giant and
Ralphs. The Company services the health food market by distributing its products
to General Nutrition Center ("GNC") and the leading health food distributors
(such as Tree-of-Life, Stow Mills and Nature's Best). The Company also sells
through other distribution channels, including its network of exclusive
distributors to health clubs and gyms (such as Bally's Health and Fitness and
Gold's Gym), international markets, and private label manufacturing for other
nutritional supplement companies. The Company pursues a multi-channel
distribution strategy in order to participate in the growth being experienced in
each of these channels, thereby increasing its overall share of the nutritional
supplement market. The Company also distributes its products to all major
markets worldwide.
As part of its multi-brand, multi-channel strategy, the Company has created
a portfolio of recognized brands designed for specific distribution channels.
The Company manufactures and markets approximately 1,400 products and has
approximately 1,800 SKUs. The positioning of the Company's brand names is
supported by significant advertising and marketing expenditures as well as the
Company's historical association with the Weider name. As a result, the Company
believes that it has many of the leading brands in the nutritional
3
<PAGE> 5
supplement industry. The following table identifies the Company's 12 leading
brands and illustrates the Company's multi-brand, multi-channel strategy:
<TABLE>
<CAPTION>
BRAND PRIMARY CHANNEL PRIMARY CATEGORY
--------------------------- --------------------------- ---------------------------
<S> <C> <C>
Great American Mass volume retailers Vitamins and diet
Nutrition(TM)
Joe Weider Signature(TM) Mass volume retailers Sports nutrition and diet
Prime Time(R) Mass volume retailers Vitamins and diet
Tiger's Milk(TM) Mass volume retailers Healthy snacks
Fi-Bar(R) Mass volume retailers Healthy snacks
Schiff(R) Health food stores Vitamins and diet
Metaform(TM) Health food stores Sports nutrition and diet
Victory(TM) Health food stores Sports nutrition
Mega Mass(R) Health food stores Sports nutrition
American Body Building(TM) Health clubs and gyms Sports nutrition and diet
Science Foods(R) Health clubs and gyms Sports nutrition and diet
Steel Bar(R) Health clubs and gyms Sports nutrition
</TABLE>
To support its multi-brand, multi-channel strategy, the Company will
continue to invest in research and development and state-of-the-art
manufacturing and distribution facilities. The Company's research and
development group has successfully developed new brands targeted to specific
consumers, such as Great American Nutrition and Metaform, and new products, such
as Schiff 's Melatonin and Whole Food Phytonutrients. In addition, the Company
manufactures over 80% of its branded products and is building additional
state-of-the-art facilities that it believes will more than double current
capacity. The Company expects its additional facilities to be operational in
mid-1997. The Company believes its research and development commitment and
integrated manufacturing capabilities will continue to provide a significant
advantage in capturing an increasing share of the growing nutritional supplement
market.
The Company intends to broaden its leadership position in the nutritional
supplement industry by combining internal growth with strategic acquisitions.
Specifically, the Company's strategy is to: (i) leverage its portfolio of
established brands to increase its share of the nutritional supplement market;
(ii) develop new brands and product line extensions through its commitment to
research and development; (iii) continue the growth of its balanced distribution
network; (iv) further penetrate international markets; and (v) supplement
internal growth through strategic acquisitions of related businesses and product
lines. The Company believes that its multiple distribution channels, broad
portfolio of leading brands and state-of-the-art manufacturing and distribution
capabilities position it to be the long-term competitive leader in the
nutritional supplement industry.
During the three fiscal years ended May 31, 1996, the Company achieved
compound growth rates in net sales and net income of 43.5% and 61.3%,
respectively. The Company's growth has been a result of increased demand for the
Company's products, the Company's increased penetration of the growing mass
volume retail distribution channel, an aggressive acquisition strategy and new
product introductions. The Company has not experienced revenue and net income
growth during fiscal 1997 at the rates experienced in fiscal 1996 because of
manufacturing and distribution capacity constraints, fewer acquisitions and
decreased sales of melatonin. The nutritional supplement industry is influenced
by products, such as melatonin, that can become popular due to changing consumer
tastes and heightened media attention. In addition, the Company has made
significant investments in manufacturing and distribution infrastructure in
fiscal 1997 to support future growth. These expenditures include higher
depreciation associated with additional capital equipment as well as costs
associated with hiring additional personnel and upgrading information systems.
The Company believes that these investments and the new manufacturing and
distribution capacity expected to be operational in mid-1997 will enable the
Company to meet increased demand in the growing nutritional supplements
industry.
The Company has its principal executive offices at 1960 South 4250 West,
Salt Lake City, Utah 84104-4836, and its telephone number is (801) 975-5000. The
Company was incorporated under the laws of the State of Delaware in 1996.
4
<PAGE> 6
THE OFFERINGS
<TABLE>
<S> <C>
Class A Common Stock Offered(1):
U.S. Offering......................... 4,480,000 shares
International Offering................ 1,120,000 shares
Total.............................. 5,600,000 shares
Common Stock Outstanding:
Before the Offerings.................. 1,551,384 shares of Class A Common Stock and
15,624,807 shares of Class B Common Stock
After the Offerings(1)(2)............. 8,186,240 shares of Class A Common Stock and
15,624,807 shares of Class B Common Stock
Dividends............................... Upon completion of the Offerings, the Company
intends to commence paying quarterly cash dividends
on its Class A Common Stock and its Class B Common
Stock (together, the "Common Stock") at an initial
annual rate of $0.15 per share. See "Dividend
Policy."
Use of Proceeds......................... The Company intends to apply the net proceeds as
follows: (i) approximately $35.9 million, together
with approximately $28.1 million of borrowings
under the New Credit Agreement (as defined herein),
is expected to be used to repay all outstanding
indebtedness under the Existing Credit Agreement
(as defined herein); (ii) $25.0 million is expected
to be paid at the closing of the Offerings in
connection with a one-time dividend to the holder
of the Class B Common Stock; and (iii)
approximately $15.9 million is expected to be used
to repay intercompany indebtedness owed to Parent,
which indebtedness was incurred primarily in
connection with certain acquisitions and taxes
payable by the Parent on behalf of the Company
pursuant to a tax sharing agreement. Pending such
uses, net proceeds received by the Company will be
invested by the Company in short-term interest
bearing instruments. See "Use of Proceeds."
Voting Rights........................... Except as otherwise required by law, the Class A
Common Stock and Class B Common Stock vote as a
single class on all matters, with each share of
Class A Common Stock entitling its holder to one
vote and each share of Class B Common Stock
entitling its holder to ten votes. All of the
shares of Class B Common Stock are owned by the
Parent. Immediately after consummation of the
Offerings, the Parent will beneficially own shares
of Class B Common Stock representing approximately
95.0% of the combined voting power of the
outstanding shares of Common Stock (approximately
94.5% if the over-allotment options of the U.S.
Underwriters and the Managers are exercised in
full).
New York Stock Exchange Symbol.......... "WNI."
</TABLE>
- ---------------
(1) Does not include up to 840,000 shares of Class A Common Stock subject to the
over-allotment options granted by the Company to the U.S. Underwriters and
the Managers.
(2) Does not include 1,604,000 shares of Class A Common Stock reserved for
issuance under the 1997 Equity Participation Plan of Weider Nutrition
International, Inc. (the "Equity Plan") or 188,948 shares of Class A Common
Stock issuable to certain senior executives of the Company pursuant to the
Management Incentive Agreements (as defined herein) but does include 992,856
shares of Class A Common Stock issuable upon consummation of the Offerings
to certain senior executives of the Company pursuant to the Management
Incentive Agreements and approximately 42,000 shares of Class A Common Stock
to be issued to certain employees of the Company who have a minimum service
period of six months. See "Management -- Equity Plan" and "-- Management
Incentive Agreements."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MAY 31, FEBRUARY 28,
-------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $58,170 $63,144 $67,870 $90,927 $186,405 $128,448 $151,407
Gross profit.................... 24,343 26,142 28,583 35,516 70,228 48,029 57,399
Impairment of intangible
assets(1).................... -- -- -- -- -- -- 2,095
Operating expenses.............. 18,385 19,036 20,344 24,226 41,068 28,191 36,750
Income from operations.......... 5,958 7,106 8,239 11,290 29,160 19,838 18,554(1)
Net income...................... 2,598 3,563 4,134 6,092 14,964 10,055 8,075(1)
Pro forma net income per common
and common equivalent
share(2)..................... -- -- -- -- $ 0.79 -- $ 0.43
Pro forma common and common
equivalent shares
outstanding(2)............... -- -- -- -- 18,842,858 -- 18,842,858
Supplemental pro forma net
income per common and common
equivalent share(3).......... -- -- -- -- $ 0.71(4) -- $ 0.43(4)
Supplemental pro forma common
and common equivalent shares
outstanding(3)............... -- -- -- -- 23,811,047 -- 23,811,047
OTHER DATA:
EBITDA(5)....................... $ 6,435 $ 7,429 $ 8,629 $13,438 $ 33,908 $ 23,216 $ 24,651
Capital expenditures............ 380 1,469 5,171 1,295 6,084 5,434 6,343
Net sales increase.............. --% 9% 7% 34% 105% --% 18%
Income from operations
increase(6).................. -- 19 16 37 158 -- 4
Net income increase
(decrease)(6)................ -- 37 16 47 146 -- (7)
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
MAY 31, ---------------------------
-------------------------------- PRO FORMA
1994 1995 1996 ACTUAL AS ADJUSTED(7)
------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 2 $ 2,272 $ 1,592 $ 1,065 $ 1,065
Working capital.................... 14,082 25,044 47,505 61,802 61,802
Total assets....................... 39,548 70,048 133,147 148,685 154,391
Total debt......................... 7,410 28,616 68,054 88,288 38,593
Total stockholders' equity......... 22,946 28,100 39,332 40,303 95,703
</TABLE>
- ---------------
(1) Reflects an impairment of intangible assets recognized as a result of
adopting SFAS No. 121 (as defined herein).
(2) Gives effect to the 14,371.3-for-one stock split and the issuance of
1,666,667 shares of Class A Common Stock as part of the Offerings, the
proceeds from which would be necessary to pay the one-time, $25.0 million
Class B Dividend (as defined herein); otherwise does not give effect to the
Offerings.
(3) Gives effect to (i) the Offerings and the application of the net proceeds
therefrom, including the one-time, $25.0 million Class B Dividend, (ii) the
issuance of 992,856 shares of Class A Common Stock pursuant to the
Management Incentive Agreements, and (iii) the issuance of approximately
42,000 shares of Class A Common Stock to certain employees who have a
minimum service period of six months. Does not give effect to the one-time
compensation expense estimated at approximately $19.9 million ($12.0
million, net of tax) arising from (a) the conversion of performance units
granted to certain senior executive officers under the Management Incentive
Agreements upon consummation of the Offerings, or (b) certain other stock
grants to be effected upon consummation of the Offerings. See
"Management -- Management Incentive Agreements," "-- Equity Plans" and "Use
of Proceeds."
(4) Reflects the retirement of debt with the proceeds of the Offerings as if
such debt was retired at the beginning of the period, which would have the
effect of reducing after-tax interest expense by $2.0 million in fiscal 1996
and $2.2 million in the nine months ended February 28, 1997. The one-time
$19.9 million ($12.0 million, net of taxes) compensation expense described
in note 3 above will take effect upon consummation of the Offerings; this is
expected to impact the Company's net income and stockholders' equity in the
fourth quarter of fiscal 1997. Giving pro forma effect to such compensation
expense would reduce supplemental pro forma net income per common and common
equivalent share by approximately $0.50.
(5) Earnings before interest expense, income taxes, depreciation and
amortization and excluding certain extraordinary or nonrecurring events
("EBITDA") is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(6) The nine month period ended February 28, 1997 excludes the impairment of
intangible assets loss of $2.1 million ($1.3 million, net of taxes)
described in note 1 above.
(7) Gives effect to the adjustments described in (i), (ii) and (iii) of note 3
above as well as the one-time compensation expense estimated at
approximately $19.9 million ($12.0 million, net of tax) arising from (a) the
conversion of performance units granted to certain senior executive officers
under the Management Incentive Agreements upon consummation of the
Offerings, and (b) certain other stock grants to be effected upon
consummation of the Offerings.
6
<PAGE> 8
RISK FACTORS
Prospective investors should carefully consider all of the information
contained in this Prospectus before deciding whether to purchase the Class A
Common Stock offered hereby and, in particular, the following factors.
Information contained in this Prospectus contains "forward-looking statements"
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology or by discussions
of strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Other factors could also cause actual results
to vary materially from the future results covered in such forward-looking
statements.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company's largest customers, GNC and Wal-Mart, accounted for
approximately 16% and 10%, respectively, of net sales in fiscal 1996 and 12% and
10%, respectively, of net sales for the nine month period ended February 28,
1997, compared to approximately 26% and 5%, respectively, of net sales in fiscal
1995 and 16% and 9%, respectively, of net sales for the nine month period ended
February 28, 1996. The dollar amount of the Company's sales in fiscal 1996 to
GNC and Wal-Mart grew by 30% and 317%, respectively, over the previous year. The
Company has 26 other major customers, each of which produced sales of between
0.5% and 5% of the Company's net sales in fiscal 1996 and, collectively,
accounted for approximately 32% of net sales in fiscal 1996. The loss of GNC or
Wal-Mart as a customer, the loss of a significant number of other major
customers, or a significant reduction in purchase volume by or financial
difficulty of such customers, for any reason, could have a material adverse
effect on the Company's results of operations or financial condition. There can
be no assurance that GNC and/or Wal-Mart will continue as major customers of the
Company. See "Business -- Sales and Distribution."
PRODUCT LIABILITY
The Company, like any other retailer, distributor and manufacturer of
products that are designed to be ingested, faces an inherent risk of exposure to
product liability claims in the event that the use of its products results in
injury. With respect to product liability claims, the Company has $1.0 million
per occurrence and $1.0 million in aggregate liability insurance subject to a
self-insurance retention of $25,000. In addition, if such claims should exceed
$1.0 million, the Company has excess umbrella liability insurance of up to $25.0
million which will increase to $90.0 million upon consummation of the Offerings.
However, there can be no assurance that such insurance will continue to be
available at a reasonable cost, or, if available, will be adequate to cover
liabilities. The Company generally does not obtain contractual indemnification
from parties supplying raw materials or marketing its products and, in any
event, any such indemnification is limited by its terms and, as a practical
matter, to the creditworthiness of the indemnifying party. In the event that the
Company does not have adequate insurance or contractual indemnification, product
liabilities relating to defective products could have a material adverse effect
on the Company.
The Company and its subsidiary, Schiff Products, Inc. ("Schiff Products"),
together with other distributors, manufacturers and retailers of L-Tryptophan,
are defendants in actions in federal and state courts seeking compensatory and,
in some cases, punitive damages for alleged personal injuries resulting from the
ingestion of products containing allegedly contaminated L-Tryptophan. The
Company acquired Schiff Products pursuant to an asset acquisition transaction in
1989. Schiff Products was a distributor of L-Tryptophan, but neither the Company
nor Schiff Products ever distributed products that are the subject of the
lawsuits. In each lawsuit, the L-Tryptophan products were shipped by the entity
from whom the Company purchased the trademark Schiff and other assets in 1989.
The Company and Schiff Products entered into an indemnification agreement (the
"Indemnification Agreement") with Showa Denko America ("SDA"), a U.S. subsidiary
of a Japanese corporation, Showa Denko, K.K. ("SDK"). Under the Indemnification
Agreement, SDA agreed to assume the defense of all claims arising out of the
ingestion of L-Tryptophan products, pay all legal fees and indemnify the Company
and its affiliates against liability in any action if it is determined that a
proximate cause of the injury
7
<PAGE> 9
sustained by the plaintiff in the action was a constituent of the raw material
sold by SDA to Schiff Products, or was a factor for which SDA or any of its
affiliates was responsible, except to the extent that action by the Company or
Schiff Products proximately contributed to the injury, and except for certain
claims relating to punitive damages. SDK has posted a revolving irrevocable
letter of credit for the benefit of the indemnified group if SDA is unable or
unwilling to satisfy any claims or judgments. SDK has unconditionally guaranteed
the payment obligations of SDA under the Indemnification Agreement. Although the
Company believes that the prospect of a material adverse effect on the Company's
results of operations or financial condition arising from these lawsuits is
remote and no provision in the Company's financial statements has been made for
any loss that may result from these actions, no assurance can be given that such
lawsuits would not have a material adverse effect on the results of operations
or financial condition of the Company.
The Company is presently engaged in various other legal actions, and,
although ultimate liability for such other actions cannot be determined at the
present time, the Company currently believes that the amount of any such
liability from such other actions and the lawsuits described in the preceding
paragraphs, after taking into consideration the Company's insurance coverage,
will not have a material adverse effect on its results of operations or
financial condition.
GOVERNMENT REGULATION
The manufacturing, packaging, labeling, advertising, distribution and sale
of the Company's products are subject to regulation by one or more governmental
agencies, the most active of which is the Food and Drug Administration (the
"FDA"), which regulates the Company's products under the Federal Food, Drug, and
Cosmetic Act (the "FDCA") and regulations promulgated thereunder. The Company's
products are also subject to regulation by the Federal Trade Commission (the
"FTC"), the Consumer Product Safety Commission (the "CPSC"), the United States
Department of Agriculture (the "USDA") and the Environmental Protection Agency
(the "EPA"). The Company's activities are also regulated by various agencies of
the states, localities and foreign countries to which the Company distributes
its products and in which the Company's products are sold. The FDCA has been
amended several times with respect to dietary supplements, most recently by the
Nutrition Labeling and Education Act of 1990 (the "NLEA") and the Dietary
Supplement Health and Education Act of 1994 (the "DSHEA"). The Company's
products are generally classified and regulated as dietary supplements under the
FDCA, as amended, and are therefore not subject to premarket approval by the
FDA. However, these products are subject to extensive labeling regulation by the
FDA and can be removed from the market if shown to be unsafe. Moreover, if the
FDA determines, on the basis of labeling or advertising claims by the Company,
that the "intended use" of any of the Company's products is for the diagnosis,
cure, mitigation, treatment or prevention of disease, it can regulate those
products as drugs and require premarket clearance for safety and effectiveness.
In addition, if the FDA determines that the requirements of DSHEA for making
claims that a dietary supplement affects the "structure or function" of the body
have not been met, such non-complying claims could result in the regulation of
such products as drugs. See "Business -- Regulation."
The Company's advertising of its dietary supplement products is subject to
regulation by the FTC under the Federal Trade Commission Act, which prohibits
unfair or deceptive trade practices, including false or misleading advertising.
The FTC in recent years has brought a number of actions challenging claims by
companies (other than the Company) for weight loss dietary supplement products
and plans. Most recently, on March 25, 1997, the FTC announced proposed consent
orders in seven cases involving weight loss claims, as well as a general,
coordinated long-term consumer education and law enforcement program titled
"Operation Waistline." On November 7, 1996, the FTC entered into proposed
consent orders (which have since been finally entered) that would prohibit three
companies from claiming that chromium picolinate causes weight loss, increases
muscle mass or regulates blood sugar levels unless the companies had adequate
substantiation for the claims. Although the Company is not a party to the
consent order, chromium picolinate is used in many of the Company's weight loss
and body building products. The Company is a party to a Consent Order (the
"Order") with the FTC, which was signed by the Parent in 1985. Pursuant to the
Order, the Company is prohibited from making certain advertising claims relating
to the muscle building capabilities of Anabolic Mega Paks and Dynamic Life
Essence and other products of substantially similar composition. In connection
with the Company's other food products, the Company is similarly prohibited from
making these claims unless the Company is able to substantiate such
8
<PAGE> 10
claims. In 1986, the Parent was required to pay a maximum amount of $400,000
pursuant to the Order as reimbursements to purchasers of Anabolic Mega Paks and
Dynamic Life Essence. To the extent such reimbursements amounted to less than
$400,000, the Parent was required pursuant to the Order to pay the remainder to
a designated research center for the study of the relationship between nutrition
and muscular development. All amounts required to be paid by the Parent pursuant
to the Order have been paid. In September 1991, the FTC informed the Company
that the FTC had reviewed the several compliance reports which had been filed
from March 1986 through and including June 20, 1991 and no action was planned at
such time. Although the Company has received occasional inquiries from the FTC
since September 1991 regarding compliance matters, the FTC has not taken any
formal action regarding the Company's compliance with the Order.
The Company manufactures certain products pursuant to contracts with
customers who distribute the products under their own or other trademarks. Such
private label customers are subject to governmental regulations in connection
with their purchase, marketing, distribution and sale of such products, and the
Company is subject to such regulations in connection with the manufacture of
such products and its delivery of services to such customers. However, the
Company's private label customers are independent companies, and their labeling,
marketing and distribution of such products is beyond the Company's control. The
failure of these customers to comply with applicable laws or regulations could
have a material adverse effect on the Company.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally controlled by the Company's distributors for those countries. These
distributors are independent contractors over whom the Company has limited
control.
The Company may be subject to additional laws or regulations administered
by the FDA or other federal, state or foreign regulatory authorities, the repeal
of laws or regulations which the Company considers favorable, such as the DSHEA,
or more stringent interpretations of current laws or regulations, from time to
time in the future. The Company is unable to predict the nature of such future
laws, regulations, interpretations or applications, nor can it predict what
effect additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, the recall
or discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling and scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's results of operations and financial condition.
RECENT GOVERNMENT ACTION AND ADVERSE PUBLICITY REGARDING PRODUCTS CONTAINING
EPHEDRINE
Several of the Company's products have included a Chinese herb known as Ma
Huang, a natural source of the stimulant ephedrine. Products containing Ma Huang
accounted for approximately 3.3% of the Company's total net sales in fiscal 1996
and all of such products now come in Ma Huang-free alternatives. In December
1996, the Company decided to discontinue the manufacturing and marketing of
products containing ephedrine in capsule and tablet form due to potential for
misuse but will continue to manufacture and market beverages and powders
containing ephedrine. Ephedrine and Ma Huang have been the subject of recent
adverse publicity in the United States. On April 10, 1996, the FDA issued a
statement warning consumers not to purchase or ingest dietary supplements
containing natural sources of ephedrine that are claimed to produce such effects
as euphoria, heightened awareness, increased sexual sensations or increased
energy, because these products pose significant adverse health risks, including
dizziness, headache, gastrointestinal distress, irregular heartbeat, heart
palpitations, heart attack, strokes, seizures, psychosis and death. On August 27
and 28, 1996, the FDA convened a meeting of its Food Advisory Committee to
discuss adverse reaction reports and other issues concerning dietary supplements
containing ephedrine. Some members of the Advisory Committee concluded that no
safe level of ephedrine in dietary supplements could be identified; others
concluded that such products could be deemed safe if dosage levels of ephedrine
were severely restricted and strict warning labels required. At March 1997, the
FDA had not announced any decision regarding further regulation of products
containing ephedrine. Sales of such products have also been prohibited in
certain localities. In addition, some states have regulated or are considering
regulating ephedrine-containing products as controlled substances or prohibiting
the sale of such products by persons other than licensed pharmacists.
Notwithstanding the Company's decision to discontinue the manufactur-
9
<PAGE> 11
ing and marketing of products containing Ma Huang, there can be no assurance
that the Company will not be subject to product liability actions with respect
to its products that contained Ma Huang. See "Business -- Regulation."
EFFECT OF UNFAVORABLE PUBLICITY
The Company believes the nutritional supplement market is affected by
national media attention regarding the consumption of nutritional supplements.
There can be no assurance that future scientific research or publicity will not
be unfavorable to the nutritional supplement market or any particular product,
or inconsistent with earlier favorable research or publicity. Future reports of
research that are perceived as less favorable or that question such earlier
research could have a material adverse effect on the Company. Because of the
Company's dependence upon consumer perceptions, adverse publicity associated
with illness or other adverse effects resulting from the consumption of the
Company's products or any similar products distributed by other companies could
have a material adverse impact on the Company. Such adverse publicity could
arise even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, the
Company may not be able to counter the effects of negative publicity concerning
the efficacy of its products.
ABSENCE OF CONCLUSIVE CLINICAL STUDIES
Although many of the ingredients in the Company's products are vitamins,
minerals, herbs and other substances for which there is a long history of human
consumption, some of the Company's products contain innovative ingredients such
as DHEA and melatonin. In addition, although the Company believes all of its
products to be safe when taken as directed by the Company, there is little
long-term experience with human consumption of certain of these innovative
product ingredients in concentrated form. Accordingly, no assurance can be given
that the Company's products, even when used as directed, will have the effects
intended. Although the Company tests the formulation and production of its
products to ensure that they are safe when consumed as directed, they have not
sponsored clinical studies on the long-term effect of human consumption. See
"-- Effect of Unfavorable Publicity," "-- Product Liability" and
"Business -- Product Development."
ACQUISITION RELATED RISKS
Part of the Company's business strategy is to acquire assets that will
complement its existing business. The Company has had preliminary discussions
with, or has evaluated the potential acquisition of, a number of companies,
although no such transaction is considered to be probable at this time. The
Company is unable to predict whether or when any prospective acquisition
candidates will become available or the likelihood of a material transaction
being completed should any negotiations commence. If the Company proceeds with
any such transaction, no assurance can be given that the Company can effectively
integrate the acquired operations with its own. The Company may also seek to
finance any such acquisition through debt financings or issuances of equity and
there can be no assurance that any such financing will be available on
acceptable terms or at all. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
The Company's continued growth is dependent in significant part upon its
ability to expand its operations into new markets, including international
markets. The Company may experience difficulty entering new international
markets due to greater regulatory barriers, the necessity of adapting to new
regulatory systems and problems related to entering new markets with different
cultural bases and political systems. Approximately 3% of the Company's net
sales for fiscal 1996 were generated outside the United States. Operating in
international markets exposes the Company to certain risks, including, among
other things: (i) changes in or interpretations of foreign regulations that may
limit the Company's ability to sell certain products or repatriate profits to
the United States; (ii) exposure to currency fluctuations; (iii) the potential
imposition of trade or foreign exchange restrictions or increased tariffs; and
(iv) political instability. As the Company continues to expand its international
operations, these and other risks associated with international operations are
likely to increase. See "Business -- Strategy" and "Business -- Regulation."
10
<PAGE> 12
DEPENDENCE ON NEW PRODUCTS
The Company believes its ability to grow in its existing markets is
partially dependent upon its ability to introduce new and innovative products
into such markets. Although the Company seeks to introduce additional products
each year in its existing markets, the success of new products is subject to a
number of conditions, including developing products that will appeal to
customers and obtaining necessary regulatory approvals. There can be no
assurance that the Company's efforts to develop innovative new products will be
successful, that customers will accept new products or that the Company will
obtain required regulatory approvals of such new products. In addition, no
assurance can be given that new products currently experiencing strong
popularity and rapid growth will maintain their sales over time. For example,
Schiff 's Melatonin, introduced in December 1995, had fiscal 1996 net sales of
approximately $18.9 million and accounted for 10% of the Company's net sales.
Sales of melatonin amounted to $3.6 million during the nine months ended
February 28, 1997. See "Business -- Strategy."
DEPENDENCE ON NEW FACILITY
In response to increased sales and the anticipated increase in demand for
nutritional supplements, the Company has leased a 418,000 square-foot
manufacturing, warehouse and office facility located in Salt Lake City, Utah
(the "New Facility"). The New Facility is being built specifically for the
Company and is expected to become operational in mid-1997. Although construction
of the New Facility is on schedule and the Company anticipates implementing
certain operations there as early as April 1997, there can be no assurance that
final construction will be completed on schedule. If the New Facility is not
completed on schedule, no assurance can be given that the Company could satisfy
increasing demand for its nutritional supplement products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NO LONG-TERM CONTRACTS FOR SUPPLY OF RAW MATERIALS
The Company obtains from other sources all of its raw materials for the
manufacture of its products. The Company generally does not have contracts with
any entities or persons committing such suppliers to provide the materials
required for the production of its products. There can be no assurance that
suppliers will provide the raw materials needed by the Company in the quantities
requested or at a price the Company is willing to pay. In the last few years,
natural vitamin E, beta carotene and melatonin have had unusual price
fluctuations as a result of short supply or increases in demand. Because the
Company does not control the actual production of these raw materials, it is
also subject to delays caused by interruption in production of materials based
on conditions not wholly within its control. Such conditions include job actions
or strikes by employees of suppliers, weather, crop conditions, transportation
interruptions and natural disasters or other catastrophic events. The inability
of the Company to obtain adequate supplies of raw materials for its products at
favorable prices, or at all, as a result of any of the foregoing factors or
otherwise could have a material adverse effect on the Company. See "Business --
Manufacturing and Product Quality."
INTELLECTUAL PROPERTY PROTECTION
At March 18, 1997, the Company had approximately 85 federal trademark
registrations and approximately 108 trademark applications pending with the
United States Patent and Trademark Office. The Company's policy is to pursue
registrations for all of the trademarks associated with its key products. The
Company protects its legal rights concerning its trademarks and is currently
enforcing several trademarks against infringement by litigation, both in the
United States and in foreign countries, including litigation pertaining to its
registered trademark Fat Burners(R). See "Business -- Legal Matters."
The Company relies on common law trademark rights to protect its
unregistered trademarks. Common law trademark rights do not provide the Company
with the same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights are
limited to the geographic area in which the trademark is actually used, while a
United States federal registration of a trademark enables the registrant to stop
the unauthorized use of the trademark by any third party anywhere in the United
States even if the registrant has never used the trademark in the geographic
area wherein the unauthorized use is being made
11
<PAGE> 13
(provided, however, that an unauthorized third party user has not, prior to the
registration date, perfected its common law rights in the trademark in that
geographic area). The Company intends to register its trademarks in certain
foreign jurisdictions where the Company's products are sold. However, the
protection available in such jurisdictions may not be as extensive as the
protection available to the Company in the United States.
Currently, the Company has three patent applications submitted to the
United States Patent and Trademark Office which are currently under review. To
the extent the Company does not have patents on its products, there can be no
assurance that another company will not replicate one or more of the Company's
products. See "Business -- Trademarks and Patents."
POTENTIAL SALES AND EARNINGS VOLATILITY
The Company's sales and earnings continue to be subject to potential
volatility based upon, among other things: (i) the adverse effect of
distributors' or the Company's failure, and allegations of their failure, to
comply with applicable regulations, which have in the past and could again in
the future result in the removal of certain products from sale in certain
countries, either temporarily or permanently; (ii) the negative impact of
changes in or interpretations of regulations that may limit or restrict the sale
of certain of the Company's products, the expansion of its operations into new
markets and the introduction of its products into each such market; (iii) the
inability of the Company to introduce new products or the introduction of new
products by the Company's competitors; (iv) general conditions in the
nutritional supplement industry; and (v) consumer perceptions of the Company's
products and operations. In particular, because the Company's products are
ingested by consumers, the Company is highly dependent upon consumers'
perception of the safety and quality of its products. As a result, substantial
negative publicity concerning one or more of the Company's products or other
nutritional supplements similar to the Company's products could adversely affect
the Company's results of operations or financial condition. See "-- Effect of
Unfavorable Publicity."
The Company's business is, to some extent, seasonal, with lower sales
typically realized during the first and second fiscal quarters and higher sales
typically realized during the third and fourth fiscal quarters. The Company
believes such fluctuations in sales are the result of greater marketing and
promotional activities toward the end of each fiscal year, customer buying
patterns, and consumer spending patterns related primarily to consumers'
interest in achieving personal health and fitness goals after the beginning of
each new calendar year and before the summer fashion season. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
COMPETITION
The nutritional supplement industry is highly competitive. Numerous
companies compete with the Company in the development, manufacture and marketing
of nutritional supplements. In addition, large pharmaceutical companies and
packaged food and beverage companies compete with the Company on a limited basis
in the nutritional supplement market. Increased competition from such companies
could have a material adverse effect on the Company as they have greater
financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than those of
the Company. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management and other skills of Richard B. Bizzaro, the Chief
Executive Officer and President, and Robert K. Reynolds, the Chief Operating
Officer, Executive Vice President and Secretary, as well as its ability to
retain or attract other skilled personnel. The loss or unavailability of the
services of Mr. Bizzaro and Mr. Reynolds could have a material adverse effect on
the Company. See "Management -- Employment Agreements."
NO PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock has
been determined by negotiations among the Company, the U.S. Underwriters and the
Managers based on factors described in this Prospectus under "Underwriting."
12
<PAGE> 14
CONTROL BY PRINCIPAL STOCKHOLDER
After the Offerings, the Parent will own all of the outstanding shares of
Class B Common Stock representing 95.0% of the aggregate voting power of all
outstanding shares of Common Stock of the Company. In addition, pursuant to
certain shareholders agreements, Hornchurch Investments Limited ("Hornchurch"),
Bayonne Settlement and Mr. Ronald Corey have agreed to vote all of their shares
of Common Stock as directed by the Parent. As a result, the Parent will control
95.9% of the aggregate voting power of all outstanding shares of Common Stock of
the Company and will be in a position to exercise control over the Company and
to determine the outcome of all matters required to be submitted to stockholders
for approval (except as otherwise provided by law or by the Company's amended
and restated certificate of incorporation (the "Certificate of Incorporation")
or amended and restated bylaws (the "Bylaws")) and otherwise to direct and
control the operations of the Company. See "Principal Stockholders" and "Certain
Relationships and Related Party Transactions."
ANTI-TAKEOVER CONSIDERATIONS
After consummation of the Offerings, the Parent will own approximately
65.6% of the shares of the outstanding Common Stock (63.3% if the U.S.
Underwriters' over-allotment option is exercised in full). Accordingly, the
Company will not be able to engage in any strategic transactions without the
approval of the Parent. Even if the Parent's interest in the Company were
reduced below such level, the Company's Certificate of Incorporation and Bylaws
contain certain provisions that could make it more difficult for a third party
to acquire, or discourage a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of Common Stock. Certain of such
provisions allow the Company to issue preferred stock with rights senior to
those of the Common Stock and impose various procedural and other requirements
which could make it more difficult for stockholders to effect certain corporate
actions. See "Certain Relationships and Related Party Transactions" and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Class A Common Stock in the public
market could adversely affect market prices of the Class A Common Stock. Upon
the closing of the Offerings, there will be 8,186,240 shares of Class A Common
Stock outstanding and 15,624,807 shares of Class B Common Stock outstanding. The
5,600,000 shares of Class A Common Stock sold in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act,
unless held by an "affiliate" of the Company as that term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), which shares will be subject
to the resale limitations of Rule 144. Of the shares outstanding upon the
closing of the Offerings, 18,211,047 will be deemed "restricted securities"
under Rule 144 and may not be sold unless they are registered under the
Securities Act or unless an exemption from registration, such as the exemption
provided by Rule 144, is available. Upon expiration of the lock-up agreements
described below, 17,141,844 shares of Common Stock will become available for
sale in the public market, subject to volume and manner of sale limitations
pursuant to Rule 144 and 1,459,840 of such shares will be freely tradeable under
Rule 144.
The Company and all of its current stockholders, directors and officers
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file, or cause to be filed,
with the Securities and Exchange Commission a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), relating to any
additional shares of its Common Stock or securities convertible into or
exchangeable or exercisable for any shares of its Common Stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposal or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this Prospectus, except, in the case of
the Company, for grants of employee stock options or rights pursuant to a plan
in effect on the date of this Prospectus, issuances pursuant to the exercise of
such options or rights and any filing of a registration statement under the
Securities Act with respect to any of the foregoing permitted issuances or
grants.
No prediction can be made as to the effect, if any, that future sales, or
the availability of Class A Common Stock for future sales, will have on the
market price of the Class A Common Stock from time to time. Sales of substantial
amounts of Class A Common Stock by the Company or by stockholders who hold
restricted securities, or the perception that such sales may occur, could
adversely affect market prices for the Class A Common Stock. See "Shares
Eligible for Future Sale."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $76.8 million (assuming an initial public offering price of $15.00
per share, the midpoint of the range shown on the cover page of this Prospectus,
after deducting underwriting discounts and commissions and estimated offering
expenses) (or approximately $88.6 million if the U.S. Underwriters' and
Managers' over-allotment options are exercised in full). The Company intends to
apply the net proceeds of the Offerings as follows: (i) approximately $35.9
million, together with approximately $28.1 million of borrowings under the New
Credit Agreement, is expected to be used to repay all outstanding indebtedness
under the Existing Credit Agreement; (ii) $25.0 million is expected to be paid
in connection with the one-time dividend to holders of shares of the Class B
Common Stock (the "Class B Dividend"); and (iii) approximately $15.9 million is
expected to be used to repay intercompany indebtedness owed to Parent, which
indebtedness was incurred primarily in connection with certain acquisitions and
taxes payable by the Parent on behalf of the Company pursuant to a tax sharing
agreement. Borrowings under the Existing Credit Agreement bear interest at
floating rates (at March 1, 1997, 8.0% for the term note and 7.7% for the
revolving line of credit) and maturing in January 2000. Of the approximately
$15.9 million of intercompany indebtedness owed to Parent, $15.0 million is
represented by a note payable (the "Parent Note"), which bears interest at prime
plus 1.00% and matures in January 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," and "Certain Relationships and Related Party
Transactions -- Interest Paid to Parent." Pending application of the net
proceeds of the Offerings as described above, the Company intends to invest such
proceeds in short-term interest bearing instruments.
DIVIDEND POLICY
The Company intends to commence paying quarterly cash dividends at an
initial annual rate of $0.15 per share. Upon completion of the Offerings, a
quarterly dividend of $0.0375 per share is anticipated to be declared to be
payable on June 15, 1997 to holders of all classes of Common Stock of record at
the close of business on June 1, 1997. The Company's Board of Directors will
determine dividend policy in the future based upon, among other things, the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant at the time. In addition, the Company expects
to enter into a New Credit Agreement which will contain certain customary
financial covenants that may limit the Company's ability to pay dividends on its
Common Stock. Accordingly, there can be no assurance that the Company will be
able to sustain the payment of dividends in the future.
Subject to completion of the Offerings, the Company intends to pay to the
Parent (the sole holder of Class B Common Stock) a one-time dividend in the
amount of $25.0 million at the closing of the Offerings. The Class B Dividend is
not indicative of the Company's future dividend policy. See "Use of Proceeds"
and "Certain Relationships and Related Party Transactions -- Class B Dividend."
In the past, the Company made distributions to the Parent. After the
Offerings, the Company will no longer make distributions to the Parent in excess
of those declared to all stockholders of the Company.
14
<PAGE> 16
DILUTION
At February 28, 1997, the net tangible book value of the Company was $13.6
million, or $0.79 per share, representing the $40.3 million net book value less
trademarks, goodwill, and other acquired intangibles of $26.7 million, divided
by 17,176,191 shares of Common Stock outstanding. After giving effect to the
Offerings, the application of the estimated net proceeds therefrom as described
under "Use of Proceeds," the pro forma net tangible book value of the Company at
February 28, 1997 would have been $69.0 million or $2.90 per share representing
the net tangible book value as adjusted to give effect to the Offerings divided
by 23,811,047 shares of Common Stock outstanding. This represents an immediate
increase in pro forma net tangible book value of $2.11 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$12.10 per share to purchasers of Class A Common Stock in the Offerings, as
illustrated in the following table:
<TABLE>
<CAPTION>
FEBRUARY
28,
1997
-----------
<S> <C> <C>
Assumed initial offering price................................ $ 15.00
Net tangible book value before the Offerings................ $0.79
Increase attributable to new investors...................... 2.11
------
--
Pro forma net tangible book value after the Offerings......... 2.90
--------
Dilution to new investors..................................... $ 12.10
========
</TABLE>
The following table sets forth at February 28, 1997, the difference between
existing stockholders immediately prior to the Offerings and the purchasers of
shares in the Offerings with respect to the number of shares purchased from the
Company, the total consideration paid, and the average price per share paid. The
calculations in the following table with respect to shares of Class A Common
Stock to be purchased in the Offerings reflect an assumed initial public
offering price of $15.00 (the midpoint of the range set forth on the cover page
of this Prospectus):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- -------------------- PER SHARE
NUMBER PERCENT AMOUNT PERCENT PRICE
---------- ------- -------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 18,211,047 76.5% $ 20,004 19.2% $ 1.09
New stockholders................ 5,600,000 23.5 84,000 80.8 15.00
---------- ----- ------- -----
Total......................... 23,811,047 100.0% $104,004 100.0%
========== ===== ======= =====
</TABLE>
The calculations set forth above exclude an aggregate of 1,604,000 shares
of Class A Common Stock reserved for issuance under the Equity Plan and 188,948
shares of Class A Common Stock issuable to certain senior executives of the
Company pursuant to the Management Incentive Agreements but include 992,856
shares of Class A Common Stock issuable upon consummation of the Offerings to
certain senior executives of the Company pursuant to the Management Incentive
Agreements and approximately 42,000 shares of Class A Common Stock to be issued
to certain employees of the Company who have a minimum service period of six
months. See "Management -- Equity Plan" and " -- Management Incentive
Agreements."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at
February 28, 1997 and as adjusted to give effect to (i) the stock split and the
exchange of the outstanding common stock of Weider Nutrition for Common Stock
and (ii) the Offerings (at an assumed initial public offering price of $15.00
per share, the midpoint of the range set forth on the cover page of this
Prospectus) and application of a portion of the proceeds therefrom to reduce
certain indebtedness of the Company and pay the Class B Dividend. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and the consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............................. $ 7,456 $ 3,456
Payable to Parent............................................. 925 --
------- -------
Total short-term obligations............................. 8,381 3,456
------- -------
Long-term debt:
Existing Credit Agreement................................... 60,007 --
New Credit Agreement(1)..................................... -- 30,238
Parent Note................................................. 15,000 --
Notes payable............................................... 1,765 1,765
Mortgage loan............................................... 2,910 2,910
Other....................................................... 225 225
------- -------
Total long-term debt..................................... 79,907 35,138
------- -------
Stockholders' equity(2):
Preferred Stock, par value $.01 per share; shares
authorized -- 10,000,000 actual and as adjusted; shares
outstanding -- 0 actual and 0 as adjusted................ -- --
Class A Common Stock, par value $.01 per share; shares
authorized -- 50,000,000 actual and as adjusted; shares
outstanding -- 1,195.17 actual and 8,186,240 shares as
adjusted(1).............................................. 1 82
Class B Common Stock, par value $.01 per share; shares
authorized -- 25,000,000 shares actual and as adjusted;
shares outstanding -- 0 actual and 15,624,807 as
adjusted................................................. -- 156
Additional paid-in-capital.................................. 4,480 96,595
Foreign currency translation adjustment..................... (131) (131)
Retained earnings (deficit)................................. 35,953 (999)
------- -------
Total stockholders' equity(3)............................ 40,303 95,703
------- -------
Total capitalization................................ $128,591 $ 134,297
======= =======
</TABLE>
- ---------------
(1) Includes approximately $28.1 million borrowed to repay a portion of the
Existing Credit Agreement as well as $2.1 million in net borrowings in
connection with the Management Incentive Agreements.
See"Management -- Management Incentive Agreements."
(2) Total stockholders' equity at February 28, 1997, as adjusted, gives effect
to certain one-time compensation expenses estimated at approximately $19.9
million ($12.0 million, net of tax) associated with conversion of
performance units granted to certain senior executive officers under the
Company's Management Incentive Agreements upon consummation of the Offerings
and the issuance of approximately 42,000 shares of Class A Common Stock to
certain employees who have a minimum service period of six months. See
"Management -- Equity Plan" and "-- Management Incentive Agreements."
(3) Excludes an aggregate of 1,604,000 shares of Class A Common Stock reserved
for issuance under the Equity Plan and 188,948 shares of Class A Common
Stock issuable to certain senior executives of the Company pursuant to the
Management Incentive Agreements but includes 992,856 shares of Class A
Common Stock issuable upon consummation of the Offerings to certain senior
executives of the Company pursuant to the Management Incentive Agreements
and the issuance of approximately 42,000 shares of Class A Common Stock to
certain employees who have a minimum service period of six months. See
"Management -- Equity Plan" and "-- Management Incentive Agreements."
16
<PAGE> 18
THE COMPANY
The Company's business began as the nutritional products division of the
Parent, Weider Health and Fitness, the principal stockholder of the Company. The
predecessor of the Parent was formed by Joe Weider in 1940. The nutritional
products division, along with the Parent's publications and exercise equipment
divisions, established the Weider name as a leading brand in the health and
fitness industry. In particular, the nutritional products division pioneered
under the Weider brand name the manufacturing and marketing of nutritional
supplements intended to enhance athletic performance and support muscle growth.
Such products were initially targeted specifically at weightlifters and
bodybuilders and were sold primarily through health food stores and gyms. In
addition, through its acquisition of Tiger's Milk in 1986, the Company began
marketing one of the most established and widely recognized healthy snack bars.
In order to capitalize on the growing health and fitness industry, the Parent
formed the Company in 1989 in connection with Parent's designation of its three
principal business divisions (Sporting Goods, Nutrition and Publications) as
independent subsidiaries.
As an independent subsidiary, the Company expanded its product line to
target a broader range of consumers and began pursuing a multi-brand,
multi-channel strategy to complement its Weider-brand nutritional supplements.
Accordingly, the Company pursued a strategic program to acquire brands and
related business lines and has acquired and integrated eight businesses since
1989. Following its acquisition of Schiff in 1989, the Company began marketing a
variety of forms of vitamins, minerals and herbs under the Schiff brand name.
The additional acquisitions of certain assets from National Institute of
Nutrition ("Nion"), American Body Building and Natural Nectar (now doing
business as American Nutrition Bars, Inc.) by the Company in 1995 and 1996
position the Company as a fully integrated manufacturer and marketer of powdered
drink mixes, capsules and tablets, beverages and nutrition bars. These three
acquisitions, along with the acquisition of certain assets of Weider Europe B.V.
and Craven Health & Fitness, Ltd., formerly Weider Health & Fitness, Ltd.
("Weider U.K."), contributed $54.6 million in sales and $15.6 million in
incremental EBITDA in fiscal 1996, representing 29% of the Company's net sales
and 46% of the Company's EBITDA, respectively, in fiscal 1996. See "Certain
Relationships and Related Party Transactions." The four acquisitions completed
since January 1, 1995 that have contributed to fiscal 1996 net sales are
described in the following table:
<TABLE>
<CAPTION>
ACQUISITION FISCAL 1996
ACQUISITIONS DATE SALES
---------------------------------------------------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
American Body Building.................................... January 1995 $ 21,847
Nion...................................................... June 1995 26,399
American Nutrition Bars................................... October 1995 3,839
Weider U.K................................................ January 1996 2,470
</TABLE>
The Company intends to continue its strategy of acquiring branded products
to enhance its established brands and balanced distribution channels. Effective
January 1, 1997, the Company acquired the assets of Science Foods, Inc.
("Science Foods"), previously a competitor of the Company in the sports
nutrition (beverages) market, for cash of $3.9 million and the assumption of
$700,000 in indebtedness. In addition, the Company intends to expand its
multi-brand, multi-channel strategy in international markets. Effective
September 1, 1996, the Company acquired trademarks and nutritional supplement
operations providing distribution capabilities in primarily Spain and Portugal
for a total purchase price of $3.4 million. Such operations and assets are
hereinafter referred to as "Weider Spain." In addition, the Company acquired
certain assets and foreign distribution rights from Weider Sports Equipment Co.,
Ltd., a Canadian company ("Weider Sports Equipment") for $4.0 million in
September 1996 ($3.0 million was paid in cash and $1.0 million was in the form
of an earnout to be paid $40,000 per month for 25 months). Such assets and
distribution rights are hereinafter referred to as "Weider Canada." Through its
nutritional supplements business, Weider Canada currently markets nutritional
supplements to South America, Eastern Europe, Africa and the Pacific Rim. The
Weider Spain and Weider Canada assets generated sales of $3.8 million and $5.6
million, respectively, for fiscal 1996. The Company's acquisitions of certain
assets in Spain and Canada, when combined with the assets acquired from Weider
U.K., provide the Company with the rights to manufacture and market nutritional
supplements worldwide, excluding Australia, New Zealand, Japan, and South
Africa. The rights to manufacture and market nutritional supplements in
Australia, New Zealand, Japan and South Africa are held by third parties
pursuant to certain agreements. See "Certain Relationships and Related Party
Transactions -- Certain International Acquisitions and Royalty Arrangements."
17
<PAGE> 19
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data at May 31, 1995 and 1996
and for the fiscal years ended May 31, 1994, 1995 and 1996 have been derived
from the Company's consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors, whose report thereon is included
elsewhere in this Prospectus. The following selected consolidated financial data
at May 31, 1992, 1993 and 1994 and for the fiscal years ended May 31, 1992 and
1993 are derived from the audited consolidated financial statements of the
Parent. The selected consolidated financial data at February 28, 1997 and for
the nine months ended February 28, 1996 and 1997 have been derived from
unaudited consolidated financial statements of the Company. In the opinion of
the Company, its unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operation for such
periods. Results for the nine months ended February 28, 1997 have not been
audited and are not necessarily indicative of results to be expected for the
full fiscal year. The financial data should be read in conjunction with, and are
qualified in their entirety by, the consolidated financial statements and notes
thereto included elsewhere in this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MAY 31, FEBRUARY 28,
---------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $58,170 $63,144 $67,870 $90,927 $186,405 $128,448 $151,407
Cost of goods sold.............................. 33,827 37,002 39,287 55,411 116,177 80,419 94,008
------- ------- ------- ------- --------- -------- ---------
Gross profit.................................... 24,343 26,142 28,583 35,516 70,228 48,029 57,399
Impairment of intangible assets(1).............. -- -- -- -- -- -- 2,095
Operating expenses.............................. 18,385 19,036 20,344 24,226 41,068 28,191 36,750
------- ------- ------- ------- --------- -------- ---------
Total operating expenses...................... 18,385 19,036 20,344 24,226 41,068 28,191 38,845
------- ------- ------- ------- --------- -------- ---------
Income from operations.......................... 5,958 7,106 8,239 11,290 29,160 19,838 18,554
Other income (expense):
Interest, net................................. (677) (170) (245) (1,079) (3,736) (2,748) (4,673)
Other......................................... (933) (950) (1,015) 147 (253) (177) (423)
------- ------- ------- ------- --------- -------- ---------
Total..................................... (1,610) (1,120) (1,260) (932) (3,989) (2,925) (5,096)
------- ------- ------- ------- --------- -------- ---------
Income before income taxes...................... 4,348 5,986 6,979 10,358 25,171 16,913 13,458
Provision for income taxes...................... 1,750 2,423 2,845 4,266 10,207 6,858 5,383
------- ------- ------- ------- --------- -------- ---------
Net income...................................... $ 2,598 $ 3,563 $ 4,134 $ 6,092 $ 14,964 $ 10,055 $ 8,075
======= ======= ======= ======= ========= ======== =========
Pro forma net income per common and common
equivalent share(2)........................... -- -- -- -- $ 0.79 -- $ 0.43
Pro forma common and common equivalent shares
outstanding(2)................................ -- -- -- -- 18,842,858 -- 18,842,858
Supplemental pro forma net income per common and
common equivalent share(3).................... -- -- -- -- $ 0.71(4) -- $ 0.43(4)
Supplemental pro forma common and common
equivalent shares outstanding(3).............. -- -- -- -- 23,811,047 -- 23,811,047
OTHER DATA:
EBITDA (5)...................................... $ 6,435 $ 7,429 $ 8,629 $13,438 $ 33,908 $ 23,216 $ 24,651
Capital expenditures............................ 380 1,469 5,171 1,295 6,084 5,434 6,343
Net sales increase.............................. --% 9% 7% 34% 105% --% 18%
Income from operations increase(6).............. -- 19 16 37 158 -- 4
Net income increase (decrease)(6)............... -- 37 16 47 146 -- (7)
</TABLE>
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28, 1997
---------------------------------- -----------------
1994 1995 1996 ACTUAL
------- ------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 2 $ 2,272 $ 1,592 $ 1,065
Working capital.................................................... 14,082 25,044 47,505 61,802
Total assets....................................................... 39,548 70,048 133,147 148,685
Total debt......................................................... 7,410 28,616 68,054 88,288
Total stockholders' equity......................................... 22,946 28,100 39,332 40,303
</TABLE>
- ---------------
(1) Reflects an impairment of intangible assets recognized as a result of
adopting SFAS No. 121.
(2) Gives effect to the 14,371.3-for-one stock split and the issuance of
1,666,667 shares of Class A Common Stock as part of the Offerings, the
proceeds from which would be necessary to pay the one-time, $25.0 million
Class B Dividend; otherwise does not give effect to the Offerings.
(3) Gives effect to (i) the Offerings and the application of the net proceeds
therefrom, including the one-time, $25.0 million Class B Dividend, (ii) the
issuance of 992,856 shares of Class A Common Stock pursuant to the
Management Incentive Agreements, and (iii) the issuance of approximately
42,000 shares of Class A Common Stock to certain employees who have a
minimum service period of six months. Does not give effect to the one-time
compensation expense estimated at approximately $19.9 million ($12.0
million, net of tax) arising from (a) the conversion of performance units
granted to certain senior executive officers under the Management Incentive
Agreements upon consummation of the Offerings, or (b) certain other stock
grants to be effected upon consummation of the Offerings. See
"Management -- Management Incentive Agreements," "-- Equity Plan" and "Use
of Proceeds."
(4) Reflects the retirement of debt with the proceeds of the Offerings as if
such debt were retired at the beginning of the period, which would have the
effect of reducing after-tax interest expense by $2.0 million in fiscal 1996
and $2.2 million in the nine months ended February 28, 1997. The one-time
$19.9 million, ($12.0 million, net of taxes) compensation expense described
in note 3 above will take effect upon consummation of the Offerings; this is
expected to impact the Company's net income and stockholders' equity in the
fourth quarter of fiscal 1997. Giving pro forma effect to such compensation
expense would reduce supplemental pro forma net income per common and common
equivalent share by approximately $0.50.
(5) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(6) The nine month period ended February 28, 1997 excludes the impairment of
intangible assets loss of $2.1 million ($1.3 million, net of taxes)
described in note 1 above.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
OVERVIEW
The Company experienced growth in sales over the past two fiscal years. Net
sales were $67.9 million, $90.9 million and $186.4 million for fiscal 1994, 1995
and 1996, respectively. The Company's net sales and net income for the two year
period ended May 31, 1996 increased at compound annual growth rates of 65.7% and
90.3%, respectively. The Company's significant growth has been a result of
increased demand for the Company's products, the Company's increased penetration
of the growing mass volume retail distribution channel, an aggressive
acquisition strategy and new product introductions. The Company acquired a
number of businesses in 1995 and 1996 which contributed to the Company's growth.
For example, acquisitions in 1996 contributed $54.5 million in net sales and
$14.8 million in operating income. Excluding acquisitions, the Company's
internal net sales and net income grew at compound annual growth rates of 39.3%
and 33.2%, respectively, for the two year period ended May 31, 1996.
The Company has not experienced revenue and net income growth during fiscal
1997 at the rates experienced in 1996 because of manufacturing and distribution
capacity constraints, fewer acquisitions and decreased sales of melatonin. The
nutritional supplement industry is influenced by products, such as melatonin,
that can become popular due to changing consumer tastes and heightened media
attention. The Company sold $13.3 million in melatonin during the first nine
months of fiscal 1996 as compared to $3.6 million during the first nine months
of fiscal 1997. In addition, the Company has made significant investments in
manufacturing and distribution infrastructure in fiscal 1997 to support future
growth. These expenditures include higher depreciation associated with
additional capital equipment, as well as costs associated with hiring additional
personnel and upgrading information systems. As a result, operating expenses
have increased in fiscal 1997 as compared to historical levels. The Company is
also building the New Facility that is expected to become operational in mid-
1997 and will more than double current manufacturing and operating capacity
enabling the Company to meet demand associated with the growth of the
nutritional supplements industry.
In the fourth quarter of fiscal 1997, the Company will record a one-time
$19.9 million ($12.0 million, net of taxes) compensation expense arising from
the conversion of performance units granted to certain senior executive officers
upon consummation of the Offerings. See "Management -- Management Incentive
Agreements," "-- Equity Plan" and "Use of Proceeds."
The foregoing information is "forward-looking" and there can be no
assurance that the future results covered by such forward-looking statements
will be achieved. See "Risk Factors."
The following table shows selected items expressed on an actual basis and
as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, NINE MONTHS ENDED FEBRUARY 28,
--------------------------------------------------------- --------------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $67,870 100.0% $90,927 100.0% $186,405 100.0% $128,448 100.0% $151,407 100.0%
Cost of goods sold.......... 39,287 57.9 55,411 60.9 116,177 62.3 80,419 62.6 94,008 62.1
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Gross profit................ 28,583 42.1 35,516 39.1 70,228 37.7 48,029 37.4 57,399 37.9
Impairment of intangible
assets.................... -- -- -- -- -- -- -- -- 2,095 1.4
Operating expenses.......... 20,344 30.0 24,226 26.6 41,068 22.0 28,191 21.9 36,750 24.2
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses.... 20,344 30.0 24,226 26.6 41,068 22.0 28,191 21.9 38,845 25.6
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Income from operations...... 8,239 12.1 11,290 12.4 29,160 15.6 19,838 15.4 18,554 12.3
Other expense............... 1,260 1.9 932 1.0 3,989 2.1 2,925 2.3 5,096 3.4
Provision for income
taxes..................... 2,845 4.2 4,266 4.7 10,207 5.5 6,858 5.3 5,383 3.6
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Net income.................. $ 4,134 6.1% $ 6,092 6.7% $ 14,964 8.0% $ 10,055 7.8% $ 8,075 5.3%
======= ===== ======= ===== ======== ===== ======== ===== ======== =====
</TABLE>
19
<PAGE> 21
RESULTS OF OPERATIONS
Nine Months Ended February 28, 1997 Compared to the Nine Months Ended February
28, 1996.
Net Sales. Net sales increased 17.9% to $151.4 million in the nine month
period ended February 28, 1997 from $128.4 million in the nine month period
ended February 28, 1996. The increase in net sales resulted primarily from
increased distribution to mass volume retailers, increased volumes with private
label customers and the growth of the Company's international operations.
The Company acquired three manufacturing and distribution operations in the
nine months ended February 28, 1997 and three manufacturing operations in the
nine months ended February 28, 1996. The combined sales for the operations
acquired in the nine months ended February 28, 1997 amounted to approximately
$5.8 million in the nine months ended February 28, 1997 compared to combined
sales for the operations acquired in the nine months ended February 28, 1996 of
approximately $21.1 million in the nine months ended February 28, 1996.
The following table show comparative net sales results categorized by
distribution channel on an actual basis and as a percentage of net sales for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28,
-----------------------------------------
1996 1997
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mass volume retailers......................... $ 45,497 35.4% $ 54,356 35.9%
Health food................................... 34,722 27.0 31,006 20.5
Private label................................. 27,928 21.8 34,329 22.7
International markets......................... 2,680 2.1 11,704 7.7
Other......................................... 17,621 13.7 20,012 13.2
-------- ----- -------- -----
Total............................... $128,448 100.0% $151,407 100.0%
======== ===== ======== =====
</TABLE>
Sales to mass volume retailers, private label customers, international
markets and other distribution channels increased in the nine month period ended
February 28, 1997 compared to the nine month period ended February 28, 1996.
Sales in the health food channel decreased in the nine month period ended
February 28, 1997 compared to the nine month period ended February 28, 1996
primarily as a result of manufacturing capacity constraints. Sales to mass
volume retailers increased approximately 19.6% to $54.4 million in the nine
month period ended February 28, 1997 from $45.5 million in the nine month period
ended February 28, 1996. The increase in sales to mass volume retailers resulted
primarily from increased penetration of the market and the introduction of new
products. Sales to health food distributors decreased approximately 10.7% to
$31.0 million in the nine month period ended February 28, 1997 from $34.7 in the
nine month period ended February 28, 1996. The decrease in sales to health food
distributors resulted primarily from limitations on the Company's capsule and
tablet manufacturing capacity as evidenced by unfilled orders to health food
store customers. The New Facility is expected to provide the Company substantial
additional capsule and tablet manufacturing capacity. Sales to private label
customers increased 22.9% to $34.3 million in the nine month period ended
February 28, 1997 from $27.9 million in the nine month period ended February 28,
1996. The increase in sales to private label customers resulted from increased
volumes with existing customers.
Sales to international markets increased to $11.7 million in the nine month
period ended February 28, 1997 from $2.7 million in the nine month period ended
February 28, 1996. The increase in sales to international markets resulted
primarily from the Company's entrance into, and growth of, the U.K., Canadian
and Spanish markets as a result of the acquisition of Weider U.K., Weider Canada
and Weider Spain, respectively. The increase in sales to other customers was
primarily a result of additional sports drink sales volume to health clubs and
gyms.
Gross Profit. Gross profit increased approximately 19.6% to $57.4 million
in the nine month period ended February 28, 1997 from $48.0 million in the nine
month period ended February 28, 1996. Gross profit as a percentage of net sales
was 37.9% for the nine month period ended February 28, 1997 compared to 37.4%
for the nine month period ended February 28, 1996. The increase in gross profit
resulted primarily from a shift in the mix in product sales towards higher
margin capsules and tablets and increased sales in higher margin distribution
20
<PAGE> 22
channels. Gross profit from sales price increases during the nine month period
ended February 28, 1997 were offset by increases in certain raw material and
other production costs.
Operating Expenses. Operating expenses increased approximately 37.8% to
$38.8 million in the nine month period ended February 28, 1997 from $28.2
million in the nine month period ended February 28, 1996. The Company adopted
SFAS No. 121 effective June 1, 1996 and recognized an impairment of intangible
assets loss of approximately $2.1 million ($1.3 million, net of tax). The
impaired assets primarily consist of intangible costs associated with certain
acquisitions. Operating expenses (excluding the intangible assets impairment
loss) increased approximately 30.4% to $36.8 million in the nine month period
ended February 28, 1997 from $28.2 million in the nine month period ended
February 28, 1996. Operating expenses (excluding the intangible assets
impairment loss) as a percentage of net sales were 24.2% for the nine month
period ended February 28, 1997 compared to 21.9% for the nine month period ended
February 28, 1996, primarily as a result of additional personnel, new
information systems and depreciation of additional capital equipment to
accommodate future growth.
Selling and marketing expenses as a percentage of net sales were 15.5% for
the nine month period ended February 28, 1997 compared to 14.2% for the nine
month period ended February 28, 1996. The increase in selling and marketing
expenses resulted primarily from increased investment in additional sales
personnel and certain royalty costs.
General and administrative expenses as a percentage of net sales were 6.8%
in the nine month period ended February 28, 1997 compared to 5.7% in the nine
month period ended February 28, 1996 primarily as a result of costs associated
with additional personnel.
Amortization of intangible assets expense remained relatively constant
during the nine month period ended February 28, 1997, as compared to the nine
month period ended February 28, 1996. The Company currently amortizes goodwill
over periods of 15 to 35 years. Research and development costs as a percentage
of net sales remained relatively constant for the nine month period ended
February 28, 1997 compared to the nine month period ended February 28, 1996.
Other Income (Expense). Other income (expense) increased approximately
74.2% to ($5.1) million for the nine month period ended February 28, 1997 from
($2.9) million for the nine month period ended February 28, 1996. The increase
in other income (expense) consisted primarily of increased interest costs
associated with additional indebtedness incurred in connection with the Weider
U.K., Weider Canada and Science Foods acquisitions, increased working capital
requirements and additions to property and equipment.
Provision for Income Taxes. Provisions for income taxes decreased 21.5% to
$5.4 million for the nine month period ended February 28, 1997 from $6.9 million
for the nine month period ended February 28, 1996. Income taxes as a percentage
of pre-tax income amounted to approximately 40.0% for the nine month period
ended February 28, 1997 compared to 40.5% for the nine month period ended
February 28, 1996.
Acquisitions. The Company's operating results for the nine month period
ended February 28, 1997 include the effects of certain acquisitions that
occurred immediately prior or subsequent to February 28, 1996. These
acquisitions consisted of Weider U.K., Weider Canada, Weider Spain, and Science
Foods, a producer and distributor of nutritional drinks. The acquisitions of
Weider U.K. and Weider Canada represent related party transactions. See "Certain
Relationships and Related Party Transactions -- Certain Acquisitions."
21
<PAGE> 23
The following table shows certain operating results for each of these
acquisitions that are included in the Company's overall operating results for
the nine month period ended February 28, 1997.
<TABLE>
<CAPTION>
WEIDER WEIDER WEIDER SCIENCE
U.K. SPAIN(1) CANADA(1) FOODS(2)
------ -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $4,921 $1,991 $ 2,718 $1,066
Gross profit............................... 1,720 1,049 902 325
Operating income........................... 456 358 236 106
</TABLE>
- ---------------
(1) Reflects only six months of operations.
(2) Reflects only two months of operations.
Accounting Policies. Effective June 1, 1996, the Company adopted SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Company recognized an impairment loss of $2.1 million ($1.3
million, net of tax) during the nine month period ending February 28, 1997.
The Company evaluates the economic factors for determining requisite
recovery periods for certain intangible assets on a case by case basis. The
Company recognizes amortization of goodwill over periods of 15 to 35 years.
Management determined that a 35 year life was appropriate for the goodwill of
$2.8 million associated with the Science Foods acquisition. Management
anticipates a similar life will be appropriate for goodwill associated with
future acquisitions.
Fiscal Year Ended May 31, 1996 Compared to Fiscal Year Ended May 31, 1995
Net Sales. Net sales increased approximately 105.1% to $186.4 million in
fiscal 1996 from $90.9 million in fiscal 1995. The increase in net sales in
fiscal 1996 resulted primarily from increased distribution to mass volume
retailers and greater contributions from the Company's acquisitions during
fiscal 1996 than fiscal 1995.
The Company acquired one manufacturing operation in fiscal 1995 and two
manufacturing operations and certain international rights to use the Weider name
in fiscal 1996. The combined sales for the operations acquired in fiscal 1996
amounted to $32.7 million in fiscal 1996 compared to combined sales for the
operations acquired in fiscal 1995 of $7.8 million in fiscal 1995.
The following table shows comparative net sales results categorized by
distribution channel on an actual basis and as a percentage of net sales for the
fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------
<S> <C> <C> <C> <C>
1995 1996
----------------- ------------------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Mass volume retailers.......................... $24,267 26.7% $ 63,705 34.2%
Health food.................................... 40,074 44.1 49,295 26.4
Private label.................................. 11,502 12.6 43,773 23.5
International markets.......................... 4,335 4.8 5,445 2.9
Other.......................................... 10,749 11.8 24,187 13.0
------- ----- -------- -----
Total................................ $90,927 100.0% $186,405 100.0%
======= ===== ======== =====
</TABLE>
Sales to mass volume retailers increased approximately 162.1% to $63.7
million in fiscal 1996 from $24.3 million in fiscal 1995. The increase in sales
to mass volume retailers in fiscal 1996 resulted primarily from the Company
obtaining new accounts, expanding distribution to existing accounts and
introducing new branded products, including a line of melatonin products under
the Schiff brand. Products introduced in the last fiscal year accounted for
$38.8 million of the Company's fiscal 1996 net sales of which Schiff 's
Melatonin contributed $18.9 million. Sales to health food stores increased
approximately 22.9% to $49.3 million in fiscal 1996 from $40.1 million in fiscal
1995. The increase in sales to health food stores was primarily the result of
the introduction of new branded products. Sales to private label customers
increased approximately 280.9% to $43.8 million in fiscal 1996 from $11.5
million in fiscal 1995. The increase in sales to private label customers was
primarily due to the acquisition of Nion. Sales to international markets
increased approximately 25.6% to
22
<PAGE> 24
$5.4 million in fiscal 1996 from $4.3 million in fiscal 1995. The increase in
sales to international markets resulted primarily from the acquisition of Weider
U.K. Sales to other customers increased approximately 126.2% to $24.2 million in
fiscal 1996 from $10.7 million in fiscal 1995. The increase in sales to other
customers, including health clubs and gyms, was primarily attributable to the
American Body Building acquisition in fiscal 1995.
Gross Profit. Gross profit increased approximately 97.8% to $70.2 million
in fiscal 1996 from $35.5 million in fiscal 1995. The increase in gross profit
in fiscal 1996 resulted primarily from the approximately 105.0% increase in
sales in fiscal 1996 from fiscal 1995. Gross margin decreased to 37.7% for
fiscal 1996 from 39.1% for fiscal 1995, primarily as a result of shifts in
product mix to lower margin beverages, nutrition bars and private label capsules
and tablets manufacturing, which was partially mitigated by increased
manufacturing efficiencies, higher sales prices and increased concentration on
branded capsules and tablets.
Operating Expenses. Selling and marketing expenses, including sales,
marketing, advertising and freight costs, increased approximately 71.6% to $26.6
million in fiscal 1996 from $15.5 million in fiscal 1995. The increase in
selling and marketing expenses in fiscal 1996 resulted primarily from increased
advertising and personnel required to handle higher volumes of products
associated with increased sales and acquisitions in fiscal 1996. Selling and
marketing expenses as a percentage of net sales were 14.3% in fiscal 1996
compared to 17.0% in fiscal 1995. Advertising expenses increased 95.4% to $8.4
million in fiscal 1996 from $4.3 million in fiscal 1995. The increase in
advertising expenses resulted primarily from increased television, magazine and
co-op advertising. Advertising expense as a percentage of net sales was 4.5% in
fiscal 1996 compared to 4.7% in fiscal 1995.
General and administrative expenses increased approximately 75.8% to $10.9
million in fiscal 1996 from $6.2 million in fiscal 1995. The dollar increase in
general and administrative expenses in fiscal 1996 resulted primarily from
incremental expenses added by the acquisition of Nion and American Nutrition
Bars. General and administrative expenses as a percentage of net sales were 5.9%
in fiscal 1996 compared to 6.8% in fiscal 1995. The decrease in general and
administrative expenses as a percentage of net sales was primarily a result of
increased sales volumes.
The expense for amortization of intangible assets increased approximately
90.9% to $2.1 million for fiscal 1996 from $1.1 million for fiscal 1995. The
increase in amortization of intangible assets resulted primarily from the Weider
U.K., Nion and American Nutrition Bars acquisitions in fiscal 1996 and the
American Body Building acquisition in fiscal 1995. Amortization of intangible
assets expense as a percentage of net sales was 1.1% in fiscal 1996 compared to
1.2% in fiscal 1995.
Other Income (Expense). Other income (expense) increased approximately
329.2% to ($4.0) million in fiscal 1996 from ($932,000) in fiscal 1995. The
increase in other income (expense) resulted primarily from an increase in
interest expense of 236.4% to $3.7 million in fiscal 1996 from $1.1 million in
fiscal 1995. Interest expense increased in fiscal 1996 as a result of the
Company's incurrence of additional indebtedness in connection with the Weider
U.K., Nion and American Nutrition Bars acquisitions and increased investment in
inventory and fixed assets. The Company's total indebtedness, including the
amounts payable to the Parent, increased approximately 138.1% to $68.1 million
at May 31, 1996 from $28.6 million at May 31, 1995. This increase in total
indebtedness resulted primarily from increased borrowing for acquisitions of
$16.1 million and the Company's added investment in inventory and accounts
receivable of $26.6 million due to overall growth in operations.
Provision for Income Taxes. Provision for income taxes increased
approximately 137.2% to $10.2 million in fiscal 1996 from $4.3 million in fiscal
1995. The dollar increase in provision for income taxes resulted primarily from
increased net sales in fiscal 1996 compared to fiscal 1995. Provision for income
taxes as a percentage of net sales was 5.5% in fiscal 1996 compared to 4.7% in
fiscal 1995.
Acquisitions. Effective January 1, 1995, the Company acquired certain
assets of the nutritional drink business formerly owned by American Body
Building. The Company's operating results for fiscal 1996 include the American
Body Building acquisition for the entire fiscal year compared to the five months
of operations that were recorded in fiscal 1995. Results of operations for
American Body Building recorded by the Company in fiscal 1996 were net sales of
$21.8 million, gross profit of $4.1 million and incremental operating income of
$3.1
23
<PAGE> 25
million, compared to net sales of $7.8 million, gross profit of $1.9 million and
incremental operating income of $1.3 million in fiscal 1995.
Effective June 1, 1995, the Company acquired a capsule and tablet
manufacturing operation formerly owned by Nion. Results of operations for Nion
in fiscal 1996 were net sales of $26.4 million, gross profit of $13.3 million
and incremental operating income of $11.5 million.
Effective October 16, 1995, the Company acquired the American Nutrition
Bars' manufacturing facility. Results of operations for American Nutrition Bars
in fiscal 1996 were net sales of $3.8 million, gross profit of $1.0 million and
operating loss of $234,000.
Effective January 1, 1996, the Company acquired certain net assets and
customers in Europe from Weider U.K., a related party, for $1.5 million. See
"Certain Relationships and Related Party Transactions -- Certain International
Acquisitions and Royalty Arrangements." Net assets acquired amounted to $48,942
and were recorded at their historical cost. The remaining excess purchase price
of approximately $1.4 million plus other acquisition costs amounting to $250,000
were charged to retained earnings as a distribution of capital to the Parent.
Results of operations in fiscal 1996 for this acquisition were sales of $2.5
million, gross profit of $900,000 and incremental operating income of $400,000.
In connection with the acquisition of Weider U.K., the Company entered into
an agency agreement with a primary supplier of powdered drink mixes for European
operations. The agreement requires the supplier to provide working capital
funds, to maintain ownership of all inventories and to provide all logistics and
administrative support. In return, the supplier is paid a declining percentage
of profits. See "Business -- Strategy -- Penetration of International Markets."
Fiscal Year Ended May 31, 1995 Compared to Fiscal Year Ended May 31, 1994
Net Sales. Net sales increased approximately 33.9% to $90.9 million in
fiscal 1995 from $67.9 million in fiscal 1994. The increase in net sales
resulted primarily from increased penetration of the mass volume retail
distribution channel, which added $8.2 million to fiscal 1995 net sales, and
increased private label powdered drink mix manufacturing, which added $3.6
million to fiscal 1995 net sales. In addition, the midyear acquisition of
American Body Building added $7.8 million to fiscal 1995 net sales.
The Company acquired one manufacturing operation in fiscal 1995 and the
rights to two brand names in fiscal 1994. The combined sales from the acquired
manufacturing operation amounted to $7.8 million in fiscal 1995 compared to
combined sales from the acquired brand names of $2.3 million in fiscal 1994.
The following table shows comparative net sales results categorized by
distribution channel for the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------
1994 1995
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mass volume retailers........................... $16,011 23.6% $24,267 26.7%
Health food..................................... 37,241 54.9 40,074 44.1
Private label................................... 7,915 11.7 11,502 12.6
International markets........................... 2,539 3.7 4,335 4.8
Other........................................... 4,164 6.1 10,749 11.8
------- ----- ------- -----
Total................................. $67,870 100.0% $90,927 100.0%
======= ===== ======= =====
</TABLE>
Sales to mass volume retailers increased approximately 51.9% to $24.3
million in fiscal 1995 from $16.0 million in fiscal 1994, due primarily to the
introduction of new branded products. The increase in sales to other customers,
including health clubs and gyms, was due primarily to the acquisition of
American Body Building.
Gross Profit. Gross profit increased approximately 24.1% to $35.5 million
in fiscal 1995 from $28.6 million in fiscal 1994. The increase in gross profit
in fiscal 1995 resulted primarily from the acquisition of American Body Building
in fiscal 1995 and was offset in part by smaller gross margins associated with
American
24
<PAGE> 26
Body Building's product lines. Gross margin decreased slightly to 39.1% in
fiscal 1995 from 42.1% in fiscal 1994 primarily as a result of certain increases
in raw material prices and product mix costs as well as smaller gross margins
associated with American Body Building's product lines.
Operating Expenses. Selling and marketing expenses, including sales,
marketing, advertising and freight costs, increased approximately 24.0% to $15.5
million in fiscal 1995 from $12.5 million in fiscal 1994. The increase in
selling and marketing expenses in fiscal 1995 resulted primarily from increased
advertising and personnel required to handle higher volumes of products
associated with increased sales and the fiscal 1995 acquisition of American Body
Building. Selling and marketing expenses as a percentage of net sales were 17.0%
in fiscal 1995 compared to 18.5% in fiscal 1994. Advertising expenses increased
approximately 38.7% to $4.3 million in fiscal 1995 from $3.1 million in fiscal
1994. The increase in advertising expenses resulted primarily from increased
television, magazine and co-op advertising. Advertising expense as a percentage
of net sales was 4.7% in fiscal 1995 compared to 4.6% in fiscal 1994.
General and administrative expenses increased approximately 5.1% to $6.2
million in fiscal 1995 from $5.9 million in fiscal 1994. The dollar increase in
general and administrative expense in fiscal 1995 resulted primarily from
incremental expenses added by the acquisition of American Body Building. General
and administrative expenses as a percentage of net sales were 6.8% in fiscal
1995 compared to 8.7% in fiscal 1994.
The expense for amortization of intangible assets increased approximately
35.3% to $1.1 million for fiscal 1995 from $813,000 for fiscal 1994. Capitalized
intangible assets increased approximately $9.8 million in fiscal 1995 and $3.4
million in fiscal 1994. The increase in capitalized intangible assets resulted
from the American Body Building acquisition in fiscal 1995 and the Excel and
Exceed acquisitions in fiscal 1994. Amortization of intangible assets expense as
a percentage of net sales was 1.2% in both fiscal 1995 and fiscal 1994.
Other Income (Expense). Other income (expense) decreased approximately
28.3% to ($932,000) in fiscal 1995 from ($1.3) million in fiscal 1994. Other
income (expense) as a percentage of net sales was 1.0% in fiscal 1995 compared
to 1.9% in fiscal 1994.
Provision for Income Taxes. Provision for income taxes increased
approximately 53.6% to $4.3 million in fiscal 1995 from $2.8 million in fiscal
1994. The increase in provision for income taxes resulted primarily from
increased net sales in fiscal 1995 compared to fiscal 1994. Provision for income
taxes as a percentage of net sales was 4.7% in 1995 compared to 4.2% in 1994.
Acquisitions. Effective December 1, 1993, the Company acquired the Excel
brand name from Key Products, Inc. Effective December 14, 1993, the Company
acquired the Exceed brand name from Abbott Laboratories. Results of operations
reported for these acquisitions in fiscal 1995 were net sales of $4.6 million,
gross profit of $2.6 million and operating income of $1.4 million compared to
net sales of $2.3 million, gross profit of $1.4 million and operating income of
$800,000 reported from the date of the acquisitions through May 31, 1994.
Effective January 1, 1995, the Company acquired certain assets of the
nutritional beverage business formerly known as American Body Building. Results
of operations for American Body Building in fiscal 1995 were net sales of $7.8
million, gross profit of $1.9 million and incremental operating income of $1.3
million.
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offerings, the Company's operations and capital requirements
were financed through internally generated funds, borrowings under the Existing
Credit Agreement and loans from the Parent. For fiscal years ended May 31, 1995
and 1996 and the nine months ended February 28, 1997, the Company's primary
capital requirements were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------- FEBRUARY 28,
1995 1996 1997
------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital increase excluding term debt... $ 8,366 $ 9,274 $ 3,571
Capital expenditures and trademark purchases... 1,295 6,219 8,105
Total consideration for acquisitions........... 15,038 29,772 7,951
Distributions to the Parent, net............... 938 3,731 6,973
Other debt repayments.......................... 2,766 3,449 10,981
------- ------- --------
Total capital requirements........... $28,403 $52,445 $ 37,581
======= ======= ========
</TABLE>
These capital requirements, which primarily reflect the growth of the
Company, were satisfied as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
------------------- FEBRUARY 28,
1995 1996 1997
------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital provided by operations......... $ 7,289 $18,513 $ 14,347
Net increases in Existing Credit Agreement..... 19,200 18,750 26,057
Net loans from (payments to) the Parent........ 1,914 15,182 (2,823)
------- ------- --------
$28,403 $52,445 $ 37,581
======= ======= ========
</TABLE>
In March 1997, the Company received a commitment from General Electric
Capital Corporation ("GECC") for a $130.0 million senior secured, long-term
credit facility (the "New Credit Agreement"). The Company expects that the New
Credit Agreement will contain standard terms and conditions, including, subject
to permitted amounts, a limitation on the ability of the Company to pay
dividends on the Common Stock. The commitment is subject to several significant
conditions precedent. The obligations of the Company under the New Credit
Agreement will be secured by a first priority lien on all owned or acquired
tangible and intangible assets of the Company and a pledge to GECC of the
capital stock of the U.S. subsidiaries of the Company (including the subsidiary
that owns the Company's foreign subsidiaries). The Company will also pledge to
GECC at least 65% of the capital stock of each foreign subsidiary of the
Company. The Company intends to use approximately $35.9 million of the net
proceeds of the Offerings, together with approximately $28.1 million of
borrowings under the New Credit Agreement, to terminate its obligations under
the Existing Credit Agreement and will rely on the New Credit Agreement to meet
its short-term cash requirements. See "Use of Proceeds." Specifically,
borrowings available under the New Credit Agreement will be used for general
working capital needs and to support capital expenditures and, if necessary, to
effect acquisitions and to accelerate growth. As a result, upon the consummation
of the Offerings, the Company expects to have approximately $101.9 million of
available credit under the New Credit Agreement.
The Company's cash requirements through the remainder of fiscal 1997 are
expected to include expenditures in connection with: (i) investing in research
and development, including hiring additional technical personnel, acquiring new
product lines for nutrition bars, beverages, tablets and capsules, and
purchasing additional research and development equipment, including data and
formulation software; (ii) hiring additional personnel, if and as necessary, to
support the Company's distribution facilities as sales of the Company's
nutritional supplements increase; and (iii) continuing advertising and
promotional investments to educate consumers about the Company's products.
Capital expenditures in fiscal 1997 are expected to aggregate approximately
$17.4 million, excluding acquisitions. The Company expects that cash flows from
operations and borrowings under the New Credit Agreement will be sufficient for
the above purposes.
The Company's long-term capital requirements are expected to include
capital expenditures to support continued growth of nutritional supplements
sales. The Company may also enter into strategic acquisitions as the
26
<PAGE> 28
nutritional supplements industry continues to consolidate. The Company expects
to fund its long-term capital requirements including construction of capital
projects such as a new manufacturing and distribution facility for the next
twelve months and in the foreseeable future, through the use of operating cash
flow supplemented as necessary by borrowings under the New Credit Agreement and,
if necessary, through debt financings or the issuance of additional equity.
The Company, the Parent and certain subsidiaries of the Parent (each a
"Borrower" and together the "Borrowers"), entered into an Amended and Restated
Credit Agreement, dated January 4, 1995, as amended from time to time (the
"Existing Credit Agreement"), with GECC. A total of $64.0 million in borrowings
was outstanding under the Existing Credit Agreement at February 28, 1997
consisting of approximately $16.0 million of indebtedness evidenced by a term
note payable to GECC and approximately $48.0 million under a revolving line of
credit. Borrowings under the Existing Credit Agreement bear interest at floating
rates (at March 1, 1997, 8.0% for the term note and 7.7% for the revolving line
of credit) and mature in January 2000. Each of the Borrowers has jointly and
severally guaranteed the obligations of the other Borrowers under the Existing
Credit Agreement. Simultaneously with the closing of the Offerings, the Company
intends to repay all of its outstanding obligations under the Existing Credit
Agreement and terminate all liabilities and obligations with respect to its
guarantee of the other Borrowers' obligations thereunder. Until March 1, 1997,
with respect to its allocated portion of the indebtedness under the Existing
Credit Agreement, the Company paid interest to the Parent at a rate of interest
higher than that paid to GECC with respect to such indebtedness. From and after
March 1, 1997, the Company has paid interest on such indebtedness at a rate
equal to the interest paid to GECC by the Parent with respect to such
indebtedness. See "Certain Relationships and Related Party
Transactions -- Interest Paid to Parent."
IMPACT OF INFLATION
The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to continue to do so in the future.
SEASONALITY
The Company's business is seasonal, with lower sales typically realized
during the first and second fiscal quarters and higher sales typically realized
during the third and fourth fiscal quarters. The Company believes such
fluctuations in sales are the result of greater marketing and promotional
activities toward the end of each fiscal year, customer buying patterns, and
consumer spending patterns related primarily to the consumers' interest in
achieving personal health and fitness goals after the beginning of each new
calendar year and before the summer fashion season. See "Risk
Factors -- Potential Sales and Earnings Volatility"
IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of,"
which provides guidance on how to measure impairment of long-lived assets,
certain intangibles and goodwill related to those assets to be held and used,
and for long-lived assets and certain identifiable intangibles to be disposed
of. The Company adopted this statement effective June 1, 1996 and recognized an
impairment loss of approximately $2.1 million ($1.3 million, net of tax). The
impaired assets primarily consist of intangible costs associated with certain
acquisitions.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which defines a fair value based
method of accounting for stock based employee compensation plans. Under SFAS No.
123, companies are encouraged, but are not required, to adopt the fair value
method for fiscal years beginning after December 15, 1995 for all employee
awards granted after the beginning of such year. Companies are permitted to
continue to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), but
must, in future years, disclose in a note to the financial statements pro forma
net income and earnings per share as if SFAS No. 123 had been applied. The
Company has determined that it will not adopt the fair value method but will
27
<PAGE> 29
continue to account for stock-based compensation under APB No. 25 and will
provide the requisite disclosure under SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 (SFAS No. 128), "Earnings per Share" which supersedes Accounting Principles
Board Opinion No. 15 "Earnings per Share" and replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and provides guidance on other computational
changes. SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company does not expect the adoption of SFAS No. 128 to have a
material impact on the financial position and results of operations of the
Company.
28
<PAGE> 30
BUSINESS
GENERAL
The Company is a leading manufacturer of branded and private label
nutritional supplements and is a leading marketer of multiple brands of
nutritional supplements through multiple distribution channels. The Company
manufactures a broad range of capsules and tablets, powdered drink mixes,
bottled beverages and nutrition bars and markets branded products in four
principal categories: sports nutrition; vitamins, minerals and herbs; diet; and
healthy snacks. The Company markets its branded products through each key
distribution channel and is one of the leading marketers of nutritional
supplement products to the mass volume retail channel, one of the most
significant and growing distribution channels in the nutritional supplement
industry. Consistent with management's multi-channel strategy, sales of the
Company's products in fiscal 1996 were balanced among mass volume retailers,
health food stores and a combination of other channels, including health clubs
and gyms, international markets and private label manufacturing. According to
Packaged Facts, an independent consumer market research firm, the principal
domestic markets in which the Company's products compete totalled approximately
$6.5 billion in 1996 and grew at a compound annual growth rate of approximately
15% from 1992 through 1996. Because of the Company's broad portfolio of leading
brands, multiple distribution channels and state-of-the-art manufacturing
capabilities, the Company believes that it is uniquely positioned to capitalize
on the anticipated growth in the nutritional supplement industry.
The Company's products are currently sold in over 38,000 retail outlets in
all 50 states. The Company's customers in the mass volume retail channel
include: mass merchandisers -- Wal-Mart, Target and Kmart; drug
stores -- Walgreens, CVS, American Drug and Thrifty/Payless; warehouse
clubs -- Price Costco and Sam's Club; and supermarkets -- Albertson's, Giant and
Ralphs. The Company services the health food market by distributing its products
to General Nutrition Center ("GNC") and the leading health food distributors
(such as Tree-of-Life, Stow Mills and Nature's Best). The Company also sells
through other distribution channels, including its network of exclusive
distributors to health clubs and gyms (such as Bally's Health and Fitness and
Gold's Gym), international markets, and private label manufacturing for other
nutritional supplement companies. The Company pursues a multi-channel
distribution strategy in order to participate in the growth being experienced in
each of these channels, thereby increasing its overall share of the nutritional
supplement market. The Company also distributes its products to all major
markets worldwide.
As part of its multi-brand, multi-channel strategy, the Company has created
a portfolio of recognized brands designed for specific distribution channels.
The Company manufactures and markets approximately 1,400 products and has
approximately 1,800 SKUs. The positioning of the Company's brand names is
supported by significant advertising and marketing expenditures as well as the
Company's historical association with the Weider name.
29
<PAGE> 31
As a result, the Company believes that it has many of the leading brands in
the nutritional supplement industry. The following table identifies the
Company's 12 leading brands and illustrates the Company's multi-brand,
multi-channel strategy:
<TABLE>
<CAPTION>
BRAND PRIMARY CHANNEL PRIMARY CATEGORY PRODUCT FORMS
- ------------------------- ---------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Great American Mass volume retailers Vitamins and diet Beverages, nutrition bars,
Nutrition(TM) powdered drink mixes and
capsules and tablets
Joe Weider Signature(TM) Mass volume retailers Sports nutrition and diet Powdered drink mixes and
capsules and tablets
Prime Time(R) Mass volume retailers Vitamins and diet Capsules and tablets
Tiger's Milk(TM) Mass volume retailers Healthy snacks Nutrition bars
Fi-Bar(R) Mass volume retailers Healthy snacks Nutrition bars
Schiff(R) Health food stores Vitamins and diet Capsules and tablets
Metaform(TM) Health food stores Sports nutrition and diet Powdered drink mixes and
nutrition bars
Victory(TM) Health food stores Sports nutrition Powdered drink mixes and
capsules and tablets
Mega Mass(R) Health food stores Sports nutrition Powdered drink mixes
American Body Health clubs and gyms Sports nutrition and diet Beverages, nutrition bars,
Building(TM) powdered drink mixes and
capsules and tablets
Science Foods(R) Health clubs and gyms Sports nutrition and diet Beverages, nutrition bars
and powdered drink mixes
Steel Bar(R) Health clubs and gyms Sports nutrition Nutrition bars
</TABLE>
To support its multi-brand, multi-channel strategy, the Company will
continue to invest in research and development and state-of-the-art
manufacturing and distribution facilities. The Company's research and
development group has successfully developed new brands targeted to specific
consumers, such as Great American Nutrition and Metaform, and new products, such
as Schiff's Melatonin and Whole Food Phytonutrients. In addition, the Company
manufactures over 80% of its branded products and is building additional
state-of-the-art facilities that it believes will more than double current
capacity. The Company expects its additional facilities to be operational in
mid-1997. The Company believes its research and development commitment and
integrated manufacturing capabilities will continue to provide a significant
advantage in capturing an increasing share of the growing nutritional supplement
market.
STRATEGY
The Company has demonstrated the ability to grow its business profitably by
introducing new brands and products, expanding distribution capability and
acquiring related businesses. In fiscal 1996, the Company's net sales increased
105.1% to $186.4 million from net sales of $90.9 million in fiscal 1995 and net
income increased 145.9% to $15.0 million in fiscal 1996 from net income of $6.1
million in fiscal 1995. During the three fiscal years ended May 31, 1996, the
Company achieved compound growth rates in net sales and net income of 43.5% and
61.3%, respectively. The Company believes that its broad distribution channels,
portfolio of leading brands and state-of-the-art manufacturing and distribution
capabilities position it as the long-term competitive leader in the nutritional
supplement industry. The Company's strategy is to:
Leverage Its Portfolio of Established Brands. The Company believes that
its portfolio of established brands will enable the Company to continue
increasing its share of the nutritional supplement market. The Company's brands
are positioned as leaders in specific product categories and distribution
channels. Schiff and Great American Nutrition are leading vitamin brands in
health food stores and in mass volume retailers, respectively, American Body
Building is a leading sports nutrition brand in gyms and health clubs, Victory
and Metaform are leading sports nutrition brands in health food stores and Joe
Weider Signature is among the leading sports
30
<PAGE> 32
nutrition brand in the mass volume retail market. Tiger's Milk and Fi-Bar are
among the leading nutritional bar brands in supermarkets, health food stores and
convenience stores. Each of these brands has name recognition and consumer
loyalty within its target market. The Company plans to continue promoting its
brands through focused marketing efforts; in fiscal 1996, to publicize its
brands, the Company spent $16.5 million in selling, marketing and advertising
compared to $9.9 million in fiscal 1995.
Develop New Brands and Product Line Extensions. The Company strives to be
on the leading edge of the industry in terms of product development and intends
to continue its commitment to research and development to create new brands and
product line extensions. The nutritional supplement industry is influenced by
products that become popular due to changing consumer tastes and heightened
media attention. The Company believes it is important to continually develop new
products in order to capitalize on such new market opportunities, strengthen
relationships with customers by meeting demand, increase market share and
preserve gross margins. The Company's focus on research and development enables
it to readily formulate and manufacture innovative products and quickly
capitalize on industry trends. For example, this strong commitment to research
and product development enabled the Company to capitalize on the sudden
popularity of melatonin, by quickly formulating and marketing Schiff's
Melatonin.
Continue Growing Its Balanced Distribution Network. The Company has
demonstrated the ability to enter new channels of distribution while preserving
growth in existing distribution channels. Unlike many of its competitors, the
Company has effectively marketed some of its products in the mass volume retail
market while preserving loyalty from its health food store customers. The
Company has achieved this balance by designating brands such as Schiff, Victory
and Metaform as health food brands with limited distribution in the mass volume
retail market. The Company's fiscal 1996 net sales were approximately 34% to
mass volume retailers, 26% to health food stores and 40% to others, including
health clubs and gyms, international markets and private label manufacturing. As
consumer awareness and acceptance of nutritional supplements grow, the Company
expects growth in each distribution channel, with concentration in mass volume
retailers, including drug stores and supermarkets. The Company is uniquely
positioned to capitalize on the growth in each distribution channel through
existing customer relationships and a strong performance history in these
channels.
Acquire Strategically Related Businesses and Product Lines. The
nutritional supplement industry is fragmented and includes a number of small
manufacturers and distributors, many of which are being acquired by larger
companies. The Company believes that growth in the nutritional supplement
industry will generate further consolidation and create continuing opportunities
for the Company to acquire additional nutritional supplement manufacturing and
marketing companies over the next decade. The Company's financial resources and
operating capabilities, along with management's demonstrated ability to make and
integrate acquisitions, uniquely position the Company to be a leader in the
industry's consolidation. The Company has successfully acquired four businesses
in the last two years and has increased the operating performance of each
acquired company. For example, with respect to acquisitions the Company has
included in its results of operations for at least one full fiscal year, sales
for the 12-month period prior to such acquisitions were $14.2 million and
approximately $11.4 million, for American Body Building and Nion, respectively,
compared to sales for fiscal 1996 of $21.8 million and $26.4 million,
respectively.
Further Penetrate International Markets. The Company believes that
significant growth opportunities exist in international markets. The Company
intends to increase its penetration of international markets through strategic
acquisitions and by introducing new products and brands into countries where the
Company already operates. The Company has manufacturing capabilities in the U.K.
as a result of an agreement with an indirect subsidiary of Archer Daniels
Midland, in Spain as a result of the purchase of Weider Spain and in Montreal as
a result of the acquisition of Weider Canada. In connection with the acquisition
of Weider Sports Equipment, with the exception of Australia, New Zealand, Japan
and South Africa, the Company will have distribution rights for nutritional
supplement products in every major market in the world. Weider U.K., which was
acquired on January 1, 1996, accounted for sales of $2.5 million and net income
of $220,000 in fiscal 1996.
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<PAGE> 33
INDUSTRY
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplements market. According to Packaged Facts, the principal
markets in which the Company's products compete totalled approximately $6.5
billion in 1996 and grew at a compound annual growth rate of approximately 15%
from 1992 through 1996. The Company believes several factors account for the
steady growth of the nutritional supplement market, including increased public
awareness of the health benefits of nutritional supplements and favorable
demographic trends toward older Americans who are more likely to consume
nutritional supplements.
Over the past several years, public awareness of the positive effects of
nutritional supplements on health has been heightened by widely publicized
reports and medical research findings indicating a correlation between the
consumption of nutrients and the reduced incidence of certain diseases. Reports
have indicated that the United States government and universities generally have
increased sponsorship of research relating to nutritional supplements. In
addition, Congress has established the Office of Alternative Medicine within the
National Institutes of Health to foster research into alternative medical
treatment modalities, which may include natural remedies. Congress has also
recently established 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 believes that the aging of the United States population,
together with a corresponding increased focus on preventative health care
measures, will continue to result in increased demand for certain nutritional
supplement products. According to Congressional findings that accompanied the
DSHEA, national surveys reveal that almost 43% of Americans regularly consume
vitamins, minerals and herbal supplements and 80% consume these products at some
time during their lives. The 35-and-older age group of consumers, which is
expected to continue to grow over the next two decades, represents 78% of the
regular users of vitamin and mineral supplements. Based on data provided by the
United States Bureau of the Census, from 1990 to 2010, the 35-and-older age
group of the United States population is projected to increase by 32%, a
significantly greater increase than the 20% projected increase for the United
States population in general.
The Company believes these and other trends have helped fuel the growth of
the nutritional supplement market. To meet the increased demand for nutritional
supplements, a number of successful nutritional supplement products have been
introduced over the past several years, including function specific products for
weight loss, sports nutrition, menopause, energy and mental alertness. In
addition, the use of a number of innovative ingredients, such as CitriMax(R),
DHEA, chromium picolinate and melatonin, have created opportunities to offer new
products.
BRANDS AND PRODUCTS
As part of its multi-brand, multi-channel strategy, the Company has
developed a portfolio of brands and diverse products designed for specific
distribution channels to meet the demands of a wide variety of consumers. The
Company believes that offering multiple brands is important to its success in
selling through many separate distribution channels, because selling the same
nutritional supplement brand across multiple distribution channels can weaken a
brand's value to brand-conscious consumers and retailers. Accordingly, the
Company designs its branded products for specific distribution channels. For
example, the Schiff brand primarily targets shoppers in health food stores,
while the Great American Nutrition brand is designed to reach primarily mass
volume retail shoppers. The Company believes having distinct brands positioned
in each distribution channel is one of its strongest competitive advantages,
enabling the Company to participate in the growth currently being experienced in
each of these channels.
The Company markets its branded products in four principal categories of
nutritional supplements: sports nutrition; vitamins, minerals and herbs; diet;
and healthy snacks. The Company also manufactures private label products for
other nutritional supplement marketers. The Company manufactures and markets
approximately 1,400 products and has approximately 1,800 SKUs. The Company
believes that offering its customers a wide variety of products also provides
the Company a competitive advantage in capturing an increasing share of the
growing nutritional supplement market.
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<PAGE> 34
The following table outlines the approximate number of products of each of
the Company's product categories and its private label business at February 28,
1997:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
PRODUCTS
-----------
<S> <C>
Branded products:
Sports nutrition............................................... 317
Vitamins, minerals and herbs................................... 363
Diet........................................................... 44
Healthy snacks................................................. 89
-----
Subtotal.................................................... 813
Private label.................................................... 587
-----
Total....................................................... 1,400
=====
</TABLE>
Sports Nutrition. The Company's sports nutrition category includes a wide
variety of products designed to enhance athletic performance and support the
results derived from exercise programs. The Company's sports nutrition products
deliver nutritional supplements through a variety of forms, including powdered
drink mixes, tablets, capsules, nutrition bars and beverages. The target
consumers for the Company's sports nutrition products are athletes, bodybuilders
and fitness enthusiasts. While each of the Company's products offers distinct
benefits to the consumer, the Company's sports nutrition products are intended
to generally enhance the consumer's ability to control weight, support muscle
growth, lose fat and increase energy levels and stamina. The following table
summarizes the major brands and representative products of the Company's sports
nutrition category:
<TABLE>
<CAPTION>
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ---------------------------------------- -----------------------------------
<S> <C>
American Body Building.................. Blue Thunder protein beverages and
Ripped Force energy beverages and
powdered drink mixes
Science Foods........................... White Lightning protein beverages
and Turbo-Tea energizing beverages
Victory................................. Mass 1000 and Professional powdered
drink mixes
Mega Mass............................... Giant Mega Mass and Super Mega Mass
powdered drink mixes
Metaform................................ Metaform and Metaform Heat powdered
drink mixes and nutrition bars
Joe Weider Signature.................... Dynamic Weight Gain and Dynamic
Muscle Builder powdered drink
mixes
Tiger's Milk............................ Tiger Sport nutrition bars
Steel Bar............................... Steel Bar nutrition bars
</TABLE>
The American Body Building brands, which are intended to help the consumer
increase energy levels and stamina, control weight and lose fat, are primarily
distributed to health clubs and gyms through the Company's exclusive
distributors. Science Foods products are distributed through health clubs and
gyms through direct, non-exclusive distributors. The Victory, Mega Mass,
Metaform and Joe Weider Signature brands, which are intended to support
consumers' efforts to control weight, support muscle growth and lose fat, are
primarily distributed through mass volume retailers and health food stores such
as GNC. The Tiger's Milk product line, which has been marketed for over 30
years, includes seven nutrition bars that supply significant amounts of protein,
vitamins and other essential nutrients with less fat than a traditional candy
bar. Both Tiger Sport and Steel Bar are nationally distributed through
supermarkets, convenience stores, warehouse clubs and health food stores.
Vitamins, Mineral and Herbs. The Company markets a complete line of
vitamins and minerals, including multivitamins, multiminerals, antioxidants and
digestive enzymes. These products are offered in various forms (including
liquids, tablets, capsules, softgels and powdered drink mixes). In addition,
herbs and phytonutrients constitute a small but growing percentage of the net
sales of the Company. Herbs and phytonutrients, which are a
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<PAGE> 35
growing category in the nutritional supplement industry, are alternatives or
complements to over-the-counter pharmaceutical products for consumers who seek a
more natural and preventative approach to their health care.
<TABLE>
<CAPTION>
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ---------------------------------------- -----------------------------------
<S> <C>
Schiff vitamins......................... Multivitamins, multiminerals,
antioxidants and digestive enzymes
Schiff herbs............................ Ginseng, garlic, ginkgo biloba and
echinacea
Excel................................... Ultra High Performance and High
Performance capsules
Prime Time.............................. Prime Time capsules and tablets
Great American Nutrition................ Cold-Free zinc lozenges
</TABLE>
The Company's Schiff brand vitamin products are designed to provide
consumers with essential vitamins and minerals as supplements to their diet.
Schiff vitamins and minerals include multivitamins such as Single Day(TM),
multiminerals such as Guided(TM) Multiminerals Complex, individual vitamins and
minerals such as Vitamins C, E, and Calcium, specialty formulae such as PMS,
Menopause and DHEA, beta carotene and other antioxidants and B-complex. In
addition, the Company introduced Schiff's Melatonin in December 1995, which is a
natural hormone reported in the popular media to combat insomnia and jet lag.
Schiff vitamins are marketed primarily through health food stores but are also
sold through supermarkets and drug stores within the mass volume retail channel.
The Company markets various herbs (including ginseng, garlic, ginkgo biloba
and echinacea) under the Schiff brand primarily in health food stores. Through
its phytocharged supplement line distributed primarily through health food
stores, Schiff is a leader in the development and introduction of
phytonutrients, which are naturally-occurring compounds in plants that are
believed to promote health and prevent disease. These phytonutrients include
lycopene (the beta carotene relative that has been recently linked in the
popular media to lowering prostate cancer risk) and beta glucan (an extract from
oats that is the soluble fiber believed to be responsible for lowering blood
cholesterol levels).
The Company markets certain of its vitamins, minerals and herbal
supplements as energy enhancers under the Excel brand. Excel is the premier
herbal energy supplement line in GNC and health food stores nationwide. The
Company acquired the Excel brand in December 1993 to participate in the growing
market for energy enhancers. Excel's energy products include Ultra High
Performance and High Performance with Ginseng. All Excel products were
originally formulated with Ma Huang, an herb that naturally contains the
stimulant ephedrine; however, in December 1996, the Company decided to
discontinue the manufacturing and marketing of products containing ephedrine in
capsule and tablet form due to potential for misuse but will continue to
manufacture and market beverages and powders containing ephedrine. The Company
now offers Ma Huang-free alternatives (consisting of a unique proprietary blend
of herbs) to all of its Excel products. See "Recent Government Action and
Adverse Publicity Regarding Products Containing Ephedrine." While Excel targets
health food stores for herbal energy products, Great American Nutrition
distributes such products through mass volume retailers.
The Company's vitamins, minerals and herbs category consists of several
products targeting consumers in discrete groups. For example, Great American
Nutrition's Cold-Free(TM) zinc lozenges appeal to common cold sufferers.
Cold-Free(TM) is being distributed through mass volume retailers and health food
stores.
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<PAGE> 36
Diet. The Company is one of the leading suppliers to mass volume retailers
of natural products that utilize vitamins, herbs and other nutritional
supplements designed to promote weight control. The Company's diet products are
intended to support consumers' efforts in a number of weight control functions,
including metabolizing fat, suppressing the appetite, replacing meals and
providing low calorie, low fat snacks. The products are specifically formulated,
packaged and priced to appeal to a wide variety of consumers with different
demographic characteristics and physiological needs:
<TABLE>
<CAPTION>
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ---------------------------------------- -----------------------------------
<S> <C>
Great American Nutrition................ Fat Burner drinks and supplements
Schiff.................................. Ultra Lean capsules and tablets
American Body Building.................. Ripped Force and Cutting Force
energy beverages
Science Foods........................... Razor Ripped and Cut-Up energy
beverages
Joe Weider Signature.................... Fat Burner supplements
Metaform................................ Metaform Heat powdered drink mixes
Excel................................... Super Diet and Fat Burner capsules
and tablets
Prime Time.............................. Prime Time capsules and tablets
</TABLE>
The Great American Nutrition brands, which are intended to support
consumers' efforts to reduce fat, are primarily distributed through mass volume
retailers. The Schiff brands, which are intended to aid in suppressing the
appetite, are primarily distributed through health food stores. The American
Body Building brands, which are intended to support consumers' efforts to reduce
fat and provide a low calorie source of energy, are primarily distributed
through the Company's exclusive distributors to health clubs and gyms. The Joe
Weider Signature and Metaform brands, which are intended to enhance the
consumers' efforts to control weight, support muscle growth and lose fat, are
primarily distributed through mass volume retailers and health food stores, such
as GNC. The Excel line, which is intended to aid in suppressing the appetite and
support consumers efforts to reduce fat, is distributed primarily through health
food stores. Prime Time, a comprehensive health program designed specifically
for men over age 40, is distributed primarily through mass volume retailers.
Healthy Snacks. The Company's healthy snacks category includes its Fi-Bar
and Tiger's Milk product lines. The Fi-Bar product line is comprised of Fat Free
Granola bars and fruit and nut bars coated with yogurt, chocolate or carob made
without hydrogenated fats. The October 1995 acquisition of the American
Nutrition Bars' manufacturing facility and Fi-Bar brand positions the Company to
be a major private label bar manufacturer and adds another well-known healthy
snack bar line to its Tiger's Milk brand. The Tiger's Milk product line, which
as been marketed for over 30 years, includes seven nutrition bars that supply
significant amounts of protein, vitamins and other essential nutrients with less
fat than a traditional candy bar.
<TABLE>
<CAPTION>
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ---------------------------------------- -----------------------------------
<S> <C>
Tiger's Milk............................ Tiger's Milk nutrition bars
Fi-Bar.................................. Fat Free Fi-Bar nutrition bars
</TABLE>
The Tiger's Milk and Fi-Bar brands, which are intended to provide consumers
with a healthy alternative to traditional snack foods and candy bars, are
primarily distributed through mass volume retailers.
Private Label. The Company manufactures capsules, tablets, beverages,
nutrition bars and powdered drink mixes for more than 30 other marketers of
nutritional supplements. These independent marketers, or private label
customers, market the Company's products under their own brand name. The Company
believes private label manufacturing provides opportunities to enhance
profitable growth through increased efficiencies from greater use of operating
capacities. In addition, the Company believes private label manufacturing allows
it to hone its ability to innovate new products.
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<PAGE> 37
PRODUCT RESEARCH AND DEVELOPMENT
The Company strives to be a leader in nutritional supplement product
development and intends to continue its commitment to research and development
to create new brands and product line extensions. The nutritional supplement
industry is influenced by products that become popular due to changing consumer
tastes and media attention. The Company believes it is important to develop new
products in the nutritional supplement industry in order to capitalize on new
market opportunities, to strengthen relationships with customers by meeting
demand and to increase market share. In addition, the Company believes that
continually introducing new products is important to preserving and enhancing
gross margins due to the relatively short life cycle of some products. Recently
developed products are an important component to the Company's total product
mix. For example, products introduced in the last fiscal year accounted for 21%
of the Company's fiscal 1996 sales.
As a result of the Company's product development history, the Company
believes that it has built a reputation in the nutritional supplement industry
for innovation in both branded and private label products. The Company has
pioneered a number of innovations in the nutritional supplement industry,
including: (i) the development of the first domestic source of melatonin with
consistent quality, supply and cost; (ii) the introduction of garcinia cambogia,
a popular weight loss ingredient; (iii) the production of the first
high-protein, low carbohydrate beverage; and (iv) the retail introduction of the
first carotenoid complex product. The Company is in various stages of
development with respect to new product concepts that will augment its existing
product lines.
Due to the importance of new product introductions in the nutritional
supplement industry, the Company continues to make product development a
priority. The Company averaged $1.5 million in annual expenditures for research
and development for the last two fiscal years and has budgeted $2.7 million for
research and development in fiscal 1997. The Company is increasing its
commitment to research and development by hiring additional technical personnel,
purchasing additional research and development equipment, including data and
formulation software, and acquiring pilot lines for nutrition bars, beverages,
tablets and capsules. In addition, the Company has begun sponsoring research and
clinical trials at universities and medical centers.
SALES AND DISTRIBUTION
As part of its multi-brand, multi-channel strategy, the Company markets its
branded nutritional products through each key distribution channel. The
Company's major distribution channels are mass volume retailers, health food
stores and other channels, including its network of exclusive distributors to
health clubs and gyms, international markets and private label manufacturing.
The Company is pursuing a multi-channel distribution strategy to increase sales
and market share, reduce its dependence on any one distribution channel and
target specific markets for its nutritional supplement products. The products
consist of 12 brands and are available in over 38,000 retail outlets in all 50
states. In addition to servicing a number of domestic retail outlets directly,
the Company also sells its products through a network of distributors in the
United States and abroad.
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<PAGE> 38
The Company is one of the leading suppliers of branded nutritional
supplements to mass volume retailers and sells its nutritional supplements to
every major nutritional supplement distributor servicing health and nutritional
stores. The following table shows some of the Company's principal customers in
each distribution channel:
<TABLE>
<CAPTION>
MASS VOLUME RETAILERS HEALTH FOOD STORES OTHER
------------------------- ----------------------- --------------------------------
<S> <C> <C>
Wal-Mart GNC Private label customers
Walgreens Tree-of-Life American Bodybuilding Beverages
Sam's Club Stow Mills Military commissaries
Price Costco Nature's Best Bally's Health and Fitness Clubs
American Drug Super Nutrition Gold's Gym
Kmart Nutra Source Boots (U.K.)
Fred Meyer North Farm Coop Holland & Barrett (U.K.)
Thrifty/Payless L&H Vitamins Corte Ingles (Spain)
Albertson's Threshold Enterprises Decathalon (France)
Target
</TABLE>
The Company's largest customers, GNC and Wal-Mart, accounted for
approximately 16% and 10%, respectively, of net sales in fiscal 1996 and 12% and
10%, respectively, of net sales for the nine month period ended February 28,
1997, compared to approximately 26% and 5%, respectively, of net sales in fiscal
1995 and 16% and 9%, respectively, of net sales for the nine month period ended
February 28, 1996. The dollar amount of the Company's sales in fiscal 1996 to
GNC and Wal-Mart grew by 30% and 317%, respectively, over the previous year. The
Company has 26 other major customers each of which produced sales of between
0.5% and 5% of the Company's net sales in fiscal 1996 and, collectively,
accounted for 32% of net sales in fiscal 1996. The loss of GNC or Wal-Mart as a
customer, the loss of a significant number of other major customers, or a
significant reduction in purchase volume by or financial difficulty of such
customers, for any reason, could have a material adverse effect on the Company's
results of operations or financial condition. See "Risk Factors -- Dependence on
Significant Customers."
International Markets. The Company believes significant opportunities
exist for nutritional supplement products in international markets. The Company
has positioned itself to take advantage of such opportunities through its
acquisition of Weider U.K., Weider Spain and Weider Canada. After the
acquisition of Weider Spain, the Company has the capability to manufacture
nutritional supplements in Spain and market nutritional supplements throughout
continental Europe, including Italy, Germany, France, Belgium, the Netherlands,
Luxembourg, Portugal and Spain. Through Weider Canada, the Company markets
nutritional supplements to South America, Russia and the Pacific Rim. These
acquisitions provide the Company with the rights to manufacture and market
nutritional supplements worldwide, excluding Australia, New Zealand, Japan and
South Africa. In addition, the Company has manufacturing capabilities in the
United Kingdom as a result of an agreement with an indirect subsidiary of Archer
Daniels Midland. Approximately, 1.3%, or $2.5 million, of the Company's fiscal
1996 sales were derived from the United Kingdom. See "Certain Relationships and
Related Party Transactions -- Certain International Acquisitions and Royalty
Arrangements."
MARKETING AND CUSTOMER SALES SUPPORT
A comprehensive promotional program and extensive advertising, in
combination with a large, well-trained sales force and superior customer service
standards, have been integral to the Company's growth. These factors have
enhanced brand name recognition of the Company's products and positioned it as a
leader in the nutritional supplement industry. A key part of the Company's
strategy is to help educate consumers about innovative, safe and beneficial
nutritional supplement products. The Company's marketing and advertising
expenditures were approximately $11.3 million in fiscal 1996, $6.7 million in
fiscal 1995, and $4.9 million in fiscal 1994.
The Company promotes its products in more than 37 consumer magazines, such
as Newsweek, People, Cosmopolitan, Self, Parade, Martha Stewart Living, Woman's
Day, Family Circle and Mademoiselle and trade magazines, such as Whole Foods,
Vitamin Retailer, Mass Market Retailer and Chain Drug Review. In addition to
37
<PAGE> 39
these publications, the Company advertises in several magazines published by
Weider Publications Inc. ("Weider Publications"), an affiliate of the Company,
including: Muscle and Fitness, Flex, Shape, Men's Fitness, and Senior Golfer.
Weider Publications also features editorials on nutritional products, providing
nutritional supplement consumers with further research and information. See
"Certain Relationships and Related Party Transactions." The Company also
maintains several Internet sites.
The Company participates in consumer education by sponsoring and attending
various sporting events, including leading professional body building
competitions such as The Mr. Olympia, The Arnold Schwarzenegger Classic and 45
local National Physique Committee bodybuilding competitions. In addition, the
Company plays an active role in supporting industry and consumer advocate
organizations for nutritional products. The Company also promotes its products
at numerous trade and consumer shows representing all current distribution
channels. In addition, the Company expects to pay endorsements to professional
and amateur athletes in order to promote a positive image for the Company's
nutritional products.
The Company is committed to providing superior service both to retailers
and consumers. The Company's sales and marketing team consists of approximately
120 professionals organized by distribution channel, brand and product type.
This enables the Company to quickly service the needs of both retailers and
consumers. The Company believes that up-to-date reporting and hands-on
management allow its sales team to be responsive to consumer needs for new
products, creating promotions and producing extensive marketing support
materials.
International Markets. Through the acquisition of Weider U.K., Weider
Spain and Weider Canada, the Company has increased its presence in the major
international markets for nutritional supplements. Sales offices and staff in
London, Madrid and Montreal and distributors in every major international market
other than Australia, New Zealand, Japan and South Africa, will be headed by a
vice president of sales and marketing based in Utah and will form the foundation
for the Company's future growth and expansion in international markets.
MANUFACTURING AND PRODUCT QUALITY
The Company has invested in manufacturing to meet the growing demand for
nutritional supplement products, to ensure continued operating efficiencies and
to maintain high product quality standards. The Company manufactures over 80% of
its branded products. The Company's products are currently manufactured in five
separate facilities in Salt Lake City, Utah; Irwindale, California; Walterboro,
South Carolina; City of Industry, California; and Las Vegas, Nevada. However,
the Company has consolidated many of its operations in its main distribution
center and headquarters in Salt Lake City, Utah. Consistent with its commitment
to capturing an increasing share of the growing nutritional supplement market,
the Company is building the New Facility in Salt Lake City, Utah.
Existing Salt Lake City Facility. In addition to being the Company's main
distribution center and corporate headquarters, the 152,000 square-foot existing
Salt Lake City facility also contains the dry powder manufacturing operation for
the Company, which includes blending, bottling and packaging of powdered drink
mixes. The facility can produce over 400,000 pounds of powdered drink mixes
daily and prepare for shipment 65,200 packages of various sizes per day. The dry
powder manufacturing operation can simultaneously run seven packaging lines
giving the Company the flexibility to produce powdered drink mixes in a variety
of packages, including cans, jugs, bags, boxes, buckets and packets. The Company
plans to maintain all domestic powdered drink mix manufacturing in the existing
facility after completion of the New Facility in mid-1997. In addition,
information systems will be expanded in fiscal 1997; the Company's existing
AS400 hardware will be upgraded to double existing capacity and the Company's JD
Edwards software will be upgraded to increase all distribution, manufacturing
and multilingual/multicurrency capacities. The Company can operate the facility
with three manufacturing shifts, but typically dedicates two shifts to
manufacturing and the third to sanitation, maintenance and change-over. The
facility also produces powdered drink mixes for private label companies and
international customers. In addition to its manufacturing capabilities, the
facility contains quality control and research and development labs.
Future Salt Lake City Facility. In response to increased sales and the
anticipated increase in demand for nutritional supplements, the Company has
leased a 418,000 square-foot manufacturing, warehouse and office facility
located in Salt Lake City, Utah. This facility is being built specifically for
the Company and is expected to
38
<PAGE> 40
become operational in mid-1997. The New Facility will more than double current
distribution capacity. A significant portion of office, distribution and bar
manufacturing operations will be consolidated in the New Facility. In addition,
the New Facility will have 85,000 square-feet of capacity for manufacturing
capsules and tablets to supplement Nion's manufacturing facility. Raw materials
and finished products will be stored within the New Facility, utilizing
Automated Guided Vehicles, narrow aisles and radio frequency technology. The New
Facility will also contain an order picking module called the "pick tunnel," a
560-foot-long racking unit that holds 1,012 SKUs in a four-level structure. The
system is designed to provide high-speed distribution and has the software
capabilities to run up to 13 customer orders simultaneously. The Company expects
the new system will improve the current rate at which the Company selects and
sorts orders at its distribution facility. With this new system, the Company
expects to be able to ship directly to customers and fulfill orders with greater
accuracy. In addition to the 24 acres on which the New Facility is being built,
the Company purchased an additional 10 contiguous acres for future expansion.
See "Business -- Properties."
Nion Facility. The Nion capsule and tablet manufacturing facility is
located in Irwindale, California. The 95,000 square-foot facility operates under
pharmaceutical Good Manufacturing Practices ("GMP") and holds an
over-the-counter drug license. A number of the Company's products, including
those of Great American Nutrition and Schiff, as well as private label products,
are produced in this state-of-the-art facility, which can produce over 18
million capsules and tablets per day and operates 24 hours per day, six days per
week. The facility can also fill 85,000 bottles per day on six high-speed
packaging lines. In addition to its manufacturing capabilities, the facility
contains product quality and research and development labs. In order to meet
growing demand, Nion expanded in Southern California by 34,000 square-feet in
June 1996 to 129,000 square-feet, and will further expand with another 85,000
square-feet in the New Facility. The Company expects the expansion will allow
Nion to produce the Company's products along with its additional private label
business for the foreseeable future.
American Bottling and Beverage Facility. The American Bottling and
Beverage facility, which manufactures American Body Building beverages, is
located in Walterboro, South Carolina and supplies beverages across North
America and Europe. This plant began producing beverages under the American Body
Building label in December 1995 and currently has the capacity to bottle 480,000
bottles per day. The 55,000 square-foot facility is on a ten-acre site with
access to the port of Charleston. The site allows for expansion up to another
50,000 square-feet, allowing for increases in both manufacturing and warehousing
capacity. With the current production lines, the Company believes the capacity
exists to meet projected volumes for the next three years. The Company can
operate the facility on three manufacturing shifts, but typically dedicates two
shifts to manufacturing and the third to sanitation, maintenance and
change-over. The Company has entered into an arrangement with a bottle supplier
whose plant will be constructed adjacent to the American Bottling and Beverage
facility. The new bottling plant, which opened in October of 1996, has reduced
the Company's freight costs, increased supply and reduced on-hand bottle
inventory.
American Nutrition Bars Facility. The American Nutrition Bars facility in
City of Industry, California produces nutrition bars. The plant produces Tiger's
Milk and Fi-Bar products as well as private label nutrition bars. The Company
plans to close the City of Industry facility (one of two facility leases has
been terminated by the Company) and relocate the American Nutrition Bars
operations to the New Facility in mid-1997. The bar manufacturing capacity at
the New Facility is expected to exceed the capacity of the City of Industry
facility. The original facility could blend approximately 128,000 pounds of
ingredients and could extrude approximately 880,000 bars per day. The Company
could operate the facility on three manufacturing shifts, but typically
dedicated two shifts to manufacturing and the third to sanitation, maintenance
and change-over. The state-of-the-art extrusion equipment gives American
Nutrition Bars the flexibility to produce a wide array of bars in many forms and
shapes.
Science Foods Facility. Effective January 1, 1997, the Company acquired
the assets of Science Foods. The Science Foods facility, located in Las Vegas,
Nevada, manufactures the Science Foods brand beverages and supplies these drinks
to approximately 2,000 health and fitness clubs located primarily in the western
United States. The 27,500 square-foot facility has the capacity to bottle 64,000
bottles per day. The Company believes that a bottling plant located in the
western United States will complement the Company's South Carolina facility.
Significant freight cost savings are expected as the Company will have the
capability of delivering its American Body Building beverages to the western
United States more economically.
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<PAGE> 41
Quality Standards. The Company is committed to meeting the highest quality
standards in the industry. The Company's manufacturing facilities are in the
initial evaluation and implementation phases of ISO 9000 certification. As part
of this process, all testing and inspection procedures performed by more than 35
quality control professionals are standardized and periodically evaluated for
compliance. Each of the Company's manufacturing sites is equipped with
microbiology and quality control laboratories. Samples are evaluated using
visual and flavor profiles as well as analytical testing using high pressure
liquid chromatography, atomic absorption, a UV fluorometer, thin layer
chromatography and infrared spectrophotometric equipment. The Company's products
are also subject to extensive shelf life stability testing through which the
Company determines the effects of aging on its products. The Company's product
retention program allows the Company to maintain samples from each product batch
shipped and to analyze such samples to ensure product quality. Certified outside
laboratories are used routinely to evaluate the Company's laboratory performance
and to supplement its testing capabilities.
Purchasing. The Company focuses on purchasing raw materials from the
highest quality-cost effective vendors and sources its raw materials and
purchased goods from over 275 different qualified vendors. The Company orders
and purchases a majority of its raw materials from its Salt Lake City
headquarters, allowing the Company to benefit from volume purchasing discounts.
Distribution. The Company's main distribution center is currently located
within the 152,000 square-foot Salt Lake City facility, however, each satellite
facility has the capability to ship directly to customers. In addition to its
domestic distribution facilities, the Company has distribution capabilities in
the United Kingdom, Spain and Canada. The recent acquisition of Weider Spain
enables the Company to manufacture nutritional supplements in Spain and market
nutritional supplements throughout continental Europe, including Italy, Germany,
France, Belgium, the Netherlands, Luxembourg, Portugal and Spain. Through Weider
Canada, the Company markets nutritional supplements to South America, Eastern
Europe and the Pacific Rim. These acquisitions provide the Company with the
rights to manufacture and market nutritional supplements worldwide, excluding
Australia, New Zealand, Japan and South Africa. The Company expects that its
distribution capacity will be more than doubled as a result of the construction
of the New Facility. The majority of the distribution capacity currently located
in the Salt Lake City facility will be moved to the New Facility and each
satellite facility in California and South Carolina will maintain the capability
to ship directly to customers.
COMPETITION
The nutritional supplement industry consists of six principal types of
suppliers: independent health food suppliers, who focus primarily on vitamins
and nutritional supplements; mass volume retail suppliers, who sell nutritional
products that have mass appeal; gym and health club product companies; direct
sale and mail order marketers; private label manufacturers; and major
pharmaceutical companies. The majority of competitors in the nutritional
supplement industry are small marketing operations focused on one or two of
these distribution channels.
The Company does not compete with any one competitor in all of its
distribution channels. The Company's primary competitors in the independent and
natural health food market include Nature's Way, Nutraceuticals, Solgar,
Twinlab, Rexall Sundown and EAS. In the mass volume retail market, competitors
include Amerifit, Richardson Labs, Slim-Fast, Thompson Medical and Cybergenics.
Gyms and health club suppliers include Costello's and Nature's Best. In the
direct sale and mail order markets, competitors include Amrion, Amway, Nu-Skin,
Usana and in the private label manufacturing market, competitors include GNP,
Pharmavite, Leiner, Tishcon and Northridge Labs. In addition, large
pharmaceutical companies and packaged food and beverage companies compete with
the Company on a limited basis in the nutritional supplement market. Increased
competition from such companies could have a material adverse effect on the
Company as they have greater financial and other resources available to them and
possess extensive manufacturing, distribution and marketing capabilities far
greater than those of the Company.
The Company believes that by reacting quickly to market changes, scientific
discoveries and competitive challenges, the Company will continue to compete
effectively in the nutritional supplement industry. As the nutritional
supplement industry grows and evolves, the Company believes retailers will rely
heavily on suppliers,
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<PAGE> 42
such as the Company, that can respond quickly to new opportunities, support them
with production capacity and flexibility, and provide innovative and high margin
products. In addition, retailers have begun to align themselves with suppliers,
such as the Company, who are financially stable, aggressively market a broad
portfolio of products and offer superior customer service. The Company believes
it has a distinct competitive advantage over other nutritional supplement
companies because of its portfolio of recognized brands, multiple distribution
channels and state-of-the-art manufacturing capabilities. The Company's
financial, marketing and manufacturing resources allow it to support advertising
and marketing brand campaigns and quickly develop, manufacture and innovate new
product concepts in response to industry trends.
REGULATION
The manufacturing, packaging, labeling, advertising, distribution and sale
of the Company's products are subject to regulation by one or more governmental
agencies, the most active of which is the FDA, which regulates the Company's
products under the FDCA and regulations promulgated thereunder. The Company's
products are also subject to regulation by the FTC, the CPSC, the USDA and the
EPA. The Company's activities are also regulated by various agencies of the
states, localities and foreign countries to which the Company distributes its
products and in which the Company's products are sold. The FDCA has been amended
several times with respect to dietary supplements, most recently by the NLEA and
the DSHEA.
The Company is a party to the Order with the FTC, which was signed by the
Parent in 1985. Pursuant to the Order, the Company is prohibited from making
certain advertising claims relating to the muscle building capabilities of
Anabolic Mega Paks and Dynamic Life Essence and any other product of
substantially similar composition. In connection with the Company's other food
products, the Company is similarly prohibited from making these claims unless
the Company is able to substantiate such claims. In 1986, the Parent was
required to pay a maximum amount of $400,000 pursuant to the Order as
reimbursements to purchasers of Anabolic Mega Paks and Dynamic Life Essence. To
the extent such reimbursements amounted to less than $400,000, the Parent was
required pursuant to the Order to pay the remainder to a designated research
center for the study of the relationship between nutrition and muscular
development. The Parent has paid all amounts required to be paid under the
Order. In September 1991, the FTC informed the Company that the FTC had reviewed
the several compliance reports which had been filed from March 1986 through and
including June 20, 1991 and no action was planned at such time. Although the
Company has received occasional inquiries from the FTC regarding compliance
matters since September 1991, the FTC has not taken any formal action regarding
the Company's compliance with the Order.
The Company manufactures certain products pursuant to contracts with
customers who distribute the products under their own or other trademarks. Such
customers are subject to governmental regulations in connection with their
purchase, marketing, distribution and sale of such products, and the Company is
subject to such regulations in connection with the manufacture of such products
and its delivery of services to such customers. However, the Company's contract
manufacturing customers are independent companies, and their labeling, marketing
and distribution of such products is beyond the Company's control. The failure
of these customers to comply with applicable laws or regulations could have a
material adverse effect on the Company.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally controlled by the Company's distributors for those countries. These
distributors are independent contractors over whom the Company has limited
control.
The Company has a number of individuals dedicated to regulatory compliance,
including a Vice President of Quality Control, a Director of Regulatory Affairs
and a Vice President of Research, in addition to a number of outside legal
consultants. The Vice President of Quality Control is responsible for conforming
each of the Company's manufacturing facilities to applicable GMPs and federal
and state regulations. The Director of Regulatory Affairs' responsibilities
include ensuring that all product packaging and advertising comply with FDA and
FTC requirements and serving as the primary liaison between the Company and the
Company's outside
41
<PAGE> 43
patent consultants. The Vice President of Research is responsible for submitting
structure/function claims to the FDA and validating any technical claims made in
any of the Company's advertising or packaging.
The Company may be subject to additional laws or regulations administered
by the FDA or other federal, state or foreign regulatory authorities, the repeal
or amendment of laws or regulations which the Company considers favorable, such
as the DSHEA, or more stringent interpretations of current laws or regulations,
from time to time in the future. The Company is unable to predict the nature of
such future laws, regulations, interpretations or applications, nor can it
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on its business in the future. They
could, however, require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not able to be
reformulated, imposition of additional recordkeeping requirements, expanded
documentation of the properties of certain products, expanded or different
labeling and scientific substantiation. Any or all of such requirements could
have a material adverse effect on the Company's results of operations and
financial condition. See "Risk Factors -- Government Regulation."
EMPLOYEES
At February 28, 1997, the Company employed approximately 520 persons, of
whom approximately 290 were in management, sales, purchasing, logistics and
administration and approximately 230 were in manufacturing. Additionally, the
Company utilizes temporary employees in some of its manufacturing processes. For
fiscal 1996, the Company's temporary employment expense was approximately $3.8
million. The Company is not party to, and does not expect to be a party to, any
collective bargaining arrangements.
PROPERTIES
The Company operates the following facilities:
<TABLE>
<CAPTION>
LOCATION FUNCTION AGGREGATE SPACE LEASE/OWN
- --------------------- --------------------------------- -------------------- ---------
<S> <C> <C> <C>
Salt Lake City, UT Company headquarters; 152,000 square feet Own
manufacturing and distribution
center for capsules and
tablets, powdered drink mixes
and nutrition bars
Irwindale, CA Capsule and tablet manufacturing 129,000 square feet Lease
City of Industry, CA Nutritional bar manufacturing 35,000 square feet Lease
Walterboro, SC Liquids manufacturing 55,000 square feet Own
Las Vegas, NV Liquids manufacturing 27,500 square feet Lease
Montreal, Quebec Office and warehouse space 24,600 square feet Lease
Madrid, Spain Office and manufacturing 20,000 square feet Lease
</TABLE>
The Company owns a 152,000 square foot, state-of-the-art distribution,
manufacturing and office facility in Salt Lake City, Utah, which it has occupied
since December 1993. This facility has served as the Company's international
executive offices for management, sales and administration. In addition, this
facility is the distribution center for capsules and tablets, powdered drink
mixes and nutrition bars and provides 47,000 square feet for powdered drink mix
manufacturing operations. The Company also leases 67,000 square feet of
warehouse space in Salt Lake City.
The Company leases three separate facilities in Irwindale, California,
aggregating approximately 129,000 square feet for capsule and tablet
manufacturing operations. Capsules and tablets, sold by the Company under the
brand names Schiff, Excel, and Great American Nutrition, are produced in these
facilities, along with capsules and tablets for private label customers.
The Company currently leases a building in City of Industry, California,
that it is approximately 35,000 square feet for nutritional bar manufacturing
operations. Nutrition bars sold under the brand names Fi-Bar and Tiger's Milk
are produced at this facility, along with nutrition bars for private label
customers. The nutrition bar manufacturing operations will be moved to the New
Facility in 1997 and the City of Industry operations will be
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<PAGE> 44
closed and the lease will be terminated. The lease for an additional 25,000
square foot facility has been terminated already.
The Company owns a 55,000 square foot liquids manufacturing facility in
Walterboro, South Carolina. This state-of-the-art facility produces drinks such
as American Body Building beverages sold through independent distributors and
produces other beverages sold under the Great American Nutrition label to mass
volume retail distributors. The liquids manufacturing operation formerly located
on Long Island, New York, was acquired on January 1, 1995, and subsequently
moved to Walterboro, South Carolina.
The Company has entered a lease for the 418,000 square foot New Facility,
which is expected to be operational by mid-1997. The lease agreement governing
the New Facility is for an initial term of 16 years with two 5-year renewal
options.
In connection with the acquisition of the assets of Science Foods,
effective January 1, 1997, the Company assumed a lease for a 27,500 square foot
manufacturing facility in Las Vegas, Nevada. This facility currently produces
Science Foods branded beverages that are sold through distributors to
approximately 2,000 health and fitness clubs. The lease for this facility
expires in November 1999.
In connection with the purchase of Weider Canada, on September 1, 1996, the
Company and Ben Weider entered into a two-year lease pursuant to which the
Company agreed to lease an approximately 24,600 square foot office and warehouse
facility in Montreal from Ben Weider.
In connection with the purchase of Weider Spain, on September 1, 1996, the
Company entered into an agreement to lease a 20,000 square foot office and
manufacturing facility in Madrid, Spain. The lease has a 10 year term.
TRADEMARKS AND PATENTS
At March 18, 1997 the Company had approximately 85 federal trademark
registrations and approximately 108 trademark applications pending with the
United States Patent and Trademark Office. The Company's policy is to pursue
registrations for all of the trademarks associated with its key products. The
Company protects its legal rights concerning its trademarks and is currently
enforcing several trademarks against infringement by litigation, both in the
United States and in foreign countries, including litigation pertaining to its
registered trademark Fat Burners(R). See "Business -- Legal Matters."
The Company relies on common law trademark rights to protect its
unregistered trademarks. Common law trademark rights do not provide the Company
with the same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights are
limited to the geographic area in which the trademark is actually used, while a
United States federal registration of a trademark enables the registrant to stop
the unauthorized use of the trademark by any third party anywhere in the United
States even if the registrant has never used the trademark in the geographic
area wherein the unauthorized use is being made (provided, however, that an
unauthorized third party user has not, prior to the registration date, perfected
its common law rights in the trademark in that geographical area). The Company
intends to register its trademarks in certain foreign jurisdictions where the
Company's products are sold. However, the protection available in such
jurisdictions may not be as extensive as the protection available to the Company
in the United States. See "Risk Factors -- Intellectual Property Protection."
Currently, the Company has three patent applications submitted to the
United States Patent and Trademark Office which are currently under review. The
Company expects definitive action from the United States Patent and Trademark
Office sometime in late 1997.
LEGAL MATTERS
Because the Company manufactures products designed to be ingested, it faces
the risk that materials used for the final products may be contaminated with
substances that may cause sickness or other injury to persons who have used the
products. Although the Company maintains production and operating standards
designed to prevent such events, certain portions of the process of product
development, including the production, harvesting, storage and transportation of
raw materials, along with the handling, transportation and storage of finished
products
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<PAGE> 45
delivered to consumers, are not within the control of the Company. Furthermore,
sickness or injury to persons may occur if products manufactured by the Company
are ingested in dosages which exceed the dosage recommended on the product
label. The Company cannot control misuse of its products by consumers or the
marketing, distribution and resale of its products by its customers. With
respect to product liability claims in the United States, the Company has $1.0
million per occurrence and $1.0 million in aggregate liability insurance subject
to self-insurance retention of $25,000. In addition, if claims should exceed
$1.0 million, the Company has excess umbrella liability insurance of up to $25.0
million which it expects to increase to $90.0 million prior to the Offerings.
However, there can be no assurance that such insurance will continue to be
available, or if available, will be adequate to cover potential liabilities. The
Company generally does not obtain contractual indemnification from parties
supplying raw materials or marketing its products and, in any event, any such
indemnification is limited by its terms and, as a practical matter, to the
creditworthiness of the indemnification party. In the event that the Company
does not have adequate insurance or contractual indemnification, product
liabilities relating to defective products could have a material adverse effect
on the Company.
The Company and its subsidiary, Schiff Products, Inc. ("Schiff Products"),
together with other distributors, manufacturers and retailers of L-Tryptophan,
are defendants in actions in federal and state courts seeking compensatory and,
in some cases, punitive damages for alleged personal injuries resulting from the
ingestion of products containing allegedly contaminated L-Tryptophan. The
Company acquired Schiff Products pursuant to an asset acquisition transaction in
1989. Schiff Products was a distributor of L-Tryptophan, but neither the Company
nor Schiff Products ever distributed products that are the subject of the
lawsuits. In each lawsuit, the L-Tryptophan products were shipped by the entity
from whom the Company purchased the trademark Schiff and other assets in 1989.
The Company and Schiff Products have entered into an indemnification agreement
(the "Indemnification Agreement") with Showa Denko America ("SDA"), a U.S.
subsidiary of a Japanese corporation, Showa Denko, K.K. ("SDK"). Under the
Indemnification Agreement, SDA agreed to assume the defense of all claims
arising out of the ingestion of L-Tryptophan products, pay all legal fees and
indemnify the Company and its affiliates against liability in any action if it
is determined that a proximate cause of the injury sustained by the plaintiff in
the action was a constituent of the raw material sold by SDA to Schiff Products,
or was a factor for which SDA or any of its affiliates was responsible, except
to the extent that action by the Company or Schiff Products proximately
contributed to the injury, and except for certain claims relating to punitive
damages. SDK has posted a revolving irrevocable letter of credit for the benefit
of the indemnified group if SDA is unable or unwilling to satisfy any claims or
judgments. SDK has unconditionally guaranteed the payment obligations of SDA
under the Indemnification Agreement. Although the Company believes that the
prospect of a material adverse effect on the Company's results of operations or
financial condition arising from these lawsuits is remote and no provision in
the Company's financial statements has been made for any loss that may result
from these actions, no assurance can be given that such lawsuits would not have
a material adverse effect on the results of operations or financial condition of
the Company. See "Risk Factors -- Products Liability."
The Company has filed suit in the United States District Court for the
District of Utah on March 20, 1995 against one of its competitors for
infringement of the Company's federally registered trademark Fat Burners(R). The
defendant has petitioned the United States Patent and Trademark office to cancel
the registration of the Fat Burners(R) trademark. The cancellation proceeding
has been suspended by the U.S. Trademark Office, pending the outcome of the
above-noted litigation. The defendant had filed a motion for summary judgment,
which was denied and the case is still in the discovery stage.
The Company was named as one of several defendants in a suit filed by John
Psathas in California Superior Court, Contra Costa County in December 1996
alleging unfair competition and false advertising under California law. Mr.
Psathas alleges that the defendants, including the Company, promoted and sold a
product known as Steel Bars, the labels and advertising materials for which
contained incorrect information concerning the product's nutritional content.
Mr. Psathas seeks, among other things, injunctive relief prohibiting the alleged
conduct and compelling restitution of monies obtained from the sale of Steel
Bars and attorneys' fees. The Company answered the complaint on February 27,
1997 and denied all material allegations. If the Company cannot reach an
agreeable settlement with Mr. Psathas, the Company intends to defend the
complaint vigorously.
The Natural Resources Defense Council (the "NRDC") filed a suit in the San
Francisco Superior Court on February 3, 1997, naming Schiff Products, Inc., as a
defendant. The complaint in that action contends that
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<PAGE> 46
calcium supplements sold by the Company and many other nutritional supplement
companies in California do not comply with Proposition 65. Proposition 65
prohibits businesses from exposing any person to a substance known to the State
of California to cause cancer or reproductive harm without warning that person
prior to the exposure. Warnings are not required if the exposure would not pose
a significant risk. Also, the laws implementing Proposition 65 provide that no
warning is required for exposures to substances that occur naturally in food.
Proposition 65 provides for penalties of $2,500 for each time a person is
exposed to a product that violates the requirements of Proposition 65. In its
suit the NRDC questions whether the presence of lead in calcium supplements is
at a sufficiently high level to require a warning. The Company's position is
that lead in calcium supplements is at a very low level and that, moreover,
calcium supplements are food, and any lead present is naturally occurring. The
Company owns Schiff Products and will be defending the NRDC action against
Schiff. Since the lawsuit was recently filed and served, it is too early to
determine the probable outcome or cost of defending the action. The Attorney
General of the State of California has also filed suit against several
manufacturers for marketing calcium supplements that exceed lead content under
Proposition 65. Although the Company has not been named in this suit, there can
be no assurance that the Company will not ultimately be named.
The Company is presently engaged in various other legal actions, and,
although ultimate liability cannot be determined at the present time, the
Company currently believes that the amount of any such liability from these
other actions and the lawsuits described in the preceding paragraphs, after
taking into consideration the Company's insurance coverage, will not have a
material adverse effect on its results of operations and financial condition.
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<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names and ages at February 28, 1997 of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE
OFFICERS AGE POSITION
- ------------------------- --- -----------------------------------------------------
<S> <C> <C>
Eric Weider.............. 33 Director and Chairman of the Board
Richard B. Bizzaro....... 54 Chief Executive Officer, President and Director
Robert K. Reynolds....... 40 Chief Operating Officer, Executive Vice President,
Secretary and Director
Richard A. Blair......... 37 Executive Vice President -- Sales and Marketing
Stephen D. Young......... 43 Executive Vice President -- Operations and Chief
Financial Officer
Ronald L. Corey.......... 58 Director
Roger H. Kimmel.......... 50 Director
George F. Lengvari....... 54 Director
</TABLE>
Eric Weider has been a director of the Company since June 1989, Chairman of
the Board since August 1996 and is currently President and Chief Executive
Officer of the Parent. Mr. Weider also serves as a member of the board of
directors of a number of public and private companies in the United States and
Canada, including the Parent and Mpact Immedia Corporation. Mr. Weider is also
the President of the Joe Weider Foundation.
Richard B. Bizzaro has been Chief Executive Officer, President and a
director of the Company since June 1990. Prior to his appointment as Chief
Executive Officer and President of the Company, he was Vice President of Sales
for the Parent, responsible for sales at Weider Nutrition and Weider Exercise
Equipment. Mr. Bizzaro has worked for the Company, the Parent or one of the
Parent's affiliates since 1983.
Robert K. Reynolds has been Executive Vice President, Chief Operating
Officer and Secretary of the Company since July 1992 and a director of the
Company since January 1994. Mr. Reynolds joined the Company in September 1990 as
Chief Financial Officer. Mr. Reynolds, a certified public accountant, is
primarily responsible for all domestic and international operations.
Richard A. Blair has been Executive Vice President -- Sales and Marketing
of the Company since January 1997. From January 1994 to January 1997, Mr. Blair
was Senior Vice President -- Sales of the Company. Mr. Blair is primarily
responsible for overseeing the national sales force and distribution channels
and for directing marketing, creative and advertising strategies. Mr. Blair
joined the Company in June 1991 and prior thereto was Director of Sales and
Marketing at Tunturi Sports Equipment Company, which he joined in 1984.
Stephen D. Young has been Executive Vice President -- Operations and Chief
Financial Officer of the Company since January 1997. From January 1994 to
January 1997, Mr. Young was Senior Vice President -- Finance and Chief Financial
Officer of the Company. Mr. Young joined the Company in September 1993. He is
responsible for all finance, accounting, information systems, human resources,
administration, due diligence on acquisitions, operations and product
development. Mr. Young is a certified public accountant and, prior to September
1993, was Vice President Finance at First Health Strategies, which he joined in
1983.
Ronald L. Corey has been a director of the Company since August 1996. Mr.
Corey has been President of the Club de Hockey Canadien Inc. (the Montreal
Canadiens) and the Molson Center Inc. since 1982. In addition, between 1985 and
1989, Mr. Corey held the position of Chairman of the Board and director of the
Montreal Port Corporation. Mr. Corey has served as a director of numerous
companies, including Banque Laurentienne, Reno-Depot Inc. and Transamerica Life
Companies.
Roger H. Kimmel has been a director of the Company since August 1996. Mr.
Kimmel has been a partner at the law firm of Latham & Watkins for more than five
years. Mr. Kimmel is a director of Algos Pharmaceutical Corporation and TSR
Paging Inc.
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<PAGE> 48
George F. Lengvari has been a director of the Company since August 1996.
Mr. Lengvari has been Vice Chairman of the Parent since June 1995 and Chairman
of Weider Publications U.K. since September 1994. Prior to joining the Parent,
Mr. Lengvari was a partner for 22 years in the law firm Lengvari Braman and is
currently of counsel to the law firm LaPointe Rosenstein. Mr. Lengvari currently
serves as a member of the board of directors of the Parent.
The Bylaws of the Company provide for a Board of Directors of at least
three but not more than 15 directors. In accordance with the Bylaws, the Board
of Directors has fixed the number of directors at nine, leaving three vacancies
which the Parent expects to fill with at least two independent directors
promptly after the Offerings, with the first of such independent directors being
selected within three months after the Offerings and the second being selected
within six months after the Offerings. The Certificate of Incorporation provides
that holders of Class B Common Stock have the right to 10 votes on all matters
presented to stockholders of the Company for vote, including the election of
directors. As a result, the Parent, as the holder of all of the outstanding
shares of Class B Common Stock, will have the right to elect all of the
directors of the Company. Directors will be elected at the annual meeting of
stockholders, except for vacancies filled by the Board of Directors, and each
director will hold office until his successor is elected and qualified;
provided, however, unless otherwise restricted by the Company's Certificate of
Incorporation or law, any director or the entire Board of Directors may be
removed, either with or without cause, from the Board of Directors at any
meeting of stockholders by a majority of the votes cast and entitled to be voted
at that meeting. Officers serve at the discretion of the Board of Directors. See
"Description of Capital Stock -- Common Stock."
The Board of Directors created an Audit Committee which is responsible for
reviewing the results and scope of the audit and other services provided by the
Company's independent auditors. The Board of Directors also created a
Compensation Committee which is responsible for determining executive
compensation and administering the Stock Option Plan. The Board of Directors
intends to designate a committee consisting of independent directors to review
all material related party transactions. Messrs. Weider, Lengvari and Kimmel
serve on both the Audit and the Compensation Committees.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not (i) employees of the Company
or (ii) employees or directors of the Parent (together, the "Independent
Directors") will receive an annual fee of approximately $12,000, options to
purchase 20,000 shares of Class A Common Stock upon agreeing to serve as a
director of the Company (or upon consummation of the Offerings if later) and
options to purchase 7,000 shares of Class A Common Stock upon completion of each
successive year of service as a director. Options granted to Independent
Directors will become exercisable in equal annual installments on each of the
first five anniversaries of the date of the grant so long as the Independent
Director continues to serve as a director of the Company. The Company will also
reimburse all directors for their expenses incurred in connection with their
activities as directors of the Company. Directors who are not Independent
Directors receive no compensation for serving on the Board of Directors.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during fiscal 1996.
Officers' compensation during fiscal 1996 to officers other than Messrs. Bizzaro
and Reynolds was determined by the Chief Executive Officer and Chief Operating
Officer and approved by the Compensation Committee of the Parent. Officers'
compensation during fiscal 1996 to Messrs. Bizzaro and Reynolds was determined
by the Compensation Committee of the Parent. The Parent's Compensation Committee
consisted of Messrs. Eric Weider, Ben Weider, and George F. Lengvari.
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EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered to the Company in all
capacities for the fiscal year ended May 31, 1996 to its Chief Executive Officer
and to its four most highly paid executive officers other than the Chief
Executive Officer (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- --------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(1) COMPENSATION(2)
- --------------------------------------- ---- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard B. Bizzaro..................... 1996 $270,000 $425,476 44,235 $15,900
Chief Executive Officer and
President
Robert K. Reynolds..................... 1996 200,000 283,651 29,491 15,900
Chief Operating Officer, Executive
Vice President and Secretary
Richard A. Blair....................... 1996 145,000 141,826 11,040 15,900
Executive Vice President -- Sales and
Marketing
Richard S. Kashenberg(3)............... 1996 175,000 141,826 11,040 7,312
Senior Vice President; Chief
Executive
Officer and President of Nion
Stephen D. Young(4).................... 1996 110,000 93,605 11,040 8,100
Executive Vice
President -- Operations
and Chief Financial Officer
</TABLE>
- ---------------
(1) The Company entered into Management Incentive Agreements pursuant to which
certain employees of the Company were granted performance units as incentive
compensation. See "-- Management Incentive Agreements."
(2) Other compensation for Messrs. Bizzaro, Reynolds and Blair in 1996 includes
matching contributions to the Company's 401(k) plans, health insurance
premium payments by the Company, long-term disability premium payments by
the Company, automobile allowances provided by the Company, and life
insurance premium payments by the Company.
(3) The Company began compensating Mr. Kashenberg on September 1, 1995. Mr.
Kashenberg's employment with the Company ended effective December 31, 1996.
Other compensation for Mr. Kashenberg in 1996 includes club membership dues
paid by the Company, automobile allowances paid by the Company, life
insurance premium payments by the Company, matching contributions to the
Company's 401(k) plan, health insurance premium payments by the Company in
1996 and long-term disability premium payments by the Company.
(4) Other compensation for Mr. Young in 1996 includes matching contributions to
the Company's 401(k) plan, health insurance premium payments by the Company,
long-term disability premium payments by the Company, and life insurance
premium payments by the Company.
MANAGEMENT INCENTIVE AGREEMENTS
The Company has management incentive agreements (the "Management Incentive
Agreements") pursuant to which certain employees of the Company (the
"Recipients") have been granted performance units ("Performance Units") as
incentive compensation. The Performance Units entitle the Recipients to a cash
payment or, at the option of the Company, shares of Class A Common Stock upon
the conversion of the Performance Unit. In accordance with the terms of the
Management Incentive Agreements, the Performance Units may be converted by the
Recipients upon the occurrence of any of the following events (each a
"Conversion Event"): the merger, consolidation or sale of all or substantially
all of the assets of the Company; the acquisition of 50% or more of the fair
market value of the outstanding capital stock of the Company by persons who were
not direct or indirect stockholders of the Company as of the grant date; the
initial public offering by the Company of its Common Stock; or the termination
of the employee's employment with the Company for any reason, including death or
disability.
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<PAGE> 50
SUMMARY OF PERFORMANCE UNIT HOLDINGS AND PAYMENTS
The following table sets forth certain information relating to the
Performance Units held by each Recipient, after giving effect to the Offerings
and assuming an initial public offering price of $15.00, the midpoint of the
range set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
PAYMENTS TO RECIPIENTS AFTER
OFFERINGS
------------------------------------
CLASS A COMMON STOCK
VALUE OF VALUE OF -----------------------
VESTED PERFORMANCE UNVESTED PERFORMANCE NUMBER OF
RECIPIENT UNITS UNITS CASH VALUE SHARES
- -------------------------- ------------------ ---------------------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Richard B. Bizzaro........ $ 9,469 $ -- $ 1,893 $ 7,575 505,020
Robert K. Reynolds........ 6,312 -- 1,262 5,050 336,680
Richard A. Blair.......... 810 708 243 566 37,789
Stephen D. Young.......... 810 708 243 566 37,789
David P. Mastroiani....... 810 708 243 566 37,789
Stephen J. Krzeski........ 810 708 243 566 37,789
----------- ---------- ---------- ----------- -------
Total........... $ 19,021 $ 2,836 $ 4,127 $ 14,893 992,856
=========== ========== ========== =========== =======
</TABLE>
A portion of the Performance Units granted to Recipients other than Messrs.
Bizzaro and Reynolds will be accelerated in connection with the Offerings and
the remainder of each such Recipient's unvested Performance Units will be
cancelled. As consideration for the unvested Performance Units to be cancelled
in connection with the Offerings Recipients other than Messrs. Bizzaro and
Reynolds will receive a grant of restricted Class A Common Stock for that number
of shares equal to (i) the excess of the current value of the cancelled
Performance Units over the base value of such Performance Units divided by (ii)
the initial public offering price of the Class A Common Stock. Such shares of
restricted Class A Common Stock will not be transferable prior to the expiration
of the transfer restriction, which will lapse as such shares vest. The vesting
schedule for the restricted shares shall be as follows: 20% of such shares vest
on the first anniversary of grant, with 20% vesting on each subsequent
anniversary until all such restricted shares have vested. If any Recipient of
restricted shares terminates his employment with the Company, the Company will
have the option to repurchase such Recipient's unvested restricted shares at the
base value of such shares.
Simultaneously with the Offerings, which constitute a Conversion Event, and
as reflected in the table above, the Company intends to pay amounts owed to
Messrs. Bizzaro and Reynolds under the Management Incentive Agreements in cash
and Class A Common Stock, with the number of shares of such Class A Common Stock
to be equal to 80% of the conversion value of the vested Performance Units held
by each of Messrs. Bizzaro and Reynolds divided by the initial public offering
price and the amount of cash to equal 20% of the conversion value of such vested
Performance Units divided by the initial public offering price. In addition, the
Company intends to pay in full the amounts owed to Recipients other than Messrs.
Bizzaro and Reynolds under the Management Incentive Agreement in cash and Class
A Common Stock, with the number of shares of such Class A Common Stock to be
equal to 70% of the conversion value of the vested Performance Units held by
each of the Recipients other than Messrs. Bizzaro and Reynolds divided by the
initial public offering price and the amount of cash equal to 30% of the
conversion value of the vested Performance Units held by each of the Recipients
other than Messrs. Bizzaro and Reynolds divided by the initial public offering
price. The primary reason for the cash payments is to assist the Recipients with
payment of their personal income tax liabilities resulting from conversion of
their Performance Units. Upon conversion of a Performance Unit, Messrs. Bizzaro
and Reynolds will receive approximately 14,005 shares of Class A Common Stock
and Recipients other than Messrs. Bizzaro and Reynolds will receive
approximately 5,249 shares of Class A Common Stock.
In order to further facilitate the payment of individual income taxes, the
Company will make available to each Recipient a loan in principal amount up to
30% of the conversion value of the vested Performance Units held by each
Recipient. Such loans to the Recipients will bear interest at 8.0% per annum and
will have terms of 5 years from the borrowing date and shall be secured by the
Recipients. Shares of Class A Common Stock received by a Recipient will not have
been registered pursuant to the Securities Act and may be resold by the
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<PAGE> 51
Recipient only pursuant to an effective registration statement, pursuant to Rule
144 or pursuant to another exemption under the Securities Act.
In connection with a payment to the Recipients upon consummation of the
Offerings, the Company expects to issue not more than 992,856 shares of Class A
Common Stock to Recipients under the Management Incentive Agreements, assuming
an initial public offering price of $15.00, the midpoint of the range set forth
on the cover page of this Prospectus. The estimated pro forma impact on the
financial statements of the Company of payments under the Management Incentive
Agreements, as well as the issuance of approximately 42,000 shares pursuant to
the Equity Plan (see "-- Equity Plan"), is summarized as follows.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
MINIMUM MIDPOINT MAXIMUM
IMPACT IMPACT IMPACT
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Performance Unit Conversion:
Class A Common Stock to be issued to Recipients... $ 13,886 $ 15,523 $ 17,160
Cash paid to Recipients........................... 3,933 4,398 4,863
-------- --------- --------
Total Performance Unit conversion.............. $ 17,819 $ 19,921 $ 22,023
======== ========= ========
Pro Forma Income Statement Impact:
Compensation expense recognized by Company........ $ 17,819 $ 19,921 $ 22,023
Corporate income tax benefit...................... (7,128) (7,968) (8,809)
-------- --------- --------
One-time charge to net income.................. $ 10,691 $ 11,953 $ 13,214
======== ========= ========
Pro Forma Balance Sheet Impact:
Cash paid to Recipients........................... $ (3,933) $ (4,398) $ (4,863)
Loans to Recipients for personal income taxes..... (5,103) (5,706) (6,310)
Cash income tax benefit........................... 7,128 7,968 8,809
-------- --------- --------
Net reduction in cash.......................... (1,908) (2,136) (2,364)
Loans to Recipients for personal income taxes..... 5,103 5,706 6,310
-------- --------- --------
Net increase in assets......................... $ 3,195 $ 3,570 $ 3,946
======== ========= ========
Decrease to retained earnings..................... $(10,691) $ (11,953) $(13,214)
Increase in paid-in capital for stock
conversion..................................... 13,886 15,523 17,160
-------- --------- --------
Net increase in stockholders' equity........... $ 3,195 $ 3,570 $ 3,946
======== ========= ========
</TABLE>
As a result of the conversion of $17.8 million to $22.0 million in
Performance Units upon consummation of the Offerings, the Company will record a
one-time after-tax compensation expense of between $10.7 million and $13.2
million during the fourth quarter of fiscal 1997. In addition, the Company will
have a net cash outflow during the fourth quarter of between $1.9 million and
$2.4 million due to the partial payment of amounts owed to Recipients in cash
and loans made to Recipients for personal income taxes payable by such
Recipients in connection with the conversion of their Performance Units, which
would be offset by the cash income tax benefit associated with the non-cash
compensation expense as a result of the conversion. With respect to pro forma
balance sheet impacts, the Company expects an increase to stockholders' equity
during the fourth quarter of between $3.2 million and $3.9 million reflecting
the conversion of Recipients' Performance Units into Class A Common Stock and
the reduction in retained earnings due to the associated compensation charge net
of tax.
In connection with the vesting of restricted shares granted to Recipients
(other than Messrs. Bizzaro and Reynolds) for unvested Performance Units
cancelled in connection with the Offerings, the Company expects an annual,
non-cash, pre-tax compensation expense of between $500,000 to $600,000 per year
for the next five years.
All Recipients are subject to the short-swing profits rules under Section
16(b) of the Exchange Act. Pursuant thereto and to Section 83(b) of the Code,
each Recipient may elect, upon the issuance to him of such Class A Common Stock,
to be taxable thereon as of the date of issuance on the basis of the fair market
value of such
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<PAGE> 52
restricted Class A Common Stock as of such date. By agreement with each
Recipient, the Company shall withhold such cash to make payment on behalf of
each Recipient to the applicable taxing authority.
EQUITY PLAN
On February 28, 1997, the Company adopted and the stockholders of the
Company approved the 1997 Equity Participation Plan of Weider Nutrition
International, Inc. (the "Equity Plan"). The principal purposes of the Equity
Plan are to provide incentives for officers, employees and consultants of the
Company through granting of options, restricted stock and other awards
("Awards"), thereby stimulating their personal and active interest in the
Company's development and financial success, and inducing them to remain in the
Company's employ. The Equity Plan is also intended to assist the Company in
attracting and retaining qualified non-employee directors by providing for the
automatic grant of non-qualified stock options to Independent Directors.
Upon consummation of the Offerings, the Company intends to grant to certain
executive officers and other employees non-qualified stock options to purchase
an aggregate of approximately 1,048,000 shares of Class A Common Stock, and to
each of the Independent Directors, non-qualified stock options to purchase
20,000 shares of Class A Common Stock each, all at an exercise price equal to
the public offering price. The other terms of such options, including
exercisability and vesting, will be determined by the Board of Directors or the
Committee (as defined herein) in its discretion, and may vary among such
options. In addition, upon consummation of the Offerings, the Company intends to
make stock payments of approximately 42,000 shares in the aggregate of Class A
Common Stock to certain employees of the Company based upon seniority as
determined by the Committee (as defined herein).
Under the Equity Plan, not more than 1,646,000 shares of Class A Common
Stock (or the equivalent in other equity securities) are authorized for issuance
upon exercise of options, stock appreciation rights ("SARs"), and other Awards,
or upon vesting of restricted or deferred stock awards. Furthermore, the maximum
number of shares which may be subject to Awards granted under the Equity Plan to
any individual in any fiscal year of the Company cannot exceed 300,000.
The principal features of the Equity Plan are summarized below, but the
summary is qualified in its entirety by reference to the Equity Plan, which is
filed as an exhibit to the registration statement of which this Prospectus is a
part.
Administration
Prior to the closing of the Offerings, the Board of Directors will
administer the Equity Plan. As soon as practical after the closing of the
Offerings, the Compensation Committee of the Board of Directors or another
committee thereof (the "Committee") will administer the Equity Plan with respect
to grants to employees or consultants of the Company and the full Board will
administer the Equity Plan with respect to options granted to Independent
Directors. The Committee will consist of at least two members of the Board of
Directors, each of whom is both a "non-employee director" for purposes of Rule
16b-3 under the Exchange Act ("Rule 16b-3") and an "outside director" for the
purposes of Section 162(m) of the Code.
Subject to the terms and conditions of the Equity Plan, the Committee has
the authority to select the employees and consultants to whom Awards are to be
made, to determine the number of shares to be subject thereto and the terms and
conditions thereof (including exercisability and vesting), and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the Equity Plan with respect to grants or awards made to
employees or consultants. The Committee (and the Board of Directors) is also
authorized to adopt, amend and rescind rules relating to the administration of
the Equity Plan. Notwithstanding the foregoing, the Board of Directors shall
conduct the general administration of the Equity Plan with respect to Options
granted to Independent Directors.
Eligibility
Options, SARs, restricted stock and other Awards under the Equity Plan may
be granted to individuals who are employees or consultants of the Company (or
any future subsidiaries) selected by the Committee for
51
<PAGE> 53
participation in the Equity Plan. In addition, the Equity Plan provides for
automatic grants of non-qualified stock options to Independent Directors.
Independent Directors
The Equity Plan provides for (i) automatic grants of non-qualified stock
options to purchase 20,000 shares of Class A Common Stock to each Independent
Director at the time of appointment or election to the Board of Directors (or
upon the consummation of the Offerings in the case of Independent Directors
elected or appointed to the Board of Directors prior to the consummation of the
Offerings), and (ii) automatic grants of non-qualified stock options to purchase
7,000 shares of Class A Common Stock to each Independent Director upon each
successive anniversary of the initial grant. The exercise price of such options
shall be the fair market value of a share of Class A Common Stock on the date of
grant. Each such option shall become exercisable in equal annual installments on
each of the first five anniversaries of the date of the grant so long as the
Independent Director continues to serve as a director of the Company; provided,
however, to the extent permitted by Rule 16b-3, the Board of Directors may
accelerate the exercisability of options upon the occurrence of certain
specified extraordinary corporate transactions or events. See "-- Equity
Plan -- Merger, Consolidation and Other Events." No portion of an option granted
to any Independent Director shall be exercisable after the eighth anniversary of
the date of grant or after the termination of the Independent Director's
services as director of the Company.
Awards under the Equity Plan
Each Award will be set forth in a separate agreement with the person
receiving the Award and will indicate the type, terms and conditions of the
Award.
Nonqualified Stock Options ("NQSOs"). NQSOs will provide for the right to
purchase Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (in the discretion of the
Committee) in one or more installments after the grant date, subject to the
participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Committee. NQSOs may be granted for any term (not exceeding eight years)
specified by the Committee.
Incentive Stock Options ("ISOs"). ISOs will be designed to comply with
certain restrictions contained in the Code. Among such restrictions, ISOs must
have an exercise price not less than the fair market value of a share of Class A
Common Stock on the date of grant, may only be granted to employees, must expire
within a specified period of time following the Optionee's termination of
employment, and must be exercised within ten years after the date of grant; but
may be subsequently modified to disqualify them from treatment as ISOs. In the
case of an ISO granted to an individual who owns (or is deemed to own) at least
10% of the total combined voting power of all classes of stock of the Company,
the Equity Plan provides that the exercise price must be at least 110% of the
fair market value of a share of Common Stock on the date of grant and the ISO
must expire upon the fifth anniversary of the date of its grant.
Restricted Stock. Restricted Stock may be sold to participants at various
prices (but not below par value) and made subject to such restrictions as may be
determined by the Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise transferred
or hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
Deferred Stock. Deferred Stock may be awarded to participants, typically
without payment of consideration, but subject to vesting conditions based on
continued employment or on performance criteria established by the Committee.
Like restricted stock, deferred stock may not be sold, or otherwise transferred
or hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
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<PAGE> 54
Stock Appreciation Rights. SARs may be granted in connection with stock
options or other Awards, or separately. SARs granted by the Committee in
connection with stock options or other awards typically will provide for
payments to the holder based upon increases in the price of the Company's Common
Stock over the exercise price of the related option or other Awards, but
alternatively may be based upon criteria such as book value. Except as required
by Section 162(m) of the Code with respect to an SAR intended to qualify as
performance-based compensation as described in Section 162(m) of the Code, there
are no restrictions specified in the Equity Plan on the amount of gain
realizable from the exercise of SARs, although restrictions may be imposed by
the Committee in the SAR agreements. The Committee may elect to pay SARs in cash
or in Common Stock or in a combination of both.
Dividend Equivalents. Dividend equivalents represent the value of the
dividends per share paid by the Company, calculated with reference to the number
of shares covered by the stock options, SARs or other Awards held by the
participant.
Performance Awards. Performance Awards may be granted by the Committee on
an individual or group basis. Generally, these Awards will be based upon
specific performance targets and may be paid in cash or in Class A Common Stock
or in a combination of both. Performance Awards may include "phantom" stock
Awards that provide for payments based upon increases in the price of the
Company's Class A Common Stock over a predetermined period. Performance Awards
may also include bonuses which may be granted by the Committee on an individual
or group basis and which may be payable in cash or in Class A Common Stock or in
a combination of both.
Stock Payments. Stock payments may be authorized by the Committee in the
form of shares of Class A Common Stock or an option or other right to purchase
Class A Common Stock as part of a deferred compensation arrangement or otherwise
in lieu of or in addition to all or any part of compensation, including bonuses,
that would otherwise be payable in cash to the employee or consultant.
The Committee may designate as "Section 162(m) Participants" certain
employees whose compensation for a given fiscal year may be subject to the limit
on deductible compensation imposed by Section 162(m) of the Code. The Committee
may grant Awards to Section 162(m) Participants that vest or become exercisable
upon the attainment of performance targets which are related to one or more of
the following performance goals: (i) pre-tax income; (ii) operating income;
(iii) cash flow; (iv) earnings per share; (v) return on equity; (vi) return on
invested capital or assets; (vii) earnings before interest, taxes, depreciation
and amortization ("EBITDA"); (viii) market value of Common Stock; and (ix) cost
reduction or savings.
Merger, Consolidation and Other Events
The Equity Plan provides the Committee (the Board with respect to options
granted to Independent Directors) discretion to amend the terms (such as
exercise price, number shares and vesting) of outstanding Awards and future
grants that may be made under the Equity Plan upon the occurrence of a
recapitalization, stock split, reorganization, merger, consolidation,
liquidation, dissolution, or sale, transfer, exchange or other disposition of
all or substantially all of the assets of the Company or other similar corporate
event and provides further, that in any event, upon the occurrence of a
"Corporate Transaction" or a "Change in Control" (each as defined in the Equity
Plan) all outstanding Awards shall become immediately exercisable, vested or
payable, as applicable, unless such Award is otherwise assumed by a successor or
replaced by a similar right with respect to securities of the successor entity
or subject to other limitation imposed at the time of grant.
Securities Laws and Federal Income Taxes
Securities Laws. The Equity Plan is intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and any
and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. The Equity Plan
will be administered, and options will be granted and may be exercised, only in
such a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Equity Plan and options granted thereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
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<PAGE> 55
General Federal Tax Consequences. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, and stock payments under the Equity Plan are taxable under
Section 83 of the Code upon their receipt of Class A Common Stock or cash with
respect to such awards or grants and, subject to Section 162(m) of the Code, the
Company will be entitled to an income tax deduction with respect to the amounts
taxable to such recipients. Under Sections 421 and 422 of the Code, recipients
of ISOs are generally not taxable on their receipt of Class A Common Stock upon
their exercises of ISOs if the ISOs and option stock are held for certain
minimum holding periods and, in such event, the Company is not entitled to
income tax deductions with respect to such exercises. Participants in the Equity
Plan will be provided with detailed information regarding the tax consequences
relating to the various types of awards and grants under the plan.
Section 162(m) Limitation. In general, under Section 162(m) of the Code
("Section 162(m)"), income tax deductions of publicly-held corporations may be
limited to the extent total compensation (including base salary, annual bonus,
stock option exercises and non-qualified benefits paid) for certain executive
officers exceeds $1.0 million (less the amount of any "excess parachute
payments" as defined in Section 280G of the Code) in any one year. Under a
Section 162(m) transition rule for compensation plans of corporations which are
privately held and which become publicly held in an initial public offering, the
Equity Plan will not be subject to Section 162(m) until the "Transition Date"
which is defined as the earliest of (i) the material modification of the Equity
Plan; (ii) the issuance of all Class A Common Stock and other compensation that
has been allocated under the Equity Plan; or (iii) the first meeting of
stockholders at which directors are to be elected that occurs after December 31,
2000. However, under Section 162(m), the deduction limit does not apply to
certain "performance-based compensation" established by an independent
compensation committee which is adequately disclosed to, and approved by,
stockholders. In particular, stock options and SARs will satisfy the
"performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the compensation
is based solely on an increase in the stock price after the grant date (i.e. the
option exercise price is equal to or greater than the fair market value of the
stock subject to the award on the grant date). Thus, Awards other than options
and SARs, will qualify as "performance-based compensation" for purposes of
Section 162(m) if granted or subject to vesting based upon preestablished
objective performance goals, the material terms of which are disclosed to and
approved by the stockholders of the Company.
The Company has attempted to structure the Equity Plan in such a manner
that, after the Transition Date, subject to obtaining shareholder approval for
the Equity Plan, the remuneration attributable to Awards which meet the other
requirements of Section 162(m) will not be subject to the $1.0 million
limitation. The Company has not, however, requested a ruling from the IRS or an
opinion of counsel regarding this issue.
EMPLOYEE PROFIT SHARING BONUS PLAN
The Company in the past has granted, and expects to continue to grant,
bonuses to employees under a nonqualified profit sharing program. Under this
program, the Board of Directors or a committee appointed thereby, at its
discretion, may grant bonuses following the end of a fiscal year in an aggregate
amount of up to 9% of the Company's income before income taxes and bonuses for
such fiscal year. For the fiscal year ended May 31, 1996, the Company incurred
bonus expenses of $2.4 million, representing 8.5% of income before bonuses of
$28.1 million. Of the $2.4 million, $1.3 million was paid to the senior
executives, who earn a fixed percentage of
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<PAGE> 56
income before bonus upon achievement of over 85% of budget. These fixed
percentages for the seven senior executives in fiscal 1996 were as follows:
<TABLE>
<CAPTION>
PERCENT OF INCOME
BEFORE BONUS
-----------------
<S> <C>
Richard B. Bizzaro........................................... 1.50%
Robert K. Reynolds........................................... 1.00
Richard A. Blair............................................. 0.50
Richard S. Kashenberg........................................ 0.50
Stephen D. Young............................................. 0.33
Other senior executive officers.............................. 0.66
-----
4.49%
=====
</TABLE>
In addition to the senior executives, the identity of bonus recipients and
the amount of any bonus will be determined by the Compensation Committee of the
Board of Directors in consultation with the Chief Executive Officer and the
Chief Operating Officer. The Company intends to adopt a bonus plan in 1998 tied
to return on capital.
EMPLOYEE BENEFIT PLANS
The Company has adopted a 401(k) profit sharing plan. The plan is available
to all United States employees with at least three months of service who have
attained the age of 18. Participants may defer up to 15% of their pre-tax
earnings, subject to certain limitations arising under federal income tax laws.
The Company matches up to 50% of each employee's contributions, up to 5% of such
employee's pre-tax earnings and $3,750 per year. Company contributions vest 20%
per year of service beginning with the third year of service.
The Company also maintains for all of its full-time employees health and
major medical insurance, dental insurance, long-term disability and accidental
death and dismemberment insurance. Term life insurance is provided to each full
time employee in an amount equal to such employee's annual base salary up to a
maximum coverage of $50,000.
EMPLOYMENT AGREEMENTS
Upon consummation of the Offerings, the Company expects to enter into
employment agreements with Messrs. Bizzaro and Reynolds that will extend through
May 31, 2002 and May 31, 2000, respectively. The annual base salary for Messrs.
Bizzaro and Reynolds will be $300,000 and $230,000, respectively, and will
increase $25,000 and $20,000, respectively, in each successive year. In
addition, Messrs. Bizzaro and Reynolds will be eligible for bonuses up to a
maximum of 150% of their annual base salaries and will receive options to
purchase 220,000 shares and 120,000 shares, respectively, of Class A Common
Stock. The agreements will contain customary confidentiality and non-competition
provisions.
The Company and Messrs. Blair, Krzeski, Mastroianni and Young (the
"Executives") entered into employment agreements (the "Employment Agreements")
effective June 1, 1994, which, as of May 31, 1995, continue on a month-to-month
basis until otherwise renewed or terminated. Pursuant to the terms of the
Employment Agreements, the base salary per year for Messrs. Blair, Krzeski,
Mastroianni and Young is $145,000, $85,000, $85,000, and $110,000, respectively.
Each Employment Agreement provides that the Company can increase or decrease the
Executive's base salary, consistent with general salary increases or decreases,
as the case may be, or as appropriate in light of the performance of the Company
and the Executive. In addition to the base salary that each Executive receives
pursuant to the Employment Agreements, each Executive is entitled to an annul
bonus in an amount equal to a percentage of the Executive's base salary
(prorated for a partial year) corresponding to a percentage of the annual
performance and profitability goal of the Company (as set forth therein).
Effective January 1, 1997, Mr. Kashenberg and the Company entered into a
Severance Agreement and General Release of All Claims which provides that the
employment relationship between the Company and Mr. Kashenberg terminated as of
December 31, 1996. As consideration for his resignation from the Company and the
discharge of
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<PAGE> 57
all the Company's obligations to Mr. Kashenberg under his employment agreement
and the Management Incentive Agreements, the Company paid Mr. Kashenberg
$180,000. In addition, the Company and Mr. Kashenberg entered into a Consulting
and Noncompetition Agreement pursuant to which the Company engaged Mr.
Kashenberg as an independent contractor for a term beginning on January 1, 1997
and continuing until October 31, 1997. As consideration for services rendered by
Mr. Kashenberg under the Consulting and Noncompetition Agreement the Company
agreed to pay Mr. Kashenberg approximately $10,400 per month for the term of the
agreement. Furthermore, the agreements with Mr. Kashenberg preserve the
customary noncompetition provision in Mr. Kashenberg's employment contract
beyond the termination of his employment agreement.
RETIREMENT BENEFITS
Messrs. Bizzaro and Reynolds are parties to separate Retirement Program
Benefits Agreements with the Parent pursuant to which each individual, on
retirement, will receive, on an annual basis for 20 years, a percentage of his
immediately preceding three years average base compensation, (excluding bonus),
less certain deductions for the present value of his future social security
benefits. The percentage of three years average base compensation actually paid
depends upon the individual's age on retirement and years of service with the
Company. The benefits are paid in monthly, quarterly or annual payments at the
discretion of the Parent. The Parent owns whole life insurance policies on the
lives of Messrs. Bizzaro and Reynolds, together with policies on the lives of
other executives who are participants in this program (none of whom are
employees of the Company). The policies have been contributed to a RABBI Trust
of which Sanwa Bank California is the trustee. Collectively, these policies fund
the retirement benefits due all participants. The Parent pays the annual
premiums on all policies and charges the Company for its portion of the premiums
($250,000 in fiscal 1996), which is part of the corporate allocation between the
Parent and the Company. The Parent has accrued retirement benefit obligations to
Mr. Bizzaro of $542,000 and to Mr. Reynolds of $94,000 as of May 31, 1996.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date hereof, after giving effect to the
stock split and the exchange of all of the outstanding shares of common stock of
Weider Nutrition for Common Stock. The table indicates beneficial ownership for
(i) each person who is known by the Company to beneficially own more than 5% of
any class of the Common Stock, (ii) each of the Company's directors, (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS(1) AFTER THE OFFERINGS
------------------------------------------ ------------------------------------------
PERCENT OF
NUMBER PERCENT NUMBER PERCENT TOTAL VOTING
---------------------- ----------------- ---------------------- ----------------- POWER AFTER
NAME CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B THE OFFERINGS
- ------------------------ --------- ---------- ------- ------- --------- ---------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weider Health and
Fitness(2)............. -- 15,624,807 --% 100.0% -- 15,624,807 --% 100.0% 95.0%
21100 Erwin Street
Woodland Hills, CA
91367
Hornchurch Investments
Ltd.(3)............... 1,288,103 -- 83.0 -- 1,288,103 -- 15.7 -- *
Atlantic House
4-8 Circular Road
Douglas, Isle of Man
Bayonne Settlement(4)... 171,737 -- 11.1 -- 171,737 -- 2.1 -- *
24 Union Street
St. Helier, Jersey
(U.K.)
Habib Settlement........ 34,347 -- 2.2 -- 34,347 -- * -- *
15 Avenue DuFour
Geneva, Switzerland
Eric Weider............. -- -- -- -- -- -- -- -- --
Richard B. Bizzaro...... -- -- -- -- 505,020 -- 6.2 -- *
Robert K. Reynolds...... -- -- -- -- 336,680 -- 4.1 -- *
Ronald L. Corey......... 57,197 -- 3.7 -- 57,197 -- * -- *
Roger H. Kimmel......... -- -- -- -- -- -- -- -- --
George F. Lengvari...... -- -- -- -- -- -- -- -- --
Richard A. Blair........ -- -- -- -- 37,789 -- * -- *
Steve D. Young.......... -- -- -- -- 37,789 -- * -- *
All executive officers
and directors as a
group (8 persons)..... 57,197 -- 3.7 -- 974,475 -- 11.9 -- *
</TABLE>
- ---------------
* Less than one percent.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares at a given date which such person has
the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is deemed to
be outstanding but is not deemed to be outstanding for the purpose of
computing the percentage of ownership of any other person.
(2) Messrs. Weider and Lengvari, as executive officers and directors of the
Parent, may be deemed to share beneficial ownership of the shares shown as
beneficially owned by the Parent. Such persons disclaim beneficial ownership
of such shares. In addition, shares beneficially owned by the Parent exclude
shares held by Hornchurch, Bayonne and Mr. Corey, which such parties have
agreed to vote as directed by the Parent.
(3) Hornchurch is a corporation organized under the laws of the Isle of Man and
is controlled by a trust, the beneficiaries of which are the non-Canadian
resident children of Richard J. Renaud, formerly a director of the Company.
The trust that controls Hornchurch is administered by an independent
trustee. Mr. Renaud disclaims beneficial ownership of such shares.
(4) Bayonne Settlement is a trust organized under the laws of Jersey (U.K.), of
which family members of George F. Lengvari are included among the
beneficiaries. Bayonne Settlement is administered by an independent trustee.
Mr. Lengvari disclaims beneficial ownership of such shares.
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<PAGE> 59
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
CLASS B DIVIDEND
In connection with the Offerings, the Company intends to pay to the Parent
(the sole holder of Class B Common Stock) a one-time dividend in the amount of
$25.0 million at the closing of the Offerings. The Class B Dividend is
conditioned upon the closing of the Offerings. See "Use of Proceeds" and
"Description of Capital Stock -- Common Stock." In the past, the Company made
distributions to the Parent. After the Offerings, the Company will no longer
make distributions to the Parent in excess of those declared to all stockholders
of the Company. See Note 9 to the Company's consolidated financial statements.
PARENT NOTE
Under the terms of the Parent Note, the Company is obligated to pay to the
Parent the principal amount of $15.0 million on substantially the same terms as
those applicable to the revolving line of credit under the Existing Credit
Agreement.
ADVERTISING AGREEMENT
The Company and Weider Publications are parties to an Advertising Agreement
(the "Advertising Agreement") under which the Company is obligated (pursuant to
an annually updated notification in connection with the Company's budget) to
purchase a minimum number of advertising pages in each of the publications of
Weider Publications each month at a price below that charged to unaffiliated
third party advertisers. The advertising the Company purchases under the
Advertising Agreement will be priced at the direct production cost per page (the
"Ad Page Rate") for each publication for the first five years and at premiums to
the Ad Page Rate in subsequent years. The Ad Page Rate for each publication will
be determined on an annual basis in accordance with the terms of the Advertising
Agreement. The Ad Page Rate shall not apply to any company or business acquired
by the Company after December 31, 1996. Should Weider Publications develop or
acquire new publications during the term of the Advertising Agreement, the
Company will have the right, but not the obligation, to purchase advertising in
such publications on terms similar to those covering Weider Publications'
existing publications. The Advertising Agreement has a ten-year term and is
subject to termination by either party if certain specified events occur,
including a change of control of the Parent or an initial public offering of
Weider Publications. Although management believes that upon termination of the
Advertising Agreement the Company will be able to secure advertising at similar
rates, there can be no assurance that advertising at such rates will be
available.
CERTAIN INTERNATIONAL ACQUISITIONS AND ROYALTY ARRANGEMENTS
In connection with its strategy to expand its nutritional supplements
business in international markets, the Company has acquired or licensed from
related parties certain assets and distribution rights. The Company recently
acquired manufacturing capabilities in the United Kingdom, Spain and Canada and
recently licensed international rights to use the Weider name and trademarks.
The Company now controls distribution rights for the Weider name and trademarks
worldwide, except for Australia, New Zealand, Japan and South Africa. Sales
under these license arrangements are subject to certain royalty arrangements;
however, the Company is not required to pay any royalties with respect to sales
of its products in the United States, Canada, Mexico, Spain or Portugal (the
"Royalty-Free Territories").
Effective January 1, 1996, the Company acquired certain net assets in
Europe of Weider U.K. and affiliated entities, all related parties, for $1.5
million. Net assets acquired amounted to $48,942 and were recorded at their
historical cost. The remaining excess purchase price of approximately $1.4
million plus other acquisition costs amounting to $250,000 were charged to
retained earnings as a distribution to the Parent. The Company acquired assets
of Weider Canada for $4.0 million in September 1996 ($3.0 million was paid in
cash and $1.0 million was in the form of an earnout to be paid $40,000 per month
for 25 months). In connection with the purchase of Weider Canada, on September
1, 1996, the Company agreed to lease a 24,623 square foot office and warehouse
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<PAGE> 60
facility in Montreal from Ben Weider (the "Weider Canada Lease"). The Weider
Canada Lease has a two-year term and an annual base rent of $98,492.
The Company obtained the exclusive right to use the Weider name and
trademarks outside of the Royalty-Free Territories throughout the world, with
the exceptions of Australia, New Zealand, Japan and South Africa, pursuant to a
sublicense agreement dated December 1, 1996 with Mariz Gestao E Investimentos
Limitada ("Mariz"). Mariz is a company incorporated under the laws of Portugal
and owned by a trust of which the family members of George F. Lengvari, a
director of the Company, are included among the beneficiaries. Mariz obtained
its exclusive international rights to use the Weider name and trademarks
pursuant to a license agreement, effective June 1, 1994, between Mariz and Joe
Weider, Ben Weider, Weider Sports Equipment and the Parent (the "Licensors").
Pursuant to the license agreement with Mariz, the Company is required to make
annual royalty payments to Mariz commencing on December 1, 1998 on sales of the
Company's brands in existence on December 1, 1996 in countries covered by the
agreement. The royalty payments are to be equal to (i) 4% of sales up to $33.0
million; (ii) 3.5% of sales greater than $33.0 million and less than $66.0
million; (iii) 3.0% of sales from $66.0 million to $100.0 million; and (iv) 2.5%
of sales over $100.0 million. In addition, the sublicense agreement with Mariz
includes an irrevocable buy-out option exercisable by the Company after May 31,
2002 for a purchase price equal to the greater of $7.0 million or 6.5 times the
aggregate royalties paid by the Company in the fiscal year immediately preceding
the date of the exercise of the option.
TRANSFER OF INTELLECTUAL PROPERTY
In July 1985, the Parent and Joe Weider entered into an agreement pursuant
to which the Parent was granted all rights, title and interest in and to a
system of weight training known as "The Weider System" and the exclusive right
to use of the name "Joe Weider" within the continental United States. As
consideration for such grants, the Parent agreed to pay Joe Weider approximately
$620,000 over seven years through May 31, 1992 and $450,000 for each year
thereafter for the rest of his lifetime (of which $250,000 is paid by the
Company). The Parent's right to use the "The Weider System" and "Joe Weider"
survives the death of Joe Weider. Since the transfer by Joe Weider of such
intellectual property to the Parent in 1985, the Parent has developed
approximately 80 related federal trademark registrations and approximately 108
related trademark applications that are used in the nutritional supplements
business.
Effective September 1, 1996, the Parent assigned to the Company
substantially all such intellectual property. The Parent retained three
trademarks used in both the Company's nutritional supplements business and the
Parent's body building and exercise equipment divisions; however, the Parent
entered into a Trademark and License Agreement granting to the Company a
perpetual, royalty-free, fully paid license to use such trademarks for its
nutritional supplements business. In addition, each of Weider Nutrition, Schiff
Products and American Nutrition Bars assigned to the Company all trademarks it
owned and either registered in the United States or filed applications for
registration in the United States for the nutritional supplements business.
HORNCHURCH INVESTMENTS LIMITED
Effective June 1, 1994, the Company sold Common Stock representing a 15%
ownership interest to Hornchurch, a related party. As consideration for such
Common Stock, the Company received from Hornchurch certain equity and debt
instruments of Hornchurch. Concurrent with the sale of such Common Stock to
Hornchurch, the Company declared and paid a dividend of that consideration to
Parent. The sale was recorded at the net book value of the Common Stock issued
($4,114,338) and no gain or loss was recognized. Subsequently thereto, Parent
acquired a portion of the shares of Class A Common Stock held by Hornchurch in a
series of transactions, thereby reducing Hornchurch's ownership interest in the
Company to 7.5% of the outstanding Common Stock of the Company prior to giving
effect to the Offerings. After giving effect to the Offerings, Hornchurch will
own 1,288,103 shares of Class A Common Stock, representing 15.7% of the
outstanding Class A Common Stock and 5.4% of the outstanding Common Stock.
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<PAGE> 61
TAX SHARING AND INDEMNIFICATION AGREEMENT
Prior to the consummation of the Offerings, the Company, on behalf of
itself and its subsidiaries, and the Parent, on behalf of itself and its
subsidiaries, will enter into a Tax Sharing and Indemnification Agreement (the
"Tax Agreement"). The Tax Agreement generally provides that the Parent is
responsible for all taxes due with respect to taxable periods ending on or prior
to the closing of the Offerings (other than taxes for such periods relating to
the Company and its subsidiaries, for which the Company is responsible) and that
the Company is responsible for taxes of the Company and its subsidiaries due
with respect to all subsequent taxable periods. Subject to certain limitations,
the Company (and its subsidiaries) will be indemnified by the Parent, and the
Parent (and its subsidiaries) will be indemnified by the Company, against
payment of a tax liability properly allocable to the other under the agreement.
In addition, the Tax Agreement generally supersedes a tax sharing agreement
between Weider Nutrition, on behalf of itself and its subsidiaries, and the
Parent (the "Prior Tax Sharing Agreement"). With certain exceptions, the Prior
Tax Sharing Agreement will be terminated as of the closing of the Offerings. The
Prior Tax Sharing Agreement generally allocated to Weider Nutrition liability
for taxes of Weider Nutrition and its subsidiaries, calculated as if Weider
Nutrition and its subsidiaries filed tax returns separately from the Parent.
CERTAIN RELATIONSHIPS OF DIRECTORS
Eric Weider, Chairman of the Board of Directors of the Company, is
currently President, Chief Executive Officer and a director of the Parent. Mr.
Lengvari, a director of the Company, is currently Vice Chairman and a director
of the Parent. Messrs. Weider and Lengvari will continue to serve as directors
of the Parent after the Offerings. In addition, Mr. Lengvari's family members
are included among the beneficiaries under the Bayonne Settlement, a trust that
owns 11.1% of the Class A Common Stock outstanding prior to the Offerings. In
addition, Mariz, a company owned by a trust of which family members of George F.
Lengvari, a director of the Company, are included among the beneficiaries, was
granted the exclusive right to use the Weider name and trademarks outside of the
United States, Canada and Mexico. The Company has sublicensed such rights from
Mariz. See "Certain Relationships and Related Party Transactions -- Transfer of
Intellectual Property."
Ronald L. Corey received fees from the Parent in connection with consulting
services rendered to the Parent in fiscal 1996. Latham & Watkins, of which Roger
H. Kimmel, a director of the Company, is a partner, performed legal services for
the Parent during the Parent's fiscal year ended May 31, 1996.
MANAGEMENT INCENTIVE AGREEMENTS
The Company entered into Management Incentive Agreements pursuant to which
certain employees of the Company were granted Performance Units as incentive
compensation. The Performance Units entitle the Recipients to a cash payment or,
at the option of the Company, shares of Class A Common Stock upon the conversion
of the Performance Units. In accordance with the terms of the Management
Incentive Agreements, the Performance Units may be converted by the Recipients
upon the occurrence of certain events, including the Offerings. Simultaneously
with the Offerings, the Company intends to pay in full the amounts owed to
Recipients under the Management Incentive Agreements in Class A Common Stock or,
at the election of the Recipient, in cash and Class A Common Stock, with the
number of shares of such Class A Common Stock to be determined using the initial
public offering price in the Offerings and with the amount of cash to be paid
not to exceed 45% of the value of such Recipient's Performance Units. In
connection with such payment, the Company expects to issue no more than 992,856
shares of Class A Common Stock to Recipients under the Management Incentive
Agreements, assuming an initial public offering price of $15.00, the midpoint of
the range set forth on the cover page of this Prospectus. See
"Management -- Management Incentive Agreements." In connection with the sale of
a sister subsidiary by the Parent in 1994, Messrs. Bizzaro and Reynolds
converted a portion of their Performance Units for which Mr. Bizzaro received
$531,777 and Mr. Reynolds received $354,517.
LOAN TO MR. BIZZARO
The Company loaned Mr. Bizzaro, President and Chief Executive Officer of
the Company, $200,000 pursuant to a promissory note dated August 15, 1994.
Borrowings under the promissory note bear interest at the
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<PAGE> 62
rate of 7% per annum and mature on August 15, 2000. Borrowing under the note
outstanding at the closing of the Offerings will be offset by amounts payable to
Mr. Bizzaro under his Management Incentive Agreement. The note is secured by a
deed of trust to property owned by Mr. Bizzaro. At February 28, 1997,
approximately $235,000 in principal and interest was outstanding under the
promissory note.
SURF CITY SQUEEZE
Surf City Squeeze, Inc., an Arizona corporation ("Surf City Squeeze"), is a
customer of the Company that operates retail sales outlets for beverages that
contain certain of the Company's products. The Parent is the controlling member
in Surf Ventures L.L.C., the principal member of Surf City Squeeze. Messrs.
Bizzaro, Reynolds and Kimmel and Mr. Richard J. Renaud, individually, and trusts
of which (i) the family of Mr. George F. Lengvari are included as beneficiaries
and (ii) the non-Canadian resident children of Mr. Richard J. Renaud are
included as beneficiaries, are also members of Surf Ventures, L.L.C. The Company
had $754,000 in sales to Surf City Squeeze in fiscal 1996. The Company's
products sold to Surf City Squeeze are competitively priced. The Company is not
the exclusive supplier of nutritional supplement products to Surf City Squeeze.
On January 13, 1997, Surf City Squeeze filed a petition for bankruptcy
protection pursuant to Chapter 11 of the Bankruptcy Act. The Company's operating
results were not, and are not expected to be, materially impacted by Surf City
Squeeze's bankruptcy filing.
KASHENBERG SEVERANCE AGREEMENT
Effective January 1, 1997, Mr. Kashenberg and the Company entered into a
Severance Agreement and General Release of All Claims which provided that the
employment relationship between the Company and Mr. Kashenberg terminated as of
December 31, 1996. As consideration for his resignation from the Company and the
discharge of all the Company's obligations to Mr. Kashenberg under his
employment agreement and the Management Incentive Agreements, the Company paid
Mr. Kashenberg $180,000. In addition, the Company and Mr. Kashenberg entered
into a Consulting and Noncompetition Agreement pursuant to which the Company
engaged Mr. Kashenberg as an independent contractor for a term beginning on
January 1, 1997 and continuing until October 31, 1997. As consideration for
services rendered by Mr. Kashenberg under the Consulting and Noncompetition
Agreement the Company agreed to pay Mr. Kashenberg approximately $10,400 per
month for the term of the agreement. Furthermore, the Consulting and
Noncompetition Agreement provides that the customary noncompetition provision in
Mr. Kashenberg's employment contract survives the termination of his employment.
INTEREST PAID TO PARENT
While the Parent and its subsidiaries, including the Company, are parties
to the Existing Credit Agreement, the Parent administers the Existing Credit
Agreement on behalf of all of its subsidiaries, including the Company, arranging
borrowings and servicing the debt for its subsidiaries. The Parent is the
principal guarantor, and the Company is the principal borrower, under the
Existing Credit Agreement. The Parent charges its subsidiaries, including the
Company, interest on borrowings under the Existing Credit Agreement, with the
Company's portion of such charges (the "Service Charge") bearing interest at
prime rate plus 1% (revolving line of credit) and prime rate plus 1 1/4% (term
note). The Service Charge exceeds the interest paid to GECC by the Parent on
such borrowings due primarily to lower contracted rates offered under the
Existing Credit Agreement of LIBOR plus 2 1/4% on revolver loans and LIBOR plus
2 1/2% on term loans. The Service Charge amounted to approximately $113,000,
$378,000 and $485,000 in fiscal 1995 and 1996 and for the nine month period
ended February 28, 1997, respectively. The Company did not borrow under any
prior credit agreements. The Service Charge was discontinued by the Parent as of
March 1, 1997. See Notes 5 and 9 to the Company's consolidated financial
statements.
In addition, the Company has intercompany indebtedness owed to Parent which
was incurred primarily in connection with certain acquisitions and taxes payable
by the Parent on behalf of the Company pursuant to a tax sharing agreement. The
intercompany indebtedness to Parent is adjusted daily for changes in the
Company's cash "sweep" position in the consolidated cash management system. The
Parent charges the Company interest on the intercompany indebtedness at prime
rate plus an interest rate spread as set forth in the credit agreement in effect
(1 1/4% as of February 28, 1997). Effective June 1, 1996, $15.0 million of the
intercompany indebtedness owed to
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<PAGE> 63
Parent was in the form of the Parent Note, which bears interest at the prime
rate plus 1% and matures in January 2000. Interest paid to the Parent amounted
to approximately $218,000, $103,000, $453,000 and $1,125,000 in fiscal 1994,
1995 and 1996 and the nine months ended February 28, 1997, respectively. See
Notes 5 and 9 to the Company's consolidated financial statements.
The Company intends to repay all borrowings under the Existing Credit
Agreement and all intercompany indebtedness owed to Parent with the net proceeds
from the Offerings plus borrowings under the New Credit Agreement. See "Use of
Proceeds."
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DESCRIPTION OF CAPITAL STOCK
Pursuant to the Company's Certificate of Incorporation, as in effect on the
date hereof, the Company's authorized capital stock consists of (i) 50 million
shares of Class A Common Stock, $.01 par value, (ii) 25 million shares of Class
B Common Stock, $.01 par value and (iii) 10 million shares of preferred stock,
$.01 par value (the "Preferred Stock"). The following summaries of certain
provisions of the Common Stock and Preferred Stock do not purport to be complete
and are subject to, and qualified in their entirety by, the provisions of the
Company's Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus forms a part, and by applicable
law.
COMMON STOCK
At February 28, 1997, there were 1,551,384 shares of Class A Common Stock
outstanding that were held by four stockholders of record and 15,624,807 shares
of Class B Common Stock outstanding held by the Parent. Each holder of Class A
Common Stock is entitled to one vote for each share held of record on the
applicable record date on all matters presented to a vote of stockholders,
including the election of directors. Each holder of Class B Common Stock is
entitled to ten votes per share on the applicable record date and is entitled to
vote, together with the holders of the Class A Common Stock, on all matters
which are subject to shareholder approval. The holders of shares of the Class A
Common Stock shall not have the right to convert their shares of Class A Common
Stock into any other securities of the Company. The holders of shares of the
Class B Common Stock at their election shall have the right, at any time or from
time to time, to convert any or all of their shares of Class B Common Stock into
shares of Class A Common Stock, on a one to one basis, by delivery to the
Company of the certificates representing such shares of Class B Common Stock
duly endorsed for such conversion.
Any shares of the Class B Common Stock that are transferred will
automatically convert into shares of the Class A Common Stock, on a one to one
basis effective as of the date on which certificates representing such shares
are presented for transfer on the books of the Company, unless transferred to a
Permitted Transferee. A Permitted Transferee generally means an affiliate of
the Parent. In certain circumstances set forth in the Certificate of
Incorporation, the change in ownership or control of a record or beneficial
holder of Class B Common Stock will also result in the conversion of such
holder's Class B Common Stock into Class A Common Stock. The Certificate of
Incorporation also provides that the Company will not register the transfer of
any shares of Class B Common Stock unless the transferee and the transferor of
such Class B Common Stock have furnished such affidavits and other proof as the
Company may reasonably request to establish that such proposed transferee is a
Permitted Transferee.
Subject to the rights of the holders of any outstanding Preferred Stock and
except for the Class B Dividend, each holder of Common Stock on the applicable
record date is entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available for that purpose. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, each holder of Common
Stock is entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. In addition, the Certificate of Incorporation provides that in
the case of certain business combinations, all holders of the Common Stock shall
share ratably and equally in all consideration paid to stockholders of the
Company in connection with such business combination. Holders of Common Stock
have no cumulative voting rights or preemptive rights to purchase or subscribe
for any stock or other securities and there are no conversion rights or
redemption or sinking fund provisions with respect to such stock. All
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable, and the shares of Class A Common Stock to be issued upon the
closing of the Offerings, when issued and sold as contemplated by this
Prospectus, will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 10 million shares of
Preferred Stock. The Board of Directors is authorized to divide the Preferred
Stock into one or more series and, with respect to each series, to determine the
preferences and rights and the qualifications, limitations, or restrictions
thereof, including the dividend rights, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking
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fund provisions, the number of shares constituting the series and the
designation of such series. The Board of Directors may, without stockholder
approval, issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could have
certain anti-takeover effects. There are currently no shares of Preferred Stock
outstanding and the Company has no current intention to issue any shares of
Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except in certain cases
where liability is mandated by the Delaware General Corporation Law (the
"DGCL"). The provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company or
its directors from compliance with federal or state securities laws. The
Certificate of Incorporation and the Bylaws of the Company allow for
indemnification, to the fullest extent permitted by the DGCL, of any person who
is or was involved in any manner in any investigation, claim or other proceeding
by reason of the fact that such person is or was a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation, against all expenses and liabilities actually
and reasonably incurred by such person in connection with the investigation,
claim or other proceeding. Prior to the Offerings, the Company also plans to
obtain officer and director liability insurance with respect to certain matters,
including matters arising under the Securities Act.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Following the consummation of the Offerings, the Company will be subject to
the "business combination" statute of the DGCL. In general, such statute
prohibits a publicly held Delaware corporation from engaging in various
"business combination" transactions with any "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (i) the transaction is approved by
the board of directors of the corporation prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding, those shares owned, by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3 of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to a stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within three years, did own) 15% or more of the
corporation's voting stock. The statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
SECTION 228 OF THE DELAWARE GENERAL CORPORATION LAW
Section 228 of the DGCL allows any action which is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to be
taken without a meeting with the written consent of holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the certificate of incorporation
of such corporation does not contain a provision to the contrary. The
Certificate of Incorporation contains no such provision, and, therefore,
pursuant to Section 228 and the Bylaws, stockholders holding a majority of the
voting power of the Common Stock will be able to effect most corporate matters
requiring stockholder approval by written consent, without the need for a
duly-noticed and duly-held meeting of stockholders. Following the consummation
of the Offerings, the Parent holdings of Class B Common Stock will
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represent approximately 95.0% of the voting power of the Common Stock. See "Risk
Factors -- Control by Principal Stockholder."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York. Its telephone number is (212) 815-2728.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market following the Offerings, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock.
Upon the completion of the Offerings, the Company will have 8,186,240
shares of Class A Common Stock outstanding and 15,624,807 shares of Class B
Common Stock outstanding. Of these shares, the 5,600,000 shares of Class A
Common Stock sold in the Offerings will be freely tradable without restriction
under the Securities Act, unless held by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 2,586,240
shares of Class A Common Stock and 15,624,807 shares of Class B Common Stock
held by existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements under the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration, such as the exemption provided by Rule 144 under
the Securities Act. The existing stockholders of the Company prior to the
completion of the Offerings, who hold 17,176,191 shares of Class A Common Stock,
have entered into lock-up agreements under which such stockholders have agreed
not to offer, sell or otherwise dispose of any shares or securities exchangeable
for or convertible into shares of Common Stock owned by them for a period of 180
days after the date of this Prospectus, without the prior written consent of
Credit Suisse First Boston Corporation. Upon expiration of the lock-up
agreements, 17,141,844 shares of Common Stock will become available for sale in
the public market, subject to volume and manner of sale limitations pursuant to
Rule 144 and 1,459,840 of such shares will be freely tradeable under Rule 144.
In general, under Rule 144 as in effect after April 29, 1997, commencing 90
days after the date of this Prospectus, a person who has beneficially owned
shares for at least one year is eligible to sell in "broker's transactions" or
to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the number of shares then
outstanding or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
generally subject to certain notice requirements and to the availability of
specified current public information about the Company. Under Rule 144(k), a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a proposed sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares without having to comply with the manner of sale, volume limitation,
notice or public information provisions of Rule 144.
Approximately 90 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering shares issuable
under the Stock Option Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act, subject to
restrictions on resale contained in the Stock Option Plan.
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<PAGE> 67
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership and disposition of Class A Common
Stock by a holder that is an individual, corporation, estate or trust and, for
United States Federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). This discussion is based upon the United States
Federal tax law now in effect, which is subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means a
citizen or resident of the United States; a corporation, a partnership or other
entity created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; or an estate or trust whose
income is includible in gross income for United States Federal income tax
purposes regardless of its source. This discussion does not consider any
specific facts or circumstances that may apply to a particular Non-United States
Holder. Prospective investors are urged to consult their tax advisors regarding
the United States Federal tax consequences of acquiring, holding and disposing
of Class A Common Stock, as well as any tax consequences that may arise under
the laws of any foreign, state, local or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% (or at a
reduced tax treaty rate), unless the dividend is effectively connected with the
conduct of a trade or business within the United States by the Non-United States
Holder, in which case the dividend will be subject to the United States Federal
income tax on net income on the same basis that applies to United States persons
generally. In the case of a Non-United States Holder which is a corporation,
such effectively connected income also may be subject to the branch profits tax.
Non-United States Holders should consult their tax advisors concerning any
applicable income tax treaties that may provide for a lower rate of withholding
or other rules different from those described above.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Class A
Common Stock unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder, (ii)
in the case of a Non-United States Holder who is a nonresident alien individual
and holds the Class A Common Stock as a capital asset, such holder is present in
the United States for 183 or more days in the taxable year of disposition and
either such individual has a "tax home" in the United States or the gain is
attributable to an office or other fixed place of business maintained by such
individual in the United States or (iii) the Company is or has been a "U.S. real
property holding corporation" for United States Federal income tax purposes
(which the Company does not believe that it is or is likely to become). Gain
that is effectively connected with the conduct of a trade or business within the
United States by the Non-United States Holder will be subject to the United
States Federal income tax on net income on the same basis that applies to United
States persons generally (and, with respect to corporate holders, under certain
circumstances, the branch profits tax) but will not be subject to withholding.
Non-United States Holders should consult their own tax advisors concerning any
applicable treaties that may provide for different rules.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is not
a citizen or resident (for United States estate tax purposes) of the United
States at the date of death will be included in such individual's estate for
United States Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company generally must report annually to the Internal Revenue Service
and to each Non-United States Holder the amount of dividends paid to, and the
tax withheld with respect to, such holder, regardless of whether
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<PAGE> 68
any tax was actually withheld. This information may also be made available to
the tax authorities of a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Class A Common Stock to a Non-United States
Holder at an address outside the United States. Payments by a United States
office of a broker of the proceeds of a sale of the Class A Common Stock is
subject to both backup withholding at a rate of 31% and information reporting
unless the holder certifies its Non-United States Holder status under penalties
of perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
proceeds of sales of the Class A Common Stock by foreign offices of United
States brokers, or foreign brokers with certain types of relationships to the
United States, unless the broker has documentary evidence in its records that
the holder is a Non-United States Holder and certain other conditions are met,
or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will, in certain circumstances, be refunded or credited
against the Non-United States Holder's United States Federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.
PROPOSED REGULATIONS
Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under recently proposed United States Treasury regulations that
are proposed to be effective for payments made after December 31, 1997 (the
"Proposed Regulations"), however, a Non-United States Holder of Class A Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification requirements. Under the Proposed
Regulations, dividend payments would also be made subject to information
reporting and backup withholding unless these applicable certification
requirements are satisfied. In addition, under the Proposed Regulations, in the
case of Class A Common Stock held by a foreign partnership, (x) the
certification requirement would generally be applied to the partners of the
partnership and (y) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Proposed Regulations also provide look-through rules for tiered partnerships.
There can be no assurance that the Proposed Regulations will be adopted or as to
the provisions that they will include if and when adopted in temporary or final
form.
UNITED STATES FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any
person who acquires a "United States real property interest" (as described
below) from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of a United States real property interest generally is required to
recognize gain or loss that is subject to United States federal income tax. A
"United States real property interest" generally includes any interest (other
than an interest solely as a creditor) in a United States corporation unless it
is established under specific procedures that the corporation is not (and was
not for the prior five-year period) a "United States real property holding
corporation." The Company does not believe that it is a United States real
property holding corporation as of the date hereof, although it has not
conducted or obtained an appraisal of its assets to determine whether it is now
or will be a United States real property holding corporation. If it is not
established that the Company is not a United States real property holding
corporation, then, unless an exemption applies, shares of the Class A Common
Stock would be treated as United States real property interests. As discussed
below, however, an exemption should apply to the Class A Common Stock except
with respect to a Non-United States Holder whose beneficial ownership of Class A
Common Stock exceeds 5% of the total fair market value of the Class A Common
Stock.
An interest in a United States corporation generally will not be treated as
a United States real property interest if, at any time during the calendar year,
any class of stock of the corporation is "regularly traded" on an established
securities market (the "regularly-traded exemption"). The Company believes that,
following the
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<PAGE> 69
consummation of the Offerings, the Company's Class A Common Stock will be
regularly traded on an established securities market within the meaning of the
applicable regulations, although there can be no assurance that the Class A
Common Stock, if so traded, will remain regularly traded. The remainder of this
discussion assumes that the Class A Common Stock is and will remain regularly
traded on an established securities market.
The regularly-traded exemption is not available to a regularly traded
interest (such as the Class A Common Stock) if such interest is owned by a
person who beneficially owns (actually or constructively) more than 5% of the
total fair market value of that class of interests at any time during the
five-year period ending on the date of disposition of such interest or other
applicable determination date. Accordingly, except with respect to a sale or
other disposition of Class A Common Stock by a Non-United States Holder whose
aggregate beneficial ownership has exceeded that 5% threshold, no withholding or
income taxation under the FIRPTA rules should be required with respect to the
sale, exchange or other disposition of Class A Common Stock by a Non-United
States Holder.
Any investor that may approach or exceed 5% ownership, either alone or in
conjunction with related persons, should consult its own tax advisor concerning
the United States tax consequences that may result.
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<PAGE> 70
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1997 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse First
Boston Corporation, Salomon Brothers Inc, Adams, Harkness & Hill, Inc. and
Hambrecht & Quist LLC are acting as representatives (the "Representatives"),
have severally but not jointly agreed to purchase from the Company the following
respective numbers of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
U.S.
U.S. UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Credit Suisse First Boston Corporation....................................
Salomon Brothers Inc......................................................
Adams, Harkness & Hill, Inc...............................................
Hambrecht & Quist LLC.....................................................
-----------
Total........................................................... 4,480,000
===========
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all of the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Company has entered into a Subscription Agreement, dated ,
1997 (the "Subscription Agreement"), with the Managers of the International
Offering (the "Managers") providing for the concurrent offer and sale of the
International Shares outside the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa.
The Company has granted to the U.S. Underwriters and the Managers options,
each exercisable by Credit Suisse First Boston Corporation ("CSFBC"), and
expiring at the close of business on the thirtieth (30th) day after the date of
this Prospectus, to purchase an aggregate of up to 840,000 additional shares at
the initial public offering price, less the underwriting discounts or
commissions, all as set forth on the cover page of this Prospectus. Such options
may be exercised only to cover over-allotments in the sale of the shares of
Class A Common Stock offered hereby. To the extent that these options to
purchase are exercised, each U.S. Underwriter and each Manager will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares being sold to the U.S. Underwriters and the
Managers as the number of U.S. Shares set forth next to such U.S. Underwriter's
name in the preceding table and as the number set forth next to such Manager's
name in the corresponding table in the prospectus relating to the International
Offering bears to the sum of the total number of shares of Class A Common Stock
in such tables.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $ per share, and the U.S. Underwriters and such
dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Offerings, changes in the public
offering price, concession and discount to dealers will be made only upon mutual
agreement of CSFBC, as representative of the U.S. Underwriters, and Credit
Suisse First Boston (Europe) Limited ("CSFBL") on behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or
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<PAGE> 71
sell, directly or indirectly, any shares of Class A Common Stock or distribute
any prospectus relating to the Class A Common Stock to any person outside the
United States or Canada or to any other dealer who does not so agree. Each of
the Managers has agreed or will agree that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Class A
Common Stock or distribute any prospectus relating to the Class A Common Stock
in the United States or Canada or to any dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident of the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment advisor with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by CSFBC, as
representative of the U.S. Underwriters, and CSFBL, on behalf of the Managers,
but not exceeding the selling concession applicable to such shares. To the
extent there are sales between the U.S. Underwriters and the Managers pursuant
to the Intersyndicate Agreement, the number of shares of Class A Common Stock
initially available for sale by the U.S. Underwriters or by the Managers may be
more or less than the amount appearing on the cover page of this Prospectus.
Neither the U.S. Underwriters nor the Managers are obligated to purchase from
the other any unsold shares of Class A Common Stock.
The Company and all of its current stockholders, directors and officers
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file, or cause to be filed,
with the Securities and Exchange Commission a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), relating to any
additional shares of its Common Stock or securities convertible into or
exchangeable or exercisable for any shares of its Common Stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposal or filing,
without the prior written consent of CSFBC for a period of 180 days after the
date of this Prospectus, excepting, in the case of the Company, grants of
employee stock options or rights pursuant to a plan in effect on the date of
this Prospectus, issuances pursuant to the exercise of such options or rights
and any filing of a registration statement under the Securities Act with respect
to any of the foregoing permitted issuances or grants.
The Representatives, on behalf of the U.S. Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Act of 1934
(the "Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of Class A Common Stock in the open market after
the distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when Class A Common Stock originally sold by such syndicate
member is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of Class A Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on The New York Stock Exchange or otherwise and, if commenced, may
be discontinued at any time.
The U.S. Underwriters have reserved up to 280,000 shares of Class A Common
Stock offered hereby for sale to certain directors, officers and employees of
the Company and its affiliates, business affiliates and related persons who have
expressed an interest in purchasing such reserved shares at the initial public
offering price. The number of shares available to the general public will be
reduced to the extent such employees purchase reserved shares. Any reserved
shares that are not so purchased by such persons will be offered by the U.S.
Underwriters to the general public on the same terms as the other shares offered
hereby.
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<PAGE> 72
The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the U.S. Underwriters and the Managers
may be required to make in respect thereof.
Application has been made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "WNI." In compliance with New York Stock
Exchange listing requirements, the Underwriters will sell round lots of 100 or
more shares of Class A Common Stock to a minimum of 2,000 beneficial owners.
The Underwriters have advised the Company that discretionary sales will not
exceed 5% of the shares of Class A Common Stock offered hereby.
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<PAGE> 73
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Class A Common Stock in Canada is being
made only on a private placement basis exempt from the requirement that the
Company prepare and file a prospectus with the securities regulatory authorities
in each province where trades of the Class A Common Stock are effected.
Accordingly, any resale of the Class A Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Class A Common
Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Class A Common Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Class A
Common Stock without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as principal
and not as agent and (iii) such purchaser has reviewed the text above under
"Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The shares of Class A Common Stock being offered are those of a foreign
issuer and Ontario purchasers will not receive the contractual right of action
prescribed by section 32 of the Regulation under the Securities Act (Ontario).
As a result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. federal
securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of a share of Class A Common Stock to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any Class A Common Stock acquired by such purchaser pursuant to the
Offerings. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from the Company. Only one such report must be filed in respect of Class A
Common Stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisers with respect to the tax consequences of an investment in Class
A Common Stock in their particular circumstances and with respect to the
eligibility of Class A Common Stock for investment by the purchaser under
relevant Canadian legislation.
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<PAGE> 74
LEGAL MATTERS
The validity of the Class A Common Stock offered in the Offerings will be
passed upon for the Company by Latham & Watkins, New York, New York. Roger H.
Kimmel, a director of the Company, is a partner of Latham & Watkins. Certain
legal matters in connection with the Offerings will be passed upon for the U.S.
Underwriters and Managers by Irell & Manella LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Weider Nutrition International,
Inc. at May 31, 1995 and 1996 and for the years ended May 31, 1994, 1995 and
1996 appearing in this Prospectus and the Registration Statement of which this
Prospectus is a part have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form S-1 (together with all amendments,
exhibits and schedules thereto, the "Registration Statement") relating to the
Class A Common Stock offered by the Company has been filed with the Securities
and Exchange Commission (the "Commission"), Washington, D.C. 20549. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
Statements contained in this Prospectus as to the content of any contract or any
other document referred to herein are not necessarily complete and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected at the public reference room maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at is regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. In addition, certain information on file with the Commission can be
accessed via the Commission's Internet home page at http://www.sec.gov/. Copies
of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
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WEIDER NUTRITION INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at May 31, 1995 and 1996 and unaudited at February 28,
1997................................................................................ F-3
Consolidated Statements of Income for the Years Ended May 31, 1994, 1995 and 1996
and unaudited for the Nine Months Ended February 28, 1996 and 1997.................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended May 31, 1994,
1995 and 1996 and unaudited for the Nine Months Ended February 28, 1997............. F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1994, 1995 and 1996
and unaudited for the Nine Months Ended February 28, 1996 and 1997.................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Weider Nutrition International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Weider Nutrition
International, Inc. and subsidiaries (collectively, the "Company") as of May 31,
1995 and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended May 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Weider Nutrition
International, Inc. and subsidiaries at May 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
July 10, 1996
(September 26, 1996 as to last
paragraph in Note 5 and the "Litigation"
paragraph of Note 7)
F-2
<PAGE> 77
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1995 AND 1996 AND UNAUDITED FEBRUARY 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------------
PRO FORMA
1995 1996 UNAUDITED UNAUDITED
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................... $ 2,272 $ 1,592 $ 1,065
Accounts receivable, net of allowance for
doubtful accounts of $150 (1995) and $137
(1996)..................................... 21,497 33,526 34,739
Other receivables............................. 475 1,035 1,968
Inventories................................... 18,204 42,382 46,677
Prepaid expenses and other.................... 732 4,806 2,775
Deferred taxes................................ 1,433 2,704 3,053
------- -------- --------
Total current assets....................... 44,613 86,045 90,277
------- -------- --------
Property and equipment, net..................... 9,954 21,411 26,298
------- -------- --------
Other assets:
Intangible assets, net........................ 14,452 23,783 26,658
Deposits and other assets..................... 804 1,404 4,918
Deferred taxes................................ 225 504 534
------- -------- --------
Total other assets......................... 15,481 25,691 32,110
------- -------- --------
Total assets.......................... $70,048 $133,147 $148,685
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.............................. $11,451 $ 19,093 $ 13,135
Accrued expenses.............................. 1,881 6,668 6,959
Current portion of long-term debt............. 2,709 9,032 7,456
Payable to Weider............................. 3,528 3,747 925
------- -------- --------
Total current liabilities.................. 19,569 38,540 28,475
------- -------- --------
Long-term debt.................................. 22,379 55,275 79,907
------- -------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized, no shares
issued and outstanding.....................
Class A and Class B Common Stock, par value
$1.00 per share; 100,000 shares authorized,
1,195.17 issued and outstanding............ 1 1 1 $ 1
Additional paid-in-capital.................... 4,480 4,480 4,480 4,480
Foreign currency translation.................. -- -- (131) (131)
Retained earnings............................. 23,619 34,851 35,953 10,953
------- -------- --------
Total stockholders' equity................. 28,100 39,332 40,303 $ 15,303
------- -------- --------
Total liabilities and stockholders'
equity.............................. $70,048 $133,147 $148,685
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 78
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
AND UNAUDITED FOR THE NINE MONTHS ENDED FEBRUARY 28, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
-----------------------
1994 1995 1996 1996 1997
------- ------- ----------- -------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Net sales............................ $67,870 $90,927 $ 186,405 $128,448 $ 151,407
Cost of goods sold................... 39,287 55,411 116,177 80,419 94,008
------- ------- -------- ------- -------
Gross profit......................... 28,583 35,516 70,228 48,029 57,399
------- ------- -------- ------- -------
Operating expenses:
Selling and marketing.............. 12,548 15,472 26,596 18,175 23,415
General and administrative......... 5,868 6,198 10,924 7,290 10,296
Amortization of intangible
assets.......................... 813 1,107 2,079 1,570 1,500
Impairment of intangible assets.... -- -- -- -- 2,095
Research and development........... 1,115 1,449 1,469 1,156 1,539
------- ------- -------- ------- -------
Total operating expenses........ 20,344 24,226 41,068 28,191 38,845
------- ------- -------- ------- -------
Income from operations............... 8,239 11,290 29,160 19,838 18,554
------- ------- -------- ------- -------
Other income (expense):
Interest, net...................... (245) (1,079) (3,736) (2,748) (4,673)
Other.............................. (1,015) 147 (253) (177) (423)
------- ------- -------- ------- -------
Total........................... (1,260) (932) (3,989) (2,925) (5,096)
------- ------- -------- ------- -------
Income before income taxes........... 6,979 10,358 25,171 16,913 13,458
Provision for income taxes........... 2,845 4,266 10,207 6,858 5,383
------- ------- -------- ------- -------
Net income........................... $ 4,134 $ 6,092 $ 14,964 $ 10,055 $ 8,075
======= ======= ======== ======= =======
Pro forma net income per common and
common equivalent share
(unaudited)........................ -- -- $ 0.79 -- $ 0.43
======== =======
Pro forma common and common
equivalent shares outstanding
(unaudited)........................ -- -- 18,842,858 -- 18,842,858
======== =======
Supplemental pro forma net income per
common and common equivalent share
(unaudited)........................ -- -- $ 0.71 -- $ 0.43
======== =======
Supplemental pro forma common and
common equivalent shares
outstanding (unaudited)............ -- -- 23,811,047 -- 23,811,047
======== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 79
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
AND UNAUDITED FOR THE NINE MONTHS ENDED FEBRUARY 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS
A FOREIGN
AND B ADDITIONAL CURRENCY
COMMON PAID-IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENTS EARNINGS TOTAL
------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1993............... $ 1 $ -- $ -- $ 19,485 $19,486
Net income.......................... -- -- -- 4,134 4,134
Distributions to Weider............. -- -- -- (674) (674)
---- ------ ----- ------- -------
Balance at May 31, 1994............... 1 -- -- 22,945 22,946
Net income.......................... -- -- -- 6,092 6,092
Issuance of common stock............ -- 4,480 -- -- 4,480
Distributions to Weider............. -- -- -- (5,418) (5,418)
---- ------ ----- ------- -------
Balance at May 31, 1995............... 1 4,480 -- 23,619 28,100
Net income.......................... -- -- -- 14,964 14,964
Distributions to Weider............. -- -- -- (3,732) (3,732)
---- ------ ----- ------- -------
Balance at May 31, 1996............... 1 4,480 -- 34,851 39,332
Net income (unaudited).............. -- -- -- 8,075 8,075
Distributions to Weider
(unaudited)...................... -- -- -- (6,973) (6,973)
Foreign currency translation
adjustments (unaudited).......... -- -- (131) -- (131)
---- ------ ----- ------- -------
Balance at February 28, 1997
(unaudited)......................... $ 1 $4,480 $(131) $ 35,953 $40,303
==== ====== ===== ======= =======
</TABLE>
F-5
<PAGE> 80
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
AND UNAUDITED FOR THE NINE MONTHS ENDED FEBRUARY 28, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
--------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 4,134 $ 6,092 $ 14,964 $ 10,055 $ 8,075
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Provisions for bad debts............ 101 108 98 156 131
Deferred tax provision.............. (129) (911) (1,550) (1,901) (378)
Depreciation and amortization....... 1,405 2,000 5,001 3,555 4,424
Impairment loss..................... -- -- -- -- 2,095
Changes in operating assets and
liabilities-net of assets acquired:
Accounts receivable................. 908 (4,240) (8,219) (6,866) (623)
Other receivables................... 763 (519) (496) (3,442) (732)
Inventories......................... (2,086) (8,928) (18,452) (10,779) (3,504)
Prepaid expenses and other.......... 388 (83) (3,742) (3,504) 2,035
Deposits and other assets........... (122) 75 (428) 351 (3,457)
Accounts payable.................... 3,156 1,031 881 (2,658) (6,780)
Accrued expenses.................... (107) 25 (259) (260) (1,248)
------- ------- -------- -------- --------
Net cash provided by (used in)
operating activities........... 8,411 (5,350) (12,202) (15,293) 38
------- ------- -------- -------- --------
Cash flows from financing activities:
Issuance of common stock............... -- 4,480 -- 0 --
Distributions to Weider................ (673) (5,418) (3,731) (1,555) (6,973)
Net increase (decrease) in payable to
Weider.............................. (463) 1,914 182 23,925 (2,823)
Proceeds from long-term debt........... 3,445 17,953 35,250 9,500 36,030
Payments on long-term debt............. (3,672) (1,519) (4,949) (2,506) (13,481)
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities........... (1,363) 17,410 26,752 29,364 12,753
------- ------- -------- -------- --------
Cash flows from investing activities:
Purchase of companies, net of cash
acquired............................ (1,875) (8,495) (9,011) (9,011) (5,083)
Purchase of trademarks................. -- -- (135) (1,441) (1,761)
Purchase of property and equipment..... (5,171) (1,295) (6,084) (5,434) (6,343)
------- ------- -------- -------- --------
Net cash used in investing
activities................... (7,046) (9,790) (15,230) (15,886) (13,187)
------- ------- -------- -------- --------
Effect of exchange rate changes on
cash................................... -- -- -- -- (131)
------- ------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents............................ 2 2,270 (680) (1,815) (527)
Cash and cash equivalents, beginning of
period................................. -- 2 2,272 2,272 1,592
------- ------- -------- -------- --------
Cash and cash equivalents, end of
period................................. $ 2 $ 2,272 $ 1,592 $ 457 $ 1,065
======= ======= ======== ======== ========
</TABLE>
(continued)
F-6
<PAGE> 81
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
AND UNAUDITED FOR THE NINE MONTHS ENDED FEBRUARY 28, 1996 AND 1997
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
-------------------
1994 1995 1996 1996 1997
------ ------ ------- ------ ------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Interest......................... $ 297 $1,163 $ 3,816 $2,824 $4,684
Income taxes..................... 3,208 2,279 11,920 7,013 3,400
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisitions of net assets from other companies, the
Company assumed liabilities as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
-------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Fair value of assets acquired..... $ 1,004 $ 6,250 $18,497 $18,497 $ 4,472
Cost in excess of fair value of
net assets acquired............. 2,508 8,788 11,275 11,275 3,479
Cash paid, net of cash acquired... (1,875) (8,495) (9,011) (9,011) (5,083)
Debt and liabilities issued....... (1,226) (2,000) (7,063) (7,063) (1,300)
------- ------- ------- -------- -------
Liabilities assumed............... $ 411 $ 4,543 $13,698 $13,698 $ 1,568
======= ======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 82
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1995 AND 1996
AND UNAUDITED FOR THE NINE MONTHS ENDED
FEBRUARY 28, 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Weider Nutrition International, Inc. and its
wholly-owned subsidiaries (collectively, the "Company") which is a
majority-owned subsidiary of Weider Health and Fitness ("Weider" or the
"Parent"). All significant intercompany accounts and transactions have been
eliminated.
DESCRIPTION OF BUSINESS -- The Company is principally involved in the
development, manufacturing and marketing of nutritional supplement products.
USE OF ESTIMATES IN PREPARING 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
sales and expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS -- Cash equivalents include highly liquid investments with
an original maturity of three months or less.
INVENTORIES -- Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost less
accumulated depreciation. Depreciation and amortization expense was $592 (1994),
$894 (1995) and $2,922 (1996), computed primarily using the straight-line method
over the estimated useful lives of 31 years for buildings and 2 to 7 years for
other property and equipment.
INCOME TAXES -- The Company files consolidated returns with Weider for
Federal and state income tax purposes. For financial statement purposes, the
Company has provided for income taxes as if it were filing separately. The
Company records in its balance sheet deferred income tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
different periods for financial statements versus tax returns. Current income
taxes payable are included in payable to Weider on the balance sheet.
NET SALES -- The Company recognizes sales upon shipment of a product to a
customer. Allowances are made for uncollectible accounts and future credits. Net
sales and receivables included a customer concentration as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Total net sales...................................... $67,870 $90,927 $186,405
General Nutrition Center ("GNC") net sales........... 18,043 23,600 30,579
GNC percent of net sales............................. 27% 26% 16%
GNC percent of receivables........................... 36 28 16
</TABLE>
FINANCIAL INSTRUMENTS -- The Company's financial instruments, when valued
using market interest rates, would not be materially different from the amounts
presented in the consolidated financial statements.
INTANGIBLE ASSETS -- Intangible assets are stated at cost and amortized
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Cost in excess of fair value of net assets acquired.................... 10 - 15 years
Patents and trademarks................................................. 10 - 20 years
Non-compete agreement.................................................. 5 years
</TABLE>
F-8
<PAGE> 83
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company evaluates the economic factors for determining requisite
recovery periods for certain intangible assets on a case by case basis. The
Company recognizes amortization of goodwill over periods of 15 to 35 years.
Management determined that a 35 year life was appropriate for the goodwill of
$2.8 million associated with the Science Foods acquisition. Management
anticipates a similar life will be appropriate for goodwill associated with
future acquisitions.
UNAUDITED PRO FORMA NET INCOME PER SHARE -- For purposes of computing the
pro-forma net income per share, all references to shares of Common Stock reflect
a 14,371.3-for-one stock split ("stock split") which will occur in conjunction
with the public offering. The calculation of pro forma net income per common and
common equivalent share was determined by dividing pro forma net income by the
pro forma common and common equivalent shares outstanding after giving
retroactive effect to the stock split and the issuance of 1,666,667 shares of
Class A Common Stock the proceeds from which would be necessary to pay the
one-time, $25.0 million Class B Dividend and otherwise does not give effect to
the offerings of approximately 5,600,000 shares of Class A Common Stock upon
effectiveness of the Registration Statement (the "Offerings"). The calculation
of supplemental pro forma net income per common and common equivalent share was
determined by dividing pro forma net income by the pro forma common and common
equivalent shares outstanding after giving retroactive effect to the stock
split, the Offerings and the issuance of an aggregate of 1,034,856 shares of
Class A Common Stock to senior executives and certain other qualifying
employees. The calculation reflects the retirement of debt with the proceeds of
the Offerings as if such debt was retired at the beginning of the period (which
would have the effect of reducing after-tax interest expense by $2.0 million in
fiscal 1996 and $2.2 million in the nine months ended February 28, 1997) but
does not give effect to the one-time compensation expense estimated at
approximately $19.9 million ($12.0 million, net of tax) arising from the
issuance of an aggregate of 1,034,856 shares of Class A Common Stock described
above. After giving pro forma effect to such compensation expense, supplemental
pro forma net income per common and common equivalent share would be reduced by
approximately $0.50 per share. In addition, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 83, shares issued and
share options or warrants granted within one year of or in contemplation of the
anticipated initial public offering of Class A Common Stock have been included
in the calculation of common share equivalents, using the treasury stock method
to determine the dilutive effect of the issuances, as if they were outstanding
for all periods presented. There are no dilutive common equivalent shares other
than those considered outstanding for all periods presented in accordance with
SAB No. 83.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The consolidated
financial statements at February 28, 1997 and for the nine months ended February
28, 1996 and 1997 have been derived from unaudited consolidated financial
statements of the Company. Management believes the Company's unaudited
consolidated financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. Results for the nine months
ended February 28, 1997 have not been audited and are not necessarily indicative
of results to be expected for the full fiscal year.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY -- The unaudited pro forma
stockholders' equity balance at February 28, 1997 gives effect to the $25.0
million distribution to Weider to be paid after the closing of the Company's
anticipated initial public offering but does not give effect to such initial
public offering and the use of proceeds therefrom.
ACCOUNTING STANDARDS -- In March 1995, the Financial Accounting Standards
Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement addresses the
accounting for the impairment of long-lived assets, such as property and
equipment, certain identifiable intangibles and goodwill related to those
assets. Long-lived assets and certain identifiable intangibles are to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is recognized when the sum of the future cash flows is less than the carrying
amount of the asset. The statement also requires that long-lived assets and
identifiable intangibles be accounted for at the lower of cost or fair value
less cost to sell. The effect of adopting SFAS No. 121 subsequent to May 31,
1996 resulted in an impairment loss of approximately $2.1 million ($1.3 million,
net of tax).
F-9
<PAGE> 84
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories consisted of the following at May 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials.................................................... $ 6,628 $16,840
Work in process.................................................. 237 3,165
Finished goods................................................... 11,339 22,378
------- -------
Total.................................................. $18,204 $42,383
======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following at
May 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land............................................................. $ 832 $ 1,679
Buildings........................................................ 6,770 6,970
Furniture and equipment.......................................... 5,055 15,772
Leasehold improvements........................................... -- 2,616
------- -------
Sub-total...................................................... 12,657 27,037
Less accumulated depreciation and amortization................... (2,703) (5,626)
------- -------
Total.................................................. $ 9,954 $21,411
======= =======
</TABLE>
In March 1996, the Company purchased a 24-acre parcel of land located in
Salt Lake City, Utah for cash of $2,091. The land was subsequently sold to a
leasing company for cost and the Company entered into a build-to-suit lease
agreement to construct its headquarters and manufacturing facility on the land.
The leasing company will spend approximately $16,900 to complete the project.
The lease agreement requires the Company to fund any leasehold improvements
necessary in excess of $5,852. The lease term will be for 16 years and, lease
commitments total approximately $1,855 per year for the first five years and
approximately $24,216 in total obligations thereafter. Construction of this
facility has commenced and is expected to be completed by mid-1997. Included in
prepaid expenses and other is a deposit in escrow of $2,485 related to the sale
of the land by the Company and a cash advance to the leasing company which was
refunded to the Company in June 1996.
4. INTANGIBLE ASSETS
Intangible assets consist of the following at May 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Cost in excess of fair value of net assets acquired.............. $15,085 $26,360
Patents and trademarks........................................... 2,237 2,371
Non-compete agreement............................................ 500 500
------- -------
17,822 29,231
Less accumulated amortization.................................... (3,370) (5,448)
------- -------
Total.................................................. $14,452 $23,783
======= =======
</TABLE>
The intangible assets result from business combinations accounted for as
purchases and are stated at cost. Amortization expense was $813 (1994), $1,107
(1995) and $2,079 (1996).
F-10
<PAGE> 85
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following at May 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Term note payable to General Electric Credit Corporation ("GECC")
bearing interest at prime plus 1.25%, quarterly principal
payments due through February 1997 of $750, through February
1998 of $1,000, through February 1999 of $1,250 and through
February 2000 of $1,750 (see Note 9)........................... $ 10,200 $ 18,250
$40,000 revolving line of credit to GECC bearing interest at
prime plus 1%, through January 2000 (see Note 9)............... 9,000 19,700
Note payable to Weider, unsecured, bearing interest at prime plus
1.00%, through January 2000.................................... -- 15,000
Note payable to the previous owner of American Body Building in
connection with an earnout agreement, due January 1997, subject
to achieving minimum sales levels (see Note 8)................. 2,000 1,000
Mortgage loan, due in monthly installments of $30 including
interest at 7.625% due February 2009........................... 3,164 3,078
Note payable in connection with an earnout agreement from the
acquisition of Nion, payable annually, based upon operating
income as defined (see Note 8)................................. -- 5,250
Note payable to the previous owner of Nion, quarterly
installments of $151 plus interest at 8% through September 1998
(see Note 8)................................................... -- 1,209
Other............................................................ 724 820
-------- --------
Total....................................................... 25,088 64,307
Less current portion............................................. 2,709 9,032
-------- --------
Long-term portion........................................... $ 22,379 $ 55,275
======= =======
</TABLE>
As of May 31, 1996, future payments of long-term debt are due as follows:
$9,031 (1997), $6,343 (1998), $5,607 (1999), $5,359 (2000), $34,810 (2001) and
$3,157 thereafter.
The notes payable to GECC are secured by all of the real and personal
property of Weider and the common stock of the Company. In addition, the notes
contain certain covenants, which, among other things, require Weider (i) to
maintain specified financial ratios and levels, as defined, and (ii) to restrict
additional indebtedness, liens, investments and guarantees; limit payments for
dividends, stock repurchases and distributions; limit capital expenditures; and
restrict transactions with affiliates. At May 31, 1996, Weider was in compliance
with these covenants.
On September 26, 1996, the Company converted $15,000 of the $18,747 Due to
Weider balance to a note payable. Since the Company intended to refinance a
portion of the Due to Weider balance as of May 31, 1996 with long-term debt and
since this note has been executed, $15,000 of the balance has been classified as
long-term debt.
F-11
<PAGE> 86
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of income tax expense were as follows for the years ended
May 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Current................................................. $2,974 $5,177 $11,757
Deferred................................................ (129) (911) (1,550)
------ ------ -------
Total......................................... $2,845 $4,266 $10,207
====== ====== =======
</TABLE>
The provision for income taxes differs from a calculated income tax at
federal statutory rates as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Computed federal income tax expense at the statutory
rate of 35%........................................... $ 2,442 $ 3,625 $ 8,810
Amortization of costs in excess of fair value of net
assets acquired....................................... 133 133 133
Meals and entertainment................................. 8 25 31
State income taxes...................................... 228 463 1,221
Other................................................... 34 20 12
------ ------ -------
Total......................................... $ 2,845 $ 4,266 $ 10,207
====== ====== =======
</TABLE>
Deferred income tax assets are included in the balance sheets, as follows:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Accounts receivable allowances............ $ 351 $ -- $ 539 $ --
Deferred compensation..................... -- 284 -- 369
Accrued vacation and bonuses.............. 71 -- 112 --
Capitalization of inventory costs......... 364 -- 845 --
Options and units......................... -- 71 -- 272
State taxes............................... 239 -- 727 --
Non-compete agreement..................... -- 39 -- 66
Basis difference in acquired companies.... -- 123 -- 118
Inventory allowance....................... 408 -- 481 --
------ ---- ------ ----
Total.................................. 1,433 517 2,704 825
------ ---- ------ ----
LIABILITIES:
Amortization of intangibles............... -- 103 -- 105
Loss on sale of fixed assets.............. -- 143 -- 147
Depreciation.............................. -- 46 -- 69
------ ---- ------ ----
Total.................................. -- 292 -- 321
------ ---- ------ ----
Deferred income taxes, net................ $1,433 $ 225 $2,704 $ 504
====== ==== ====== ====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES -- The Company leases warehouse and office facilities,
transportation equipment and other equipment under several operating lease
agreements expiring through 2000. As of May 31, 1996, future minimum payments of
$3,254 under the noncancelable operating leases are due as follows: $1,403
(1997), $1,095 (1998), $609 (1999), and $147 (2000). Rental expense charged to
operations amounted to $612 (1994), $629 (1995), and $1,610 (1996).
F-12
<PAGE> 87
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS AND UNITS -- The Company has awarded performance units to certain
key employees at base values (exercise prices) per unit equal to the book value
per share of the Company at the specified award date. The units vest ratably
over a ten-year period from the award date except that vesting may be
accelerated for certain defined events. The Company shall convert the units to
cash or stock at the option of the holder at fair market value less base value
in the case of certain defined events, including a merger, sale of stock, sale
of all assets or public offering, or equal to book value less base value, on the
date of a voluntary termination. The following table sets forth performance
units awarded as of May 31, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER OF UNITS PRICE PER UNIT
------------------- --------------------
AWARDED VESTED BASE BOOK
------- ------ -------- --------
<S> <C> <C> <C> <C>
MAY 31, 1995:
Year of grant:
1991.................................... 37.60 17.60 $ 13,406 $ 23,268
1994.................................... 24.00 2.40 19,200 23,268
MAY 31, 1996:
Year of grant:
1991.................................... 37.60 20.93 13,406 39,331
1994.................................... 24.00 4.80 19,200 32,909
1996.................................... 6.00 .60 23,663 32,909
</TABLE>
The Company recorded compensation expense of $183 (1995) and $500 (1996) in
connection with these units.
LITIGATION -- The Company was involved as a defendant in a lawsuit which
alleged unfair competition, false advertising and trademark infringement in
connection with the marketing and distribution by the Company of the product
METAFORM. In September 1996, this lawsuit was settled with no expense to the
Company.
OTHER LITIGATION -- The Company is involved in various other claims,
potential unasserted claims and legal actions arising in the ordinary course of
business. In the opinion of management, based in part on discussions with legal
counsel, the ultimate outcome of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
ROYALTIES -- In conjunction with certain acquisitions, the Company has
entered into agreements which require royalty payments on the sales of specific
products as follows:
<TABLE>
<CAPTION>
ROYALTY PRODUCT/BRAND EXPIRATION
- ------------------------------- ------------------------------ --------------
<S> <C> <C>
2% net sales Certain Exceed brand products December 1998
5% net sales Specific Schiff brand products July 1997
4% net sales Specific Weider products June 2000
2% net sales on first All bar products October 2005
$20,000 3% net sales thereafter
</TABLE>
Royalties paid were approximately $96 (1994), $97 (1995) and $504 (1996).
RETIREMENT PLAN -- The Company sponsors a contributory 401(k) savings plan
covering all employees who have met minimum age and service requirements.
Contributions to this plan were approximately $68, $90 and $112 for the years
ended May 31, 1994, 1995 and 1996, respectively, and were included in general
and administrative expenses.
F-13
<PAGE> 88
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACQUISITIONS
In December 1993, the Company acquired the Excel brand name with certain
associated assets for cash of $1,175 and notes of $3,400 (consisting of
potential earnout payments of which $1,226 has been paid and the remaining
potential payments of $2,174 are not recorded in the Company's liabilities
because the payment of such obligations is uncertain; if such additional earnout
payments become required, a corresponding increase in goodwill will be
recorded). The Company accounted for this acquisition as a purchase and
recognized intangible assets of $2,564 amortized primarily over 15 years.
Also in December 1993, the Company acquired the Exceed brand name and
associated inventory for cash of $700 and assumed certain liabilities of $203.
The Company accounted for the acquisition as a purchase and recognized
intangible assets of $853 amortized primarily over 15 years.
In January 1995, the Company acquired certain assets of American Body
Building Products, Inc. and two other related companies for cash of $8,620, a
note of $2,000 which is related to potential earn out payments (see Note 5) and
the assumption of certain liabilities. The Company accounted for this
acquisition as a purchase and recognized goodwill of $8,788, which is being
amortized over 15 years. American Body Building Products, Inc. manufactures and
distributes energy drinks and nutrition bars.
In June 1995, the Company acquired the assets of National Institute of
Nutrition, Inc. (dba Nion Laboratories) ("Nion") for cash of $8,190, notes of
$7,063 (including $5,250 relating to potential earnout payments) (see Note 5)
and the assumption of certain liabilities. The Company accounted for this
acquisition as a purchase and recognized goodwill of $8,149, which is being
amortized over 15 years. Nion manufactures and distributes nutritional
supplements in capsule and tablet form.
In October 1995, the Company acquired certain assets of a company ("ANB")
for the forgiveness of a note receivable of $850 and the assumption of certain
liabilities. The Company accounted for this acquisition as a purchase and
recognized goodwill of $3,126, which is being amortized over 15 years. The
acquired facility manufactures and distributes nutritional bars.
In January 1996, the Company purchased net assets with a recorded value of
$49 and rights to use the Weider name in England, Ireland and with certain
customer accounts in Austria, France and Switzerland for $557 from a commonly
controlled entity. The Company incurred liabilities of $250 to the benefit of
the commonly controlled entity. As a result, $758 is included in distribution to
Weider for the purchase of such assets. The purchase of these assets was
accounted for at the historical cost of $49 in the records of the Company and
the results of operations have been included since January 1, 1996. Included in
distributions to Weider is an additional $900 paid for the rights to use the
Weider name in the European countries not included above.
Effective September 1996, the Company acquired certain assets and
international distribution rights from a related party in Canada for $4,000. Of
the $4,000 purchase price, $3,000 was paid in cash and $1,000 was in the form of
an earnout to be paid $40 per month for 25 months.
Effective September 1, 1996, the Company acquired trademarks and
nutritional supplement operations providing distribution capabilities in
primarily Spain and Portugal for a total purchase price of $3,350. Of the
$3,350, $500 was paid for certain assets in Spain, $200 was paid as
consideration for a covenant not to compete from the seller, $300 was paid as a
condition to closing, $500 is to be paid on each of the first and second
anniversaries of the closing and $1,350 was paid for certain trademarks.
Effective January 1, 1997, the Company acquired the net assets of Science
Foods, Inc., a competing sports nutrition beverage manufacturer, for $3,900 in
cash plus the assumption of $700 in debt.
F-14
<PAGE> 89
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results of operations of the Company for the years ended May 31,
1995 and 1996 (assuming the Nion and ANB acquisitions had occurred on June 1,
1994) are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revenues................................................................. 119,339 189,518
Net income............................................................... 1,783 14,108
</TABLE>
9. RELATED PARTY TRANSACTIONS
Effective June 1, 1994, the Company sold common stock representing 16 1/3%
ownership interest primarily to related parties. As consideration for the common
stock, the Company received from these parties certain equity and debt
instruments. Concurrent with the sale, the Company declared and paid a dividend
of that consideration to Weider. The Company recorded these transactions at the
net book value of the common shares exchanged ($4,480) and recognized no gain.
Payments to reimburse Weider for Company expenses (including primarily
insurance, endorsements, retirement benefits, interest and royalties) are
summarized as follows for the years ended May 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Operating expense................................ $1,896 $1,483 $2,044
Interest, net.................................... 218 897 3,327
Other............................................ 250 250 250
------ ------ ------
$2,364 $2,630 $5,621
====== ====== ======
</TABLE>
The payable to Weider is due on demand and bears interest at the same rate
as the revolving loans payable to GECC (see Note 5). Interest is payable
monthly. Included in net interest above is interest paid to Weider for both the
payable to Weider and to reimburse Weider for interest paid to GECC on behalf of
the Company. Additionally, included in long-term debt is a note payable to
Weider of $15,000 at May 31, 1996 (see Note 5).
The notes payable to GECC are administered by Weider. Weider is the
principal guarantor and the Company is the principal borrower. Weider charges
the Company interest on the notes payable to GECC at prime plus 1% (revolving
line of credit) and prime plus 1.25% (term note), which includes a service
charge for arranging the borrowing and servicing the debt due primarily to lower
contracted rates on the notes payable to GECC of LIBOR plus 2.25% and LIBOR plus
2.50%. The service charge amounted to $113,000 and $378,000 for the years ended
May 31, 1995 and 1996. The service charge was discontinued by Weider as of March
1, 1997.
Included in deposits and other assets are loans to officers in principal
amount of $200 at May 31, 1995 and 1996.
F-15
<PAGE> 90
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER OR MANAGER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
The Company........................... 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 46
Principal Stockholders................ 57
Certain Relationships and Related
Party Transactions.................. 58
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 65
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 66
Underwriting.......................... 69
Notice to Canadian Residents.......... 72
Legal Matters......................... 73
Experts............................... 73
Available Information................. 73
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
LOGO
5,600,000 Shares
Class A Common Stock
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST
======================================================
<PAGE> 91
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED APRIL 2, 1997
5,600,000 Shares
LOGO
WEIDER NUTRITION INTERNATIONAL, INC.
Class A Common Stock
($.01 par value)
------------------
All of the shares of Class A Common Stock, par value $.01 (the "Class A Common
Stock"), of Weider Nutrition International, Inc. (the "Company") offered hereby
are being sold by the Company. Of the 5,600,000 shares of Class A Common Stock
being offered, 1,120,000 shares are initially being offered outside the United
States and Canada (the "International Shares") by the Managers (the
"International Offering") and 4,480,000 shares are initially being concurrently
offered in the United States and Canada (the "U.S. Shares") by the U.S.
Underwriters (the "U.S. Offering" and, together with the International Offering,
the "Offerings"). The offering price and underwriting discounts and commissions
of the International Offering and the U.S. Offering are identical.
Prior to the Offerings, there has been no public market for the Class A Common
Stock. It is currently estimated that the initial public offering price will be
between $13.50 and $16.50 per share. For information relating to the factors to
be considered in determining the initial public offering price of the Class A
Common Stock, see "Subscription and Sale."
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "WNI" subject to official notice of issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted to the U.S. Underwriters and the Managers options,
each exercisable by Credit Suisse First Boston Corporation for 30 days from
the date of this prospectus, to purchase an aggregate maximum of 840,000
additional shares to cover over-allotments of shares. If the options are
exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , and Proceeds to
the Company will be $ .
The International Shares are offered by the several Managers when, as and
if issued by the Company, delivered to and accepted by the Managers and subject
to their right to reject orders in whole or in part. It is expected that the
International Shares will be ready for delivery on or about , 1997,
against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC. HAMBRECHT & QUIST
Prospectus dated , 1997
<PAGE> 92
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "SUBSCRIPTION AND SALE."
2
<PAGE> 93
(provided, however, that an unauthorized third party user has not, prior to the
registration date, perfected its common law rights in the trademark in that
geographic area). The Company intends to register its trademarks in certain
foreign jurisdictions where the Company's products are sold. However, the
protection available in such jurisdictions may not be as extensive as the
protection available to the Company in the United States.
Currently, the Company has three patent applications submitted to the
United States Patent and Trademark Office which are currently under review. To
the extent the Company does not have patents on its products, there can be no
assurance that another company will not replicate one or more of the Company's
products. See "Business -- Trademarks and Patents."
POTENTIAL SALES AND EARNINGS VOLATILITY
The Company's sales and earnings continue to be subject to potential
volatility based upon, among other things: (i) the adverse effect of
distributors' or the Company's failure, and allegations of their failure, to
comply with applicable regulations, which have in the past and could again in
the future result in the removal of certain products from sale in certain
countries, either temporarily or permanently; (ii) the negative impact of
changes in or interpretations of regulations that may limit or restrict the sale
of certain of the Company's products, the expansion of its operations into new
markets and the introduction of its products into each such market; (iii) the
inability of the Company to introduce new products or the introduction of new
products by the Company's competitors; (iv) general conditions in the
nutritional supplement industry; and (v) consumer perceptions of the Company's
products and operations. In particular, because the Company's products are
ingested by consumers, the Company is highly dependent upon consumers'
perception of the safety and quality of its products. As a result, substantial
negative publicity concerning one or more of the Company's products or other
nutritional supplements similar to the Company's products could adversely affect
the Company's results of operations or financial condition. See "-- Effect of
Unfavorable Publicity."
The Company's business is, to some extent, seasonal, with lower sales
typically realized during the first and second fiscal quarters and higher sales
typically realized during the third and fourth fiscal quarters. The Company
believes such fluctuations in sales are the result of greater marketing and
promotional activities toward the end of each fiscal year, customer buying
patterns, and consumer spending patterns related primarily to consumers'
interest in achieving personal health and fitness goals after the beginning of
each new calendar year and before the summer fashion season. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
COMPETITION
The nutritional supplement industry is highly competitive. Numerous
companies compete with the Company in the development, manufacture and marketing
of nutritional supplements. In addition, large pharmaceutical companies and
packaged food and beverage companies compete with the Company on a limited basis
in the nutritional supplement market. Increased competition from such companies
could have a material adverse effect on the Company as they have greater
financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than those of
the Company. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management and other skills of Richard B. Bizzaro, the Chief
Executive Officer and President, and Robert K. Reynolds, the Chief Operating
Officer, Executive Vice President and Secretary, as well as its ability to
retain or attract other skilled personnel. The loss or unavailability of the
services of Mr. Bizzaro and Mr. Reynolds could have a material adverse effect on
the Company. See "Management -- Employment Agreements."
NO PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock has
been determined by negotiations among the Company, the U.S. Underwriters and the
Managers based on factors described in this Prospectus under "Subscription and
Sale."
12
<PAGE> 94
SUBSCRIPTION AND SALE
The institutions named below (the "Managers"), have, pursuant to a
Subscription Agreement dated , 1997 (the "Subscription Agreement"),
severally and not jointly, agreed with the Company to subscribe and pay for the
following respective numbers of International Shares as set forth opposite their
names:
<TABLE>
<CAPTION>
NUMBER OF
MANAGERS INTERNATIONAL SHARES
-------------------------------------------------------------------- --------------------
<S> <C>
Credit Suisse First Boston (Europe) Limited.........................
Salomon Brothers International Limited..............................
Adams, Harkness & Hill, Inc. .......................................
Hambrecht & Quist LLC...............................................
---------
Total..................................................... 1,120,000
=========
</TABLE>
The Subscription Agreement provides that the obligations of the Managers
are such that, subject to certain conditions precedent, the Managers will be
obligated to purchase all of the International Shares offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of
non-defaulting managers may be increased or the Subscription Agreement may be
terminated.
The Company has entered into an Underwriting Agreement with the U.S.
Underwriters of the U.S. Offering (the "U.S. Underwriters") providing for the
concurrent offer and sale of the U.S. Shares in the United States and Canada.
The closing of the U.S. Offering is a condition to the closing of the
International Offering and vice versa.
The Company has granted to the Managers and the U.S. Underwriters options,
each exercisable by Credit Suisse First Boston Corporation, the representative
of the U.S. Underwriters, and expiring at the close of business on the thirtieth
(30th) day after the date of this Prospectus, to purchase an aggregate of up to
840,000 additional shares at the initial public offering price, less the
underwriting discounts or commissions, all as set forth on the cover page of
this Prospectus. Such options may be exercised only to cover over-allotments in
the sale of the shares of Class A Common Stock offered hereby. To the extent
that these options to purchase are exercised, each Manager and each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares being sold to the
Managers and the U.S. Underwriters as the number of International Shares set
forth next to such Manager's name in the preceding table and as the number set
forth next to such U.S. Underwriter's name in the corresponding table in the
Prospectus relating to the U.S. Offering bears to the sum of the total number of
shares of Class A Common Stock in such tables.
The Company has been advised by Credit Suisse First Boston (Europe) Limited
("CSFBL"), on behalf of the Managers, that the Managers propose to offer the
International Shares outside the United States and Canada initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Managers, to certain dealers at such price less a commission of
$ per share and that the Managers and such dealers may reallow a commission
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price and commission and reallowance may be
changed by the Managers.
The offering price and the aggregate underwriting discounts and commissions
per share and per share commission and reallowance to dealers for the
International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offerings, changes in the offering
price, the aggregate underwriting discounts and commissions per share and per
share commission and reallowance to dealers will be made only upon mutual
69
<PAGE> 95
agreement of CSFBL, on behalf of the Managers, and Credit Suisse First Boston
Corporation ("CSFBC") as representative of the U.S. Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of the International Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock in the United States or Canada
or to any other dealer who does not so agree. Each of the U.S. Underwriters has
agreed or will agree that, as part of the distribution of the U.S. Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Class A Common Stock or distribute
any prospectus relating to the Class A Common Stock to any person outside the
United States or Canada or to any dealer who does not so agree. The foregoing
limitations do not apply to stabilization transactions or to transactions
between the Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement. As used herein, "United States" means the United States of America
(including the States and the District of Columbia), its territories and
possessions and other areas subject to its jurisdiction, "Canada" means Canada,
its provinces, territories and possessions and other areas subject to its
jurisdiction, and an offer or sale shall be in the United States or Canada if it
is made to (i) any individual resident of the United States or Canada or (ii)
any corporation, partnership, pension, profit-sharing or other trust or other
entity (including any such entity acting as an investment advisor with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Class A Common
Stock as may be mutually agreed upon. The price of any shares so sold will be
the public offering price, less such amount agreed upon by CSFBL, on behalf of
the Managers, and CSFBC, as representative of the U.S. Underwriters, but not
exceeding the selling concession applicable to such shares. To the extent there
are sales between the Managers and the U.S. Underwriters pursuant to the
Intersyndicate Agreement, the number of shares of Class A Common Stock initially
available for sale by the Managers or by the U.S. Underwriters may be more or
less than the amount appearing on the cover page of this Prospectus. Neither the
Managers nor the U.S. Underwriters are obligated to purchase from the other any
unsold shares of Class A Common Stock.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the Class A Common Stock will not offer or sell any
Class A Common Stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Class A Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of the Class A Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
The Company and all of its current stockholders, directors and officers
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file, or cause to be filed,
with the Securities and Exchange Commission a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), relating to any
additional shares of its Common Stock or securities convertible into or
exchangeable or exercisable for any shares of its Common Stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposal or filing,
without the prior written consent of CSFBC for a period of 180 days after the
date of this Prospectus, excepting, in the case of the Company, grants of
employee stock options or rights pursuant to a plan in effect on the date of
this Prospectus, issuances pursuant to the exercise of such options or rights
and any filing of a registration statement under the Securities Act with respect
to any of the foregoing permitted issuances or grants.
70
<PAGE> 96
The Representatives of the U.S. Underwriters, on behalf of the U.S.
Underwriters, may engage in over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Regulation M under the
Securities Act of 1934 (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of Class A Common Stock in the open market after
the distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when Class A Common Stock originally sold by such syndicate
member is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of Class A Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on The New York Stock Exchange or otherwise and, if commenced, may
be discontinued at any time.
The U.S. Underwriters have reserved up to 280,000 shares of Class A Common
Stock offered in the U.S. Offering for sale to certain directors, officers and
employees of the Company and its affiliates, business affiliates and related
persons who have expressed an interest in purchasing such reserved shares at the
initial public offering price. The number of shares available to the general
public will be reduced to the extent such employees purchase reserved shares.
Any reserved shares that are not so purchased by such employees will be offered
by the U.S. Underwriters to the general public on the same terms as the other
shares offered hereby.
The Company has agreed to indemnify the Managers and the U.S. Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the Managers and the U.S. Underwriters
may be required to make in respect thereof.
71
<PAGE> 97
LEGAL MATTERS
The validity of the Class A Common Stock offered in the Offerings will be
passed upon for the Company by Latham & Watkins, New York, New York. Roger H.
Kimmel, a director of the Company, is a partner of Latham & Watkins. Certain
legal matters in connection with the Offerings will be passed upon for the U.S.
Underwriters and Managers by Irell & Manella LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Weider Nutrition International,
Inc. at May 31, 1995 and 1996 and for the years ended May 31, 1994, 1995 and
1996 appearing in this Prospectus and the Registration Statement of which this
Prospectus is a part have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form S-1 (together with all amendments,
exhibits and schedules thereto, the "Registration Statement") relating to the
Class A Common Stock offered by the Company has been filed with the Securities
and Exchange Commission (the "Commission"), Washington, D.C. 20549. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
Statements contained in this Prospectus as to the content of any contract or any
other document referred to herein are not necessarily complete and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected at the public reference room maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at is regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. In addition, certain information on file with the Commission can be
accessed via the Commission's Internet home page at http://www.sec.gov/. Copies
of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
72
<PAGE> 98
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
In this Prospectus, references to "dollars" and "$" are to United States
dollars.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE CLASS A COMMON STOCK IN
THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT OF
1986 AND THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 WITH RESPECT TO
ANYTHING DONE BY ANY PERSON IN RELATION TO THE CLASS A COMMON STOCK, IN, FROM OR
OTHERWISE INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "SUBSCRIPTION
AND SALE."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "SUBSCRIPTION AND SALE."
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
The Company........................... 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 45
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders................ 57
Certain Relationships and Related
Party Transactions.................. 58
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 65
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 66
Subscription and Sale................. 69
Legal Matters......................... 72
Experts............................... 72
Available Information................. 72
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Class A Common Stock being registered. All amounts are
estimates except the registration and filing fees:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
-------------------------------------------------------------------------- ---------
<S> <C>
Securities and Exchange Commission registration fee....................... $ 36,642
NASD filing fee........................................................... 11,126
Printing and engraving expenses........................................... 320,000
Legal fees and expenses................................................... 750,000
Accounting fees and expenses.............................................. 250,000
Blue Sky fees and expenses................................................ *
Transfer Agent and Registrar fees......................................... 15,000
Listing fees.............................................................. *
Miscellaneous expenses.................................................... *
--------
Total........................................................... $
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide for indemnification of
personal liability of the directors of the Company to the fullest extent
permitted by the General Corporation Law of the State of Delaware (the "DGCL").
Article VIII of the Bylaws of the Company provides for indemnification of
officers and directors to the fullest extent permitted under the DGCL. The
Company may, in the discretion of the Board of Directors, indemnify its
employees and agents.
The indemnification therein provided shall not affect any of the rights of
those seeking indemnification which they may be entitled to under bylaw,
resolutions or otherwise. The Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee of the
Company against liability asserted against him and incurred in or arising out of
any such capacity, whether or not the Company would have the power to indemnify
him against liability under the provisions of this section provided the same is
consistent with Delaware law. The right of any person to be indemnified shall be
subject to the right of the Company, in lieu of such indemnity, to settle any
claim, action, suit or proceeding at the expense of the Company by the payment
of the amount of settlement and the costs and expenses incurred in connection
therewith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by the
Company without registration under the Securities Act of 1933, as amended (the
"Securities Act"). All transactions described below have been adjusted to
reflect the exchange of each outstanding share of capital stock of Weider
Nutrition Group for a share of Common Stock of the Company and the 14,371.3
Stock split of the Common Stock:
1. Pursuant to a Shareholders Agreement No. 1, effective June 1, 1994,
by and between Weider and Hornchurch, Hornchurch purchased, among other
things, 858,735 shares of Common Stock (or a 5.0% interest in the
outstanding Common Stock of Weider Nutrition Group) and pursuant to a
Shareholders Agreement No. 2, effective June 1, 1994, by and between Weider
and Hornchurch, Hornchurch purchased, among other things, 1,717,971 shares
of Common Stock (or a 10% interest in the outstanding Common Stock of
Weider Nutrition Group). The aggregate purchase price for the Common Stock
purchased by Hornchurch was approximately $4,845,105. Such stockholder's
shares in Weider Nutrition Group were
II-1
<PAGE> 100
exchanged for Class A Common Stock of Weider Nutrition International, Inc.
pursuant to the exchange agreement, effective February 15, 1997, between
such stockholders and Weider Nutrition International, Inc.
2. Pursuant to a Shareholders Agreement, effective June 1, 1994, by
and between Weider and Bayonne Settlement, Bayonne Settlement purchased,
among other things, 171,737 shares of Common Stock (or a 1.0% interest in
the outstanding Common Stock of Weider Nutrition Group). The aggregate
purchase price for the Common Stock purchased by Bayonne Settlement was
$349,332. Such stockholder's shares in Weider Nutrition Group were
exchanged for Class A Common Stock of Weider Nutrition International, Inc.
pursuant to the exchange agreement, effective February 15, 1997, between
such stockholders and Weider Nutrition International, Inc.
3. Pursuant to a Shareholders Agreement, effective June 1, 1994, by
and between Weider and Ronald Corey, Mr. Corey purchased, among other
things, 57,197 shares of Common Stock (or a 0.33% interest in the
outstanding Common Stock of Weider Nutrition Group). The aggregate purchase
price for the Common Stock purchased by Mr. Corey was $116,444. Such
stockholder's shares in Weider Nutrition Group were exchanged for Class A
Common Stock of Weider Nutrition International, Inc. pursuant to the
exchange agreement, effective February 15, 1997, between such stockholders
and Weider Nutrition International, Inc.
The shares of Common Stock of Weider Nutrition Group and the shares of
Class A Common Stock of Weider Nutrition International, Inc. described in the
transactions listed above were issued without registration under the Securities
Act in reliance upon the exemption provided for by Section 3(a)(9) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Subscription Agreement.
1.3 Form of Intersyndicate Agreement between U.S. Underwriters and Managers.
1.4 Form of Agreement Among Managers.
3.1 Amended and Restated Certificate of Incorporation of Weider Nutrition International,
Inc.*
3.2 Amended and Restated Bylaws of Weider Nutrition International, Inc.*
4.1 Form of Class A Common Stock Certificate.*
5.1 Form of Opinion of Latham & Watkins as to the validity of the Common Stock.
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI Development Services
Incorporated and Weider Nutrition Group, Inc.*
10.2 Agreement by and between Joseph Weider and Weider Health and Fitness.*
10.3 1997 Equity Participation Plan of Weider Nutrition International, Inc.*
10.4 Form of Tax Sharing Agreement by and among Weider Nutrition International, Inc., and
its subsidiaries and Weider Health and Fitness and its subsidiaries.*
10.5 Form of Employment Agreement between Weider Nutrition International, Inc. and Richard
B. Bizzarro.**
10.6 Form of Employment Agreement between Weider Nutrition International, Inc. and Robert
K. Reynolds.**
10.7 Form of Senior Executive Employment Agreement between Weider Nutrition International,
Inc. and certain senior executives of the Company.*
10.8 Advertising Agreement between Weider Nutrition International, Inc. and Weider
Publications, Inc.*
</TABLE>
II-2
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ------- -------------------------------------------------------------------------------------
<C> <S>
10.9 Amended and Restated Shareholders Agreement between Weider Health and Fitness and
Hornchurch Investments Limited.*
10.10 Amended and Restated Shareholders Agreement between Weider Health and Fitness,
Bayonne Settlement and Ronald Corey.*
10.11 Indemnification Agreement between Weider Nutrition Group, Inc. and Showa Denko
America.
10.12 License Agreement between Mariz Gestao E Investimentos Limitada and Weider Nutrition
Group Limited.*
11 Statement regarding computation of per share earnings.
21 Subsidiaries of Weider Nutrition International, Inc.*
23.1 Consent of Deloitte & Touche LLP.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)
24 Powers of Attorney, included on page II-5.*
27.1 Financial Data Schedule Summary
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts for the Years Ended May 31,
1994, 1995 and 1996.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the U.S.
Underwriters and Managers at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
required by the U.S. Underwriters and Managers to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the U.S.
Underwriters and Managers at the closing specified in the Underwriting Agreement
and Subscription Agreement certificates in such denominations and registered in
such names as required by the U.S. Underwriters and Managers to permit prompt
delivery to each purchaser.
II-3
<PAGE> 102
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed by the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Salt Lake, State of Utah,
on April 2, 1997.
Weider Nutrition International, Inc.
By: /s/ RICHARD B. BIZZARO
----------------------------------
Richard B. Bizzaro
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ -------------------------------- ---------------
<C> <S> <C>
* Chairman of the Board and April 2, 1997
- ------------------------------------------ Director
Eric Weider
/s/ RICHARD B. BIZZARO Chief Executive Officer, April 2, 1997
- ------------------------------------------ President and Director
Richard B. Bizzaro (Principal Executive Officer)
/s/ ROBERT K. REYNOLDS Chief Operating Officer, April 2, 1997
- ------------------------------------------ Executive Vice President and
Robert K. Reynolds Director (Principal Financial
and Accounting Officer)
* Director April 2, 1997
- ------------------------------------------
Ronald L. Corey
* Director April 2, 1997
- ------------------------------------------
Roger H. Kimmel
* Director April 2, 1997
- ------------------------------------------
George F. Lengvari
*By: /s/ ROBERT K. REYNOLDS
- ------------------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE> 104
SCHEDULE II
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- --------------------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1994................................... $ 13,316 $ 100,802 $ (64,118)(1) $ 50,000
---------- ---------- ----------- ----------
1995................................... $ 50,000 $ 107,976 $ (7,976)(1) $ 150,000
---------- ---------- ----------- ----------
1996................................... $ 150,000 $ 98,300 $ (111,366)(1) $ 136,934
---------- ---------- ----------- ----------
ALLOWANCE FOR SALES RETURNS:
1994................................... $ 15,347 $ 319,689 $ (18,576)(1) $ 316,460
---------- ---------- ----------- ----------
1995................................... $ 316,460 $ 478,539 $ (40,999)(1) $ 754,000
---------- ---------- ----------- ----------
1996................................... $ 754,000 $ 522,076 $ (57,853)(1) $ 1,218,223
---------- ---------- ----------- ----------
INVENTORY RESERVE:
1994................................... $ 69,939 $ 354,693 $ (424,632) $ 0
---------- ---------- ----------- ----------
1995................................... $ 0 $1,440,398 $ (390,397) $ 1,050,001
---------- ---------- ----------- ----------
1996................................... $1,050,001 $2,043,804 $(1,885,703) $ 1,208,102
---------- ---------- ----------- ----------
</TABLE>
- ---------------
(1) Amount represents amount written off against the reserve.
S-1
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.......................................
1.2 Form of Subscription Agreement.......................................
1.3 Form of Intersyndicate Agreement between U.S. Underwriters and
Managers.............................................................
1.4 Form of Agreement Among Managers.....................................
3.1 Amended and Restated Certificate of Incorporation of Weider Nutrition
International, Inc.*.................................................
3.2 Amended and Restated Bylaws of Weider Nutrition International,
Inc.*................................................................
4.1 Form of Class A Common Stock Certificate*............................
5.1 Form of Opinion of Latham & Watkins as to the validity of the Common
Stock................................................................
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI
Development Services Incorporated and Weider Nutrition Group,
Inc.*................................................................
10.2 Agreement by and between Joseph Weider and Weider Health and
Fitness*.............................................................
10.3 1997 Equity Participation Plan of Weider Nutrition International,
Inc*.................................................................
10.4 Form of Tax Sharing Agreement by and among Weider Nutrition
International, Inc., and its subsidiaries and Weider Health and
Fitness and its subsidiaries*........................................
10.5 Form of Employment Agreement between Weider Nutrition International,
Inc. and Richard B. Bizzarro**.......................................
10.6 Form of Employment Agreement between Weider Nutrition International,
Inc. and Robert K. Reynolds**........................................
10.7 Form of Senior Executive Employment Agreement between Weider
Nutrition International, Inc. and certain senior executives of the
Company*.............................................................
10.8 Advertising Agreement between Weider Nutrition International, Inc.
and Weider Publications, Inc.*.......................................
10.9 Amended and Restated Shareholders Agreement between Weider Health and
Fitness and Hornchurch Investments Limited*..........................
10.10 Amended and Restated Shareholders Agreement between Weider Health and
Fitness, Bayonne Settlement and Ronald Corey*........................
10.11 Indemnification Agreement between Weider Nutrition Group, Inc. and
Showa Denko America..................................................
10.12 License Agreement between Mariz Gestao E Investimentos Limitada and
Weider Nutrition Group Limited*......................................
11 Statement regarding computation of per share earnings................
21 Subsidiaries of Weider Nutrition International, Inc.*................
23.1 Consent of Deloitte & Touche LLP.....................................
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)................
24 Powers of Attorney, included on page II-5*...........................
27.1 Financial Data Schedule Summary......................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
5,600,000 SHARES
WEIDER NUTRITION INTERNATIONAL, INC.
Class A Common Stock
UNDERWRITING AGREEMENT
April __, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
11 Madison Avenue
New York, N.Y. 10010
Dear Sirs:
1. Introductory. Weider Nutrition International, Inc., a Delaware
corporation ("Company"), proposes to issue and sell ("U.S. Offering") to the
several Underwriters named in Schedule A hereto (the "Underwriters") 4,480,000
shares ("U.S. Firm Securities") of its Class A Common Stock ("Securities").
Credit Suisse First Boston Corporation ("CSFBC"), Salomon Brothers Inc, Adams,
Harkness & Hill, Inc. and Hambrecht & Quist LLC (the "Representatives") shall
act as representatives of the several Underwriters in the U.S. Offering.
It is understood that the Company is concurrently entering into a
Subscription Agreement, dated the date hereof ("Subscription Agreement"), with
Credit Suisse First Boston (Europe) Limited ("CSFBL") and the other managers
named therein ("Managers") relating to the concurrent offering and sale of
1,120,000 shares of Securities ("International Firm Securities") outside the
United States and Canada ("International Offering" and, together with the U.S.
Offering, the "Offerings").
In addition, as set forth below the Company proposes to issue and sell
(i) to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 672,000 additional shares of Securities ("U.S. Optional Securities")
and (ii) to the Managers, at the option of the Managers, an aggregate of not
more than 168,000 additional shares of Securities ("International Optional
Securities"). The U.S. Firm Securities and the U.S. Optional Securities are
hereinafter called the "U.S. Securities"; the International Firm Securities and
the International Optional Securities are hereinafter called the "International
Securities"; the U.S. Firm Securities and the International Firm Securities are
hereinafter called the "Firm Securities"; the U.S. Optional Securities and the
International Optional Securities are hereinafter called the "Optional
Securities". The U.S. Securities and the International Securities are
collectively referred to as the "Offered Securities". To provide for the
coordination of their activities, the Underwriters and the Managers have
entered into an Agreement Between U.S. Underwriters and Managers which permits
them, among other things, to sell the Offered Securities to each other for
purposes of resale.
The Company hereby agrees with the several Underwriters as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
<PAGE> 2
(a) A registration statement (No. 333-12929) relating to the
Offered Securities, including a form of prospectus relating to the
U.S. Securities and a form of prospectus relating to the International
Securities being offered in the International Offering, has been filed
with the Securities and Exchange Commission ("Commission") and either
(i) has been declared effective under the Securities Act of 1933
("Act") and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement (the "initial registration statement") has been declared
effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and, if so
filed, will become effective upon filing pursuant to such Rule and
upon such filing the Offered Securities will all have been duly
registered under the Act pursuant to the initial registration
statement and, if applicable, such additional registration statement.
If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed
and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of
this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration
statement, Rule 462(b). For purposes of this Agreement, "Effective
Time" with respect to the initial registration statement or, if filed
prior to the execution and delivery of this Agreement, the additional
registration statement means (i) if the Company has advised the
Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and
time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all information
contained in the additional registration statement (if any) and deemed
to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the U.S. Securities and
the form of prospectus relating to the International Securities, each
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in the Registration Statement, are hereinafter
referred
-2-
<PAGE> 3
to as the "U.S. Prospectus" and the "International Prospectus",
respectively, and collectively as the "Prospectuses". No document has
been or will be prepared or distributed in reliance on Rule 434 under
the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(i) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the
requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of each of the Prospectuses
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and none of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and each of the
Prospectuses will conform in all material respects to the requirements
of the Act and the Rules and Regulations, none of such documents will
include any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do
not apply to statements in or omissions from a Registration Statement
or either of the Prospectuses based upon written information furnished
to the Company by any Underwriter through the Representatives or by
any Manager through CSFBL specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b).
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except for such failures to be so qualified or in good
standing which, either individually or in the aggregate, could not
reasonably be expected to result in a material adverse effect on the
business, properties, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectuses; and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except for
such failures to be so qualified or in good standing which, either
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect; all of the issued and outstanding
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<PAGE> 4
capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable; and
the capital stock of each subsidiary owned by the Company, directly or
through subsidiaries, is owned free from liens, encumbrances and
defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the
Offered Securities have been delivered and paid for in accordance with
this Agreement and the Subscription Agreement on each Closing Date (as
defined below), such Offered Securities will have been, validly
issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectuses; and
the stockholders of the Company have no preemptive rights with respect
to the Securities.
(f) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter or Manager for a brokerage commission, finder's fee or
other like payment in connection with the sale of the Offered
Securities.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to a Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on
the New York Stock Exchange subject only to official notice of
issuance.
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
to be made or obtained by the Company for the consummation of the
transactions contemplated by this Agreement or the Subscription
Agreement in connection with the issuance and sale of the Offered
Securities by the Company, except such as have been obtained and made
under the Act and such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement
and the Subscription Agreement, and the issuance and sale of the
Offered Securities will not (i) conflict with, or result in a breach
or violation of any of the terms and provisions of, any statute, any
rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company or
any subsidiary of the Company or any of their properties (except for
such violations, breaches or conflicts which, either individually or
in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect, and except as rights to indemnity and
contribution may be limited by federal or state securities laws or by
the policies underlying such laws), or (ii) result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any agreement or instrument to which the Company or any
such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject (except for such violations,
breaches or defaults which, either individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect), or (iii) conflict with, or result in a breach or violation of
any of the terms and provisions of, the charter or by-laws of the
Company or any such subsidiary; and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement and the Subscription Agreement,
respectively.
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<PAGE> 5
(k) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company and constitute
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally; (ii) that the remedies of specific
performance and injunctive and other forms of relief are subject to
general equitable principles, whether enforcement is sought at law or
in equity, and that such enforcement may be subject to the discretion
of the court before which any proceedings therefor may be brought; and
(iii) as rights to indemnity and contribution may be limited by state
or federal laws relating to securities or by the policies underlying
such laws.
(l) Except as disclosed in the Prospectuses, the Company and
its subsidiaries have good and marketable title to all real properties
and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by them (except for such properties and assets the loss of
which, either individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect); and except as
disclosed in the Prospectuses, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use
made or to be made thereof by them (except for such leased real or
personal property the loss of which, either individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Effect).
(m) The Company and its subsidiaries possess adequate
certificates, authoritizations or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them (except for such certificates, authorizations or
permits the lack of which, either individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect) and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization
or permit that, if determined adversely to the Company or any of its
subsidiaries, could, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent
which could, either by itself or together with other such disputes,
reasonably be expected to result in a Material Adverse Effect.
(o) Except as disclosed in the Prospectuses, the Company and
its subsidiaries own, possess or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them; and, except as disclosed in the Prospectuses, have
not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights
that, if determined adversely to the Company or any of its
subsidiaries, could, either individually or together with other such
matters, reasonably be expected to result in a Material Adverse
Effect.
(p) Except as disclosed in the Prospectuses, neither the
Company nor any of its subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, except for
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<PAGE> 6
such violations, liabilities or claims which, either individually or
in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectuses, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its
subsidiaries, either individually or in the aggregate, (i) could
reasonably be expected to result in a Material Adverse Effect, or (ii)
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement or the Subscription
Agreement, or (iii) which are otherwise material in the context of the
sale of the Offered Securities; and, to the Company's knowledge, no
such actions, suits or proceedings are threatened or contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position
of the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with
the generally accepted accounting principles in the United States
applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be
stated therein; and the assumptions used in preparing the pro forma
financial information included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding
historical financial statement amounts.
(s) Except as disclosed in the Prospectuses, since the date of
the latest audited financial statements included in the Prospectuses
there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Prospectuses, there has
been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes and the Company agrees to comply with such Section if prior
to the completion of the distribution of the Offered Securities it
commences doing such business.
3. Purchase, Sale and Delivery of Offered Securities. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to
purchase from the Company, at a purchase price of U.S. $ per share, the
respective numbers of shares of U.S. Firm Securities set forth opposite the
names of the Underwriters in Schedule A hereto.
The Company will deliver the U.S. Firm Securities to the
Representatives for the accounts of the Underwriters, against payment of the
purchase price by same day wire or intrabank transfer of immediately available
funds at a bank acceptable to CSFBC, at the office of Latham & Watkins, 885
Third Avenue, Suite 1000, New York, New York 10022, at 10:00 A.M., New York
time, on
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<PAGE> 7
__________________, or at such other time not later than five full business
days thereafter as CSFBC and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold
pursuant to the Offerings. The certificates for the U.S. Firm Securities so to
be delivered will be in definitive form, in such denominations and registered
in such names as CSFBC requests and will be made available for checking and
packaging at the above office of Latham & Watkins, 885 Third Avenue, Suite
1000, New York, New York 10022, at least 24 hours prior to the First Closing
Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectuses,
the Underwriters may purchase all or less than all of the U.S. Optional
Securities at the purchase price per Security to be paid for the U.S. Firm
Securities. Any such notice of election to purchase U.S. Optional Securities
shall be given by CSFBC on behalf of the Underwriters and such shall specify
(i) the aggregate number of U.S. Optional Securities to be purchased pursuant
to such exercise, and (ii) the date for payment and delivery thereof, which
shall be a business day no earlier than the First Closing Date. The U.S.
Optional Securities to be purchased by the Underwriters on any Optional Closing
Date shall be in the same proportion to all the Optional Securities to be
purchased by the Underwriters and the Managers on such Optional Closing Date as
the U.S. Firm Securities bear to all the Firm Securities. The Company agrees to
sell to the Underwriters such U.S. Optional Securities and the Underwriters
agree, severally and not jointly, to purchase such U.S. Optional Securities.
Such U.S. Optional Securities shall be purchased for the account of each
Underwriter in the same proportion as the number of shares of U.S. Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of U.S. Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over- allotments made in connection with the sale of the U.S. Firm
Securities. No Optional Securities shall be sold or delivered unless the U.S.
Firm Securities and the International Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC on behalf of Underwriters and the Managers to the Company.
It is understood that CSFBC is authorized to make payment for and accept
delivery of such Optional Securities on behalf of the Underwriters and Managers
pursuant to the terms of CSFBC's instructions to the Company.
Each time for the delivery of and payment for the U.S. Optional
Securities being herein referred to as an "Optional Closing Date", which may be
the First Closing Date (the First Closing Date and each Optional Closing Date,
if any, being sometimes referred to as a "Closing Date"), shall be determined
by CSFBC but shall be not later than three full business days after written
notice of election to purchase Optional Securities is given. The Company will
deliver the U.S. Optional Securities being purchased on each Optional Closing
Date to the Representatives for the accounts of the several Underwriters,
against payment of the purchase price therefor by same day wire or intrabank
transfer of immediately available funds at a bank acceptable to CSFBC, at the
above office of Latham & Watkins. The certificates for the U.S. Optional
Securities will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Latham & Watkins, at a reasonable time in advance of such Optional
Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
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<PAGE> 8
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file each of the Prospectuses with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable
and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not
later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business
day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a
portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission
pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on
or prior to the time either Prospectus is printed and distributed to
any Underwriter or Manager, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or either of the related prospectuses or the
Initial Registration Statement, the Additional Registration Statement
(if any) or either of the Prospectuses, and will not effect such
amendment or supplementation without CSFBC's prior consent (which
consent shall not be withheld unreasonably); and the Company will also
advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or either of the Prospectuses and of the
institution by the Commission of any stop order proceedings in respect
of a Registration Statement and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any Underwriter, Manager or dealer, any event occurs as
a result of which either or both of the Prospectuses as then amended
or supplemented would include an untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend either or
both of the Prospectuses to comply with the Act, the Company will
promptly notify CSFBC of such event and will promptly prepare and file
with the Commission, at its own expense, an amendment or supplement
which will correct such statement or omission or an amendment which
will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the
end of the fourth fiscal quarter following the fiscal quarter that
includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Representatives such
number of copies of the Registration Statement and each amendment
thereto as CSFBC reasonably requests (at least four of which will be
signed and will include all exhibits), each preliminary prospectus
relating to
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<PAGE> 9
the U.S. Securities, and, so long as a prospectus relating to the
Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the U.S.
Prospectus and all amendments and supplements to such documents, in
each case in such quantities as CSFBC reasonably requests. The U.S.
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other such documents shall be so furnished
as soon as available. Without limiting the generality of clause (h)
below, the Company expressly agrees to pay the expenses of printing
and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions in
the United States as CSFBC designates and will continue such
qualifications in effect so long as required for the distribution,
except that in connection with such qualifications the foregoing shall
not obligate the Company to qualify as a foreign corporation or to
execute a general consent for service of process in any such
jurisdiction.
(g) During the period of 6 years hereafter, (i) the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such
year, and (ii) the Company will furnish to the Representatives, as
soon as available, a copy of each report and any definitive proxy
statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders. As soon as
practicable following the request therefor, the Company will furnish
the Representatives with such other information concerning the Company
as CSFBC may reasonably request from time to time at any time during
the period of 3 years hereafter.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement and will reimburse
the Underwriters (if and to the extent incurred by them) for: (i) any
filing fees and other expenses (including fees and disbursements of
counsel) incurred by them in connection with (A) qualification of the
Offered Securities for sale under the state or local securities laws
(so-called "blue sky" laws) of such states, districts, commonwealths
or territories of the United States as CSFBC designates, (B)
qualification of the Offered Securities for sale under the laws of
such jurisdictions in Canada, Japan and countries in the European
Economic Community as CSFBC designates, (C) the preparation and
printing of memoranda relating to the foregoing qualifications, and
(D) the filings with and any required review by the National
Association of Securities Dealers, Inc. relating to the Offered
Securities or the Offerings; (ii) any travel expenses of the Company's
officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective
purchasers of the Offered Securities; and (iii) expenses incurred in
distributing preliminary prospectuses and the Prospectuses (including
any amendments and supplements thereto) to the Underwriters. It is
understood that, except as provided in this Section 5 or in Sections 7
or 9 of this Agreement, (x) the Underwriters shall pay all of their
own costs and expenses, including fees and disbursements of their
legal counsel, stock transfer taxes on resale of any of the Securities
owned by them, and any advertising expenses in connection with any
offers they make, and (y) each of the Company and the Underwriters
will bear their own costs in connection with any selling efforts made
in connection with the Offerings.
(i) For a period of 180 days after the date hereof, the
Company will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any additional
shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CSFBC, except
(x) grants of employee stock options pursuant to the terms of a plan
in effect on the date hereof, issuances of Securities pursuant to
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<PAGE> 10
the exercise of such options or the exercise of any other employee
stock options outstanding on the date hereof, and (y) the filing of a
registration statement under the Act with respect to any of the
issuances or grants permitted by the foregoing clause (x).
6. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the U.S. Firm
Securities on the First Closing Date and the U.S. Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Representatives shall have received a comfort letter,
dated the date of delivery thereof (which, if the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche LLP
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the consolidated financial
statements (including the summary of earnings) and financial
statement schedules audited by them and included in the
Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in
clause (ii) above, a reading of the latest available interim
financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) the unaudited consolidated financial
statements included in the Registration Statements do
not comply as to form in all material respects with
the applicable accounting requirements of the Act and
the related published Rules and Regulations or any
material modifications should be made to such
unaudited consolidated financial statements for them
to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet
read by such accountants, there was any decrease in
consolidated net current assets or stockholders'
equity, as compared with amounts shown on the latest
balance sheet included in the Prospectuses; or
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<PAGE> 11
(C) for the period from the closing date of
the latest income statement included in the
Prospectuses to the closing date of the latest
available income statement read by such accountants
there were any decreases, as compared with the
corresponding period of the previous year and with
the period of corresponding length ended the date of
the latest income statement included in the
Prospectuses, in consolidated net sales, net
operating income or in the total or per share amounts
of consolidated, net income;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses
disclose have occurred or may occur or which are described in
such letter;
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter; and
(v) without limiting the generality of subclause
(iv) above, with respect to the unaudited pro forma financial
information included in the Registration Statements (the "pro
forma financial information"), they have carried out certain
specified procedures, made inquiries of certain officials of
the Company who have responsibility for financial and
accounting matters and proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma financial information, nothing came
to their attention which caused them to believe that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of such information.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectuses" shall mean the
prospectuses included in the Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Underwriter or Manager, or shall have occurred
at such later date as shall have been consented to by CSFBC. If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, each of the Prospectuses
shall have been filed with the Commission in accordance
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<PAGE> 12
with the Rules and Regulations and Section 5(a) of this Agreement.
Prior to such Closing Date, no stop order suspending the effectiveness
of a Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or, to the knowledge of
the Company or the Representatives, shall be contemplated by the
Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is
material and adverse and makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and
payment for the U.S. Securities; (ii) any downgrading in the rating of
any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule
436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or any
suspension of trading of any securities of the Company on any exchange
or in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal or New York authorities; or (v) any outbreak
or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of
a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the U.S. Securities.
(d) The Representatives shall have received the following
legal opinions, each dated such Closing Date:
(i) the opinion of Latham & Watkins, counsel for the
Company, subject to qualifications and exceptions customary to
such opinions, to the effect that:
(A) The Company has been duly incorporated
and is an existing corporation in good standing under
the laws of Delaware, with corporate power and
authority to own its properties and conduct its
business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign
corporation in good standing in all other
jurisdictions in which its ownership or lease
property or the conduct of its business requires such
qualification (except for such failures to be so
qualified or in good standing which, either
individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect) (it being understood that (1) to the
extent the foregoing opinion involves matters of Utah
or Nevada law, it may be given by Van Cott, Bagley,
Cornwall & McCarthy as part of its opinion set forth
in Section 7(d)(ii) below, and (2) to the extent the
foregoing opinion involves matters of good standing
as a foreign corporation in any jurisdiction other
than New York, Latham & Watkins may rely solely upon
a contemporaneously-dated certificate of good
standing or qualification issued by the appropriate
office in such jurisdiction if such certificate is
included as an exhibit to the opinion of Latham &
Watkins);
(B) The Offered Securities delivered on such
Closing Date and all other shares of the Common Stock
of the Company described as outstanding in the
Prospectuses under the caption "Capitalization,"
including without
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<PAGE> 13
limitation the shares issued in the exchange of the
outstanding common stock of Weider Nutrition Group,
Inc. for Common Stock (the "Exchange") and the
14,371.2-to-1 stock split of the Common Stock (the
"Stock Split"), have been duly authorized and validly
issued, are fully paid and nonassessable and conform
in all material respects to the description thereof
contained in the Prospectuses; and the stockholders
of the Company have no preemptive rights with respect
to the Offered Securities under the Company's
articles of incorporation or bylaws, the General
Corporation Law of the State of Delaware or, to the
best of our knowledge, otherwise;
(C) No consent, approval, authorization or
order of, or filing with, any governmental agency or
body or any court is required to be obtained or made
by the Company for the consummation of the
transactions contemplated by this Agreement or the
Subscription Agreement in connection with the
issuance or sale of the Offered Securities by the
Company except such as have been obtained and made
under the Act and such as may be required under state
securities laws;
(D) The execution, delivery and performance
of this Agreement and the Subscription Agreement and
the issuance and sale of the Offered Securities will
not (1) result in a violation of any of the terms and
provisions of any United States federal, California,
Delaware or New York statute, rule, regulation or
order of any United States federal, California,
Delaware or New York governmental agency or body or
court having jurisdiction over the Company or any
subsidiary of the Company or any of their properties
and known to such counsel (except for such
violations, breaches or inconsistencies which, either
individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect), or (2) result in a breach or
violation of any of the terms and provisions of, or
constitute a default under (with the passage of time
or otherwise), any agreement or instrument included
as an exhibit to the Registration Statement (except
for such violations, breaches or defaults which,
either individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect), or (3) result in a violation of any
of the terms and provisions of, the charter or
by-laws of the Company; and the Company has full
power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement
and the Subscription Agreement, respectively;
(E) The Initial Registration Statement was
declared effective under the Act as of the date and
time specified in such opinion, the Additional
Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if
determinable) specified in such opinion, each of the
Prospectuses either were filed with the Commission
pursuant to the subparagraph of Rule 424(b) specified
in such opinion on the date specified therein or were
included in the Initial Registration Statement or the
Additional Registration Statement (as the case may
be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness
of a Registration Statement or any part thereof has
been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under
the Act;
(F) The Registration Statement and each of
the Prospectuses, and each amendment or supplement
thereto, as of their respective effective or issue
dates, complied as to form in all material respects
with the requirements of the Act and the Rules and
Regulations (assuming for the purposes of the opinion
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<PAGE> 14
described in this subclause (F) that the information
contained in the Registration Statement and each of
the Prospectuses is accurate and complete);
(G) Such counsel have participated in
conferences with officers and other representatives
of the Company, representatives of the independent
public accountants for the Company, and
representatives of the Underwriters, at which the
contents of the Registration Statement and the
Prospectuses and related matters were discussed and
(although, except as provided below in subclause (I)
of this Section 7(d)(i), such counsel are not passing
upon, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements
contained in the Registration Statement and the
Prospectuses and have not made any independent check
or verification thereof), during the course of such
participation (relying as to materiality to the
extent such counsel deems appropriate upon the
statements of officers and other representatives of
the Company), no facts came to such counsel's
attention that caused them to believe that the
Registration Statement, at the time it became
effective, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, or that either
of the Prospectuses, as of their respective dates,
contained an untrue statement of a material fact or
omitted to state a material fact necessary to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading; it being understood that such counsel
will express no belief with respect to the financial
statements, financial schedules and other financial
and statistical data included in the Registration
Statement or the Prospectuses; and
(H) This Agreement and the Subscription
Agreement have been duly authorized, executed and
delivered by the Company;
(I) The following statements set forth in
the Prospectuses
(1) the statements under the caption
"Description of Capital Stock," insofar as
they purport to constitute a summary of the
terms of the Offered Securities and the other
Company equity securities referred to
therein,
(2) the statements under the captions
"Risk Factors -- Control by Principal
Stockholder," "-- Anti-Takeover
Considerations" and "-- Shares Eligible for
Future Sale," "Description of Capital Stock
-- Limitation of Liability and
Indemnification Matters," "-- Section 203 of
the Delaware General Corporation Law," and
"-- Section 228 of the Delaware General
Corporation Law" and "Shares Eligible for
Future Sale," insofar as they purport to
describe the provisions of the laws,
agreements and other documents referred to
therein,
(3) the statements under the captions
"Capitalization" and "Description of Capital
Stock," insofar as they purport to describe
the authorized equity capitalization of the
Company, and
(4) the statements under the captions
"Management -- Equity Plan," "-- Employee
Profit Sharing Bonus Plan," "-- Employee
Benefit Plans," "-- Employment Agreements"
and "-- Retirement Benefits," "Certain
Relationships and Related Party Transactions
-- Tax Sharing and Indemnification
Agreement," insofar as they purport
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<PAGE> 15
to describe the provisions of the laws,
agreements and other documents referred to
therein,
are accurate and complete in all respects; and such
counsel does not know of any contracts or documents
of a character required to be described in the
Registration Statement or the Prospectuses or to be
filed as exhibits to the Registration Statement which
are not described and filed as required;
(ii) the opinion of Van Cott, Bagley, Cornwall &
McCarthy ("VBC&M"), Utah counsel for the Company, subject to
qualifications and exceptions customary to such opinions, to
the effect that:
(A) Each subsidiary of the Company
incorporated or organized under the laws of Utah or
Nevada (collectively, the "Utah and Nevada
Subsidiaries") has been duly incorporated or
organized and is an existing corporation or other
entity in good standing under the laws of its state
of incorporation or organization, with corporate or
organizational power and authority to own its
properties and conduct its business as described in
the Prospectuses; and each Utah and Nevada Subsidiary
is duly qualified to do business as a foreign
corporation or entity in good standing in all other
jurisdictions in which its ownership or lease
property or the conduct of its business requires such
qualification (except for such failures to be so
qualified or in good standing which, either
individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect) (it being understood that (1) to the
extent the foregoing opinion involves matters of good
standing as a foreign corporation in any
jurisdiction, VBC&M may rely solely upon a
contemporaneously-dated certificate of good standing
or qualification issued by the appropriate office in
such jurisdiction if such certificate is included as
an exhibit to the opinion of VBC&M);
(B) The execution, delivery and performance
of this Agreement and the Subscription Agreement and
the issuance and sale of the Offered Securities will
not (1) result in a violation of any of the terms and
provisions of any Utah or Nevada statute, rule,
regulation or order of any Utah or Nevada
governmental agency or body or court having
jurisdiction over the Company or any subsidiary of
the Company or any of their properties and known to
such counsel (except for such violations, breaches or
inconsistencies which, either individually or in the
aggregate, could not reasonably be expected to result
in a Material Adverse Effect), or (2) result in a
breach or violation of any of the terms and
provisions of, or constitute a default under (with
the passage of time or otherwise), any agreement or
instrument to which the Company or any such
subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is
subject (except for such violations, breaches or
defaults which, either individually or in the
aggregate, could not reasonably be expected to result
in a Material Adverse Effect), or (3) result in a
violation of any of the terms and provisions of, the
charter or by-laws of any of the Utah and Nevada
Subsidiaries; and
(C) To such counsel's knowledge, except as
disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting
the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely
to the Company or any of its subsidiaries, either
individually or in the aggregate, (1) could
reasonably be
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<PAGE> 16
expected to result in a Material Adverse Effect, or
(2) would materially and adversely affect the ability
of the Company to perform its obligations under this
Agreement or the Subscription Agreement, or (3) which
are otherwise material in the context of the sale of
the Offered Securities; and, to such counsel's
knowledge, no such actions, suits or proceedings are
threatened or contemplated; and
(iii) the opinion of Bernard Cartoon, general counsel
for the Company and Weider Health & Fitness, Inc. ("WHF"),
subject to qualifications and exceptions customary to such
opinions, to the effect that:
(A) Each of the Company's subsidiaries
excluding the Utah and Nevada Subsidiaries
(collectively, the "Foreign Subsidiaries") has been
duly organized and is an existing as an corporation
or other entity in good standing under the laws of
its jurisdiction of organization, with corporate or
organizational power and authority to own its
properties and conduct its business as described in
the Prospectuses; and each of the Foreign
Subsidiaries is duly qualified to do business as a
foreign corporation or entity in good standing in all
other jurisdictions in which its ownership or lease
property or the conduct of its business requires such
qualification (except for such failures to be so
qualified or in good standing which, either
individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect) (it being understood that the
foregoing opinion may be given in reliance upon the
contemporaneous opinion of local counsel in the
relevant jurisdiction or a contemporaneously-dated
certificate or comparable evidence of good standing
or qualification issued by the appropriate offices in
such jurisdiction, if such local counsel opinion,
certificate or comparable evidence is included as an
exhibit to the opinion of Bernard Cartoon);
(B) There are no contracts, agreements or
understandings known to such counsel between the
Company and any person granting such person the right
to require the Company to file a registration
statement under the Act with respect to any
securities of the Company owned or to be owned by
such person or to require the Company to include such
securities in the securities registered pursuant to
the Registration Statement or in any securities being
registered pursuant to any other registration
statement filed by the Company under the Act;
(C) The execution, delivery and performance
of this Agreement and the Subscription Agreement and
the issuance and sale of the Offered Securities will
not (1) result in a violation of any of the terms and
provisions of any statute, any rule, regulation or
order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any
of their properties and known to such counsel (except
for such violations, breaches or inconsistencies
which, either individually or in the aggregate, could
not reasonably be expected to result in a Material
Adverse Effect), or (2) result in a breach or
violation of any of the terms and provisions of, or
constitute a default under (with the passage of time
or otherwise), any agreement or instrument to which
the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or
to which any of the properties of the Company or any
such subsidiary is subject (except for such
violations, breaches or defaults which, either
individually or in the aggregate, could not
reasonably be expected to result in a Material
Adverse Effect), or (3) result in a violation of any
of the terms and
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<PAGE> 17
provisions of, the charter or by-laws of the Company
or any such subsidiary; and the Company has full power
and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement and the
Subscription Agreement, respectively;
(C) Such counsel serves as the general
counsel of the Company and WHF, has participated in
conferences with officers and other representatives
of the Company, representatives of the independent
public accountants for the Company, and
representatives of the Underwriters, at which the
contents of the Registration Statement and the
Prospectuses and related matters were discussed and,
during the course of such participation and service
as the general counsel of the Company and WHF
(relying as to materiality upon his own knowledge of
the Company and WHF as well as the statements of
officers and other representatives of the Company and
WHF), no facts came to such counsel's attention that
caused him to believe that the Registration
Statement, at the time it became effective, contained
an untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading, or that either of the Prospectuses, as of
their respective dates, contained an untrue statement
of a material fact or omitted to state a material
fact necessary to make the statements therein, in the
light of the circumstances under which they were
made, not misleading; it being understood that such
counsel will express no belief with respect to the
financial statements, financial schedules and other
financial and statistical data included in the
Registration Statement or the Prospectuses;
(D) To such counsel's knowledge, except as
disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting
the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely
to the Company or any of its subsidiaries, either
individually or in the aggregate, (1) could
reasonably be expected to result in a Material
Adverse Effect, or (2) would materially and adversely
affect the ability of the Company to perform its
obligations under this Agreement or the Subscription
Agreement, or (3) which are otherwise material in the
context of the sale of the Offered Securities; and,
to such counsel's knowledge, no such actions, suits
or proceedings are threatened or contemplated; and
(E) The following statements set forth in
the Prospectuses
(1) the statements under the captions
"Risk Factors -- Product Liability," "--
Government Regulation," "-- Recent Government
Action and Adverse Publicity Regarding
Products Containing Ephedrine" and "--
Intellectual Property Protection," and
"Business -- Regulation," "-- Trademarks and
Patents," and "-- Legal Matters," insofar as
they purport to describe the provisions of
the laws, lawsuits, other proceedings,
agreements and other documents referred to
therein,
(2) the statements under the caption
"Management's Discussion and Analysis --
Liquidity and Capital Resources," insofar as
they purport to describe the provisions of
the commitment of General Electric Capital
Corporation ("GECC") with respect to the
Company's New Credit Agreement and the
provisions of the Company's Existing Credit
Agreement with GECC,
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<PAGE> 18
(3) the statements under the captions
"Management -- Management Incentive
Agreements" and "Certain Relationships and
Related Party Transactions -- Management
Incentive Agreements," "-- Parent Note," "--
Advertising Agreement," "-- Certain
International Acquisitions and Royalty
Arrangements," "-- Transfer of Intellectual
Property," "-- Hornchurch Investments
Limited," "-- Kashenberg Severance Agreement"
and "-- Interest Expense Paid to Parent,"
insofar as they purport to describe the
provisions of the laws, agreements and other
documents referred to therein, and
(4) the statements under the captions
"Capitalization," insofar as they purport to
describe the Company's authorized and
outstanding equity capital, and "Principal
Stockholders," insofar as they purport to
describe the shares of Common Stock
beneficially owned by WHF, Hornchurch
Investments, Ltd., Bayonne Settlement and
Habib Settlement,
are accurate and complete in all respects; such
counsel does not know of any contracts or documents
of a character required to be described in the
Registration Statement or the Prospectuses or to be
filed as exhibits to the Registration Statement which
are not described and filed as required; and such
counsel does not know of any legal or governmental
proceedings of a character required to be described
in the Registration Statement or the Prospectuses
which are not described as required.
(e) The Representatives shall have received from Irell &
Manella LLP, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectuses and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate,
dated such Closing Date, of the President and the principal financial
or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state
that: (i) the representations and warranties of the Company in this
Agreement are true and correct; (ii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; (iii) no stop
order suspending the effectiveness of any Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are contemplated by the Commission; (iv) the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time either
Prospectus was printed and distributed to any Underwriter or Manager;
and (v) subsequent to the date of the most recent financial statements
in the Prospectuses, there has been no material adverse change, nor
any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a
whole except as set forth in or contemplated by the Prospectuses or as
described in such certificate.
(g) The Representatives shall have received a "bring down"
comfort letter, dated such Closing Date, of Deloitte & Touche LLP
which meets the requirements of subsection (a) of this Section, except
that the specified date referred to in such subsection will be a date
not more than three days prior to such Closing Date for the purposes
of this subsection.
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<PAGE> 19
(h) On such Closing Date, the Managers shall have purchased
the International Firm Securities or the International Optional
Securities, as the case may be, pursuant to the Subscription
Agreement.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters
hereunder, whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred (notwithstanding the possibility that payments for
such expenses may later be held to be improper); provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives specifically for
use therein (it being understood and agreed that the only information furnished
by any Underwriter consists of the information described as such in subsection
(b) below); and provided, further, that with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from any
preliminary prospectus, the indemnity agreement contained in this subsection
(a) shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the Offered
Securities concerned, to the extent that a prospectus relating to such Offered
Securities was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damage or liability of
such Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the U.S. Prospectus, if the Company had
previously furnished copies thereof to such Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Underwriter consists of
the following information in the U.S. Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Underwriters, the legend concerning
over-allotments, stabilizing and certain other transactions on the inside front
cover page, the concession and reallowance figures appearing in the fifth
paragraph under
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<PAGE> 20
the caption "Underwriting," the information on over-allotments, stabilizing and
certain other transactions contained in the tenth paragraph under the caption
"Underwriting" and the information on discretionary sales contained in the last
paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the U.S. Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the U.S.
Securities (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the U.S. Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
-20-
<PAGE> 21
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director of the Company, to each officer of the
Company who has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
(f) Any payments pursuant to this Section which are held to be
improper by a court of competent jurisdiction in a final judgment not subject
to further appeal shall be refunded promptly to the person making such payments
by the person receiving such payments.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase U.S. Securities hereunder on either
the First Closing Date or any Optional Closing Date and the aggregate number of
shares of U.S. Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10% of the total number of shares
of U.S. Securities that the Underwriters are obligated to purchase on such
Closing Date, CSFBC may make arrangements satisfactory to the Company for the
purchase of such U.S. Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date the
non- defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the U.S. Securities that
such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number
of shares of U.S. Securities with respect to which such default or defaults
occur exceeds 10% of the total number of shares of U.S. Securities that the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBC and the Company for the purchase of such U.S. Securities
by other persons are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter or the Company, except as provided in Section 9 (provided that if
such default occurs with respect to U.S. Optional Securities after the First
Closing Date, this Agreement will not terminate as to the U.S. Firm Securities
or any U.S. Optional Securities purchased prior to such termination). As used
in this Agreement, the term "Underwriter" includes any person substituted for
an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of any Underwriter, the Company or any of their
respective representatives, officers or directors or any controlling person,
and will survive delivery of and payment for the U.S. Securities. If this
Agreement is terminated pursuant to Section 8 or if for any reason the purchase
of the U.S. Securities by the Underwriters is not consummated, the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Underwriters pursuant to Section 7 shall remain in effect and if any U.S.
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the U.S. Securities by the Underwriters is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv), or (v) of Section 6(c), the Company will reimburse the Underwriters for
all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the U.S.
Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representatives, c/o Credit Suisse First Boston Corporation,
Park Avenue Plaza, New York, N.Y. 10055, Attention: Investment Banking
-21-
<PAGE> 22
Department -- Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 1960 South 4250 West,
Salt Lake City, Utah 84104, Attention: President; provided, however, that any
notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with the transactions contemplated by
this Agreement, and any action under this Agreement taken by the
Representatives jointly or by CSFBC will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-22-
<PAGE> 23
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of
the counterparts hereof, whereupon it will become a binding agreement between
the Company and the several Underwriters in accordance with its terms.
Very truly yours,
WEIDER NUTRITION INTERNATIONAL, INC.
By ------------------------------------
Richard B. Bizzaro
President and
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
Acting on behalf of themselves and as the Representatives of the
several Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
--------------------------------------------
[Name]
[Title]
For itself and on behalf of Representatives.
-23-
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF
-----------
U.S. FIRM SECURITIES
--------------------
<S> <C>
Credit Suisse First Boston Corporation . . . . . . . . . . . . . . . [$]
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . . . . [$]
Adams, Harkness & Hill, Inc. . . . . . . . . . . . . . . . . . . . . [$]
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . . . . [$]
-------------
Total . . . . . . . . . . . . . . . . . . . [$]
=============
</TABLE>
-24-
<PAGE> 1
EXHIBIT 1.2
5,600,000 SHARES
WEIDER NUTRITION INTERNATIONAL, INC.
CLASS A COMMON STOCK
SUBSCRIPTION AGREEMENT
London, England
April __, 1997
To: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
c/o: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED ("CSFBL")
One Cabot Square
London, England E14 4QJ
Dear Sirs:
1. Introductory. Weider Nutrition International, Inc., a Delaware
corporation ("Company"), proposes to issue and sell ("International Offering")
to the several Managers named in Schedule A hereto ("Managers") 1,120,000
shares ("International Firm Securities") of its Class A Common Stock
("Securities").
It is understood that the Company is concurrently entering into an
Underwriting Agreement, dated the date hereof ("Underwriting Agreement"), with
certain United States underwriters listed in Schedule A thereto (the "U.S.
Underwriters"), for whom Credit Suisse First Boston Corporation ("CSFBC"),
Salomon Brothers Inc, Adams, Harkness & Hill, Inc. and Hambrecht & Quist LLC
are acting as representatives (the "U.S. Representatives"), relating to the
concurrent offering and sale of 4,480,000 shares of Securities ("U.S. Firm
Securities") in the United States and Canada ("U.S. Offering" and, together
with the U.S. Offering, the "Offerings").
In addition, the Company proposes to issue and sell (i) to the U.S.
Underwriters, at the option of the U.S. Underwriters, an aggregate of not more
than 672,000 additional principal amount of Securities ("U.S. Optional
Securities"), and (ii) to the Managers, at the option of the Managers, an
aggregate of not more than 168,000 additional shares of Securities
("International Optional Securities"). The U.S. Firm Securities and the U.S.
Optional Securities are hereinafter called the "U.S. Securities"; the
International Firm Securities and the International Optional Securities are
hereinafter called the "International Securities"; the U.S. Firm Securities and
the International Firm Securities are hereinafter called the "Firm Securities";
the U.S. Optional Securities and the International Optional Securities are
hereinafter called the "Optional Securities". The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers which permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
The Company hereby agrees with the several Managers as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Managers that:
(a) A registration statement (No. 333-12929) relating to the
Offered Securities, including a form of prospectus relating to the
U.S. Securities and a form of prospectus relating to the International
Securities being offered in the International Offering, has been
<PAGE> 2
filed with the Securities and Exchange Commission ("Commission") and
either (i) has been declared effective under the Securities Act of 1933
("Act") and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement (the "initial registration statement") has been declared
effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered Securities
may have been filed with the Commission pursuant to Rule 462(b) ("Rule
462(b)") under the Act and, if so filed, has become effective upon
filing pursuant to such Rule and the Offered Securities all have been
duly registered under the Act pursuant to the initial registration
statement and, if applicable, the additional registration statement or
(B) such an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and, if so filed, will
become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, such
additional registration statement. If the Company does not propose to
amend the initial registration statement or, if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment (if
any) to each such registration statement has been declared effective by
the Commission or has become effective upon filing pursuant to Rule
462(c) ("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
CSFBL that it does not propose to amend such registration statement,
the date and time as of which such registration statement, or the most
recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c),
or (ii) if the Company has advised CSFBL that it proposes to file an
amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of
this Agreement but the Company has advised CSFBL that it proposes to
file one, "Effective Time" with respect to such additional registration
statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or
the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended
at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of
the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if any)
deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act,
is hereinafter referred to as the "Initial Registration Statement". The
additional registration statement, as amended at its Effective Time,
including the contents of the initial registration statement
incorporated by reference therein and including all information (if
any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to
as the "Additional Registration Statement". The Initial Registration
Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and
individually as a "Registration Statement". The form of prospectus
relating to the U.S. Securities and the form of prospectus relating to
the International Securities, each as first filed with the Commission
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under
the Act or (if no such filing is required)
-2-
<PAGE> 3
as included in the Registration Statement, are hereinafter referred to
as the "U.S. Prospectus" and the "International Prospectus",
respectively, and collectively as the "Prospectuses". No document has
been or will be prepared or distributed in reliance on Rule 434 under
the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(i) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the
requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of each of the Prospectuses
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and none of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and will conform in all
material respects to the requirements of the Act and the Rules and
Regulations, none of such documents will include any untrue statement
of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or either of the Prospectuses
based upon written information furnished to the Company by any Manager
through CSFBL or by any U.S. Underwriter through the U.S.
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b).
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except for such failures to be so qualified or in good
standing which, either individually or in the aggregate, could not
reasonably be expected to result in a material adverse effect on the
business, properties, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectuses; and each subsidiary of the Company is duly
qualified to do
-3-
<PAGE> 4
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except for such
failures to be so qualified or in good standing which, either
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable; and
the capital stock of each subsidiary owned by the Company, directly or
through subsidiaries, is owned free from liens, encumbrances and
defects.
(e) The Offered Securities and all other outstanding shares
of capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the
Offered Securities have been delivered and paid for in accordance with
this Agreement and the Underwriting Agreement on each Closing Date (as
defined below), such Offered Securities will have been, validly
issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectuses; and
the stockholders of the Company have no preemptive rights with respect
to the Securities.
(f) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Manager or U.S. Underwriter for a brokerage commission, finder's
fee or other like payment in connection with the sale of the Offered
Securities.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to a Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on
the New York Stock Exchange subject only to official notice of
issuance.
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
to be made or obtained by the Company for the consummation of the
transactions contemplated by this Agreement or the Underwriting
Agreement in connection with the issuance and sale of the Offered
Securities by the Company, except such as have been obtained and made
under the Act and such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement
and the Underwriting Agreement, and the issuance and sale of the
Offered Securities will not (i) conflict with, or result in a breach
or violation of any of the terms and provisions of, any statute, any
rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company or
any subsidiary of the Company or any of their properties (except for
such violations, breaches or conflicts which, either individually or
in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect, and except as rights to indemnity and
contribution may be limited by United States federal or state
securities laws or by policies underlying such laws), or (ii) result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject (except for such violations,
breaches or defaults which,
-4-
<PAGE> 5
either individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect), or (iii) conflict
with, or result in a breach or violation of any of the terms and
provisions of, the charter or by-laws of the Company or any such
subsidiary; and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this
Agreement and the Subscription Agreement, respectively.
(k) This Agreement and the Underwriting Agreement have been
duly authorized, executed and delivered by the Company and constitute
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally; (ii) that the remedies of specific
performance and injunctive and other forms of relief are subject to
general equitable principles, whether enforcement is sought at law or
in equity, and that such enforcement may be subject to the discretion
of the court before which any proceedings therefor may be brought; and
(iii) as rights to indemnity and contribution may be limited by state
or federal laws relating to securities or by the policies underlying
such laws.
(l) Except as disclosed in the Prospectuses, the Company and
its subsidiaries have good and marketable title to all real properties
and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by them (except for such properties and assets the loss of
which, either individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect); and except as
disclosed in the Prospectuses, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use
made or to be made thereof by them (except for such leased real or
personal property the loss of which, either individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Effect).
(m) The Company and its subsidiaries possess adequate
certificates, authoritizations or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them (except for such certificates, authorizations or
permits the lack of which, either individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect) and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization
or permit that, if determined adversely to the Company or any of its
subsidiaries, could, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent
which could, either by itself or together with other such disputes,
reasonably be expected to result in a Material Adverse Effect.
(o) Except as disclosed in the Prospectuses, the Company and
its subsidiaries own, possess or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them; and[, except as disclosed in the Prospectuses,] have
not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights
that, if determined adversely to the Company or any of its
subsidiaries, could, either individually or together with other such
matters, reasonably be expected to result in a Material Adverse
Effect.
-5-
<PAGE> 6
(p) Except as disclosed in the Prospectuses, neither the
Company nor any of its subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, except for
such violations, liabilities or claims which, either individually or
in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim .
(q) Except as disclosed in the Prospectuses, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its
subsidiaries, either individually or in the aggregate, (i) could
reasonably be expected to result in a Material Adverse Effect, or (ii)
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement or the Subscription
Agreement, or (iii) which are otherwise material in the context of the
sale of the Offered Securities; and, to the Company's knowledge, no
such actions, suits or proceedings are threatened or contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position
of the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with
the generally accepted accounting principles in the United States
applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be
stated therein; and the assumptions used in preparing the pro forma
financial information included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding
historical financial statement amounts.
(s) Except as disclosed in the Prospectuses, since the date
of the latest audited financial statements included in the
Prospectuses there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company and its subsidiaries taken as a whole,
and, except as disclosed in or contemplated by the Prospectuses, there
has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes and the Company agrees to comply with such Section if
-6-
<PAGE> 7
prior to the completion of the distribution of the Offered Securities
it commences doing such business.
3. Purchase, Sale and Delivery of Offered Securities. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Managers, and the Managers agree, severally and not jointly, to purchase from
the Company, at a purchase price of U.S. $ per share, the respective
numbers of shares of International Firm Securities set forth opposite the names
of the Managers in Schedule A hereto.
The Company will deliver the International Firm Securities to CSFBL for
the accounts of the Managers, against payment of the purchase price in U.S.
dollars by same day wire or intrabank transfer of immediately available funds at
a bank acceptable to CSFBC, at the office of Latham & Watkins, 885 Third Avenue,
Suite 1000, New York, New York 10022, at 10:00 A.M., New York time, on
_________________, or at such other time not later than five full business days
thereafter as CSFBL and the Company determine, such time being herein referred
to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the Offerings. The certificates for the International Firm Securities so to
be delivered will be in definitive form, in such denominations and registered in
such names as CSFBL requests and will be made available for checking and
packaging at the above office of Latham & Watkins, 885 Third Avenue, Suite 1000,
New York, New York 10022, at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectuses,
the Managers may purchase all or less than all of the International Optional
Securities at the purchase price per Security to be paid for the International
Firm Securities. Any such notice of election to purchase International
Optional Securities shall be given by CSFBC on behalf of the Managers and such
shall specify (i) the aggregate number of International Optional Securities to
be purchased pursuant to such exercise, and (ii) the date for payment and
delivery thereof, which shall be a business day no earlier than the First
Closing Date. The International Optional Securities to be purchased by the
Managers on any Optional Closing Date shall be in the same proportion to all
the Optional Securities to be purchased by the Managers and U.S. Underwriters
on such Optional Closing Date as the International Firm Securities bear to all
the Firm Securities. The Company agrees to sell to the Managers such
International Optional Securities and the Managers agree, severally and not
jointly, to purchase such International Optional Securities. Such
International Optional Securities shall be purchased for the account of each
Manager in the same proportion as the number of shares of International Firm
Securities set forth opposite such Manager's name bears to the total number of
shares of International Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Managers only for the purpose
of covering over-allotments made in connection with the sale of the
International Firm Securities. No Optional Securities shall be sold or
delivered unless the International Firm Securities and the U.S. Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC on behalf of the Managers and the
U.S. Underwriters to the Company. It is understood that CSFBC is authorized to
make payment for and accept delivery of such Optional Securities on behalf of
the U.S. Underwriters and Managers pursuant to the terms of CSFBC's
instructions to the Company.
Each time for the delivery of and payment for the International
Optional Securities, being herein referred to as an "Optional Closing Date",
which may be the First Closing Date (the First
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<PAGE> 8
Closing Date and each Optional Closing Date, if any, being sometimes referred
to as a "Closing Date"), shall be determined by CSFBC but shall be not later
than three full business days after written notice of election to purchase
Optional Securities is given. The Company will deliver the International
Optional Securities being purchased on each Optional Closing Date to CSFBL for
the accounts of the several Managers, against payment of the purchase price
therefor by same day wire or intrabank transfer of immediately available funds
at a bank acceptable to CSFBC, at the above office of Latham & Watkins. The
certificates for the International Optional Securities will be in definitive
form, in such denominations and registered in such names as CSFBL requests upon
reasonable notice prior to such Optional Closing Date and will be made
available for checking and packaging at the above office of Latham & Watkins,
at a reasonable time in advance of such Optional Closing Date.
The Company will pay to the Managers as aggregate compensation for
their commitments hereunder and for their services in connection with the
purchase of the International Securities and the management of the offering
thereof, if the sale and delivery of the International Securities to the
Managers provided herein is consummated, an amount equal to U.S. $ per
International Security purchased, which may be divided among the Managers in
such proportions as they may determine. Such payment will be made on the First
Closing Date in the case of the International Firm Securities and on each
Optional Closing Date in the case of the International Optional Securities sold
to the Manager on such Closing Date, in each case by way of deduction by the
Managers of said amount from the purchase price for the International Securities
referred to above.
4. Offering by Managers. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
In connection with the distribution of the International Securities,
the Managers, through a stabilizing manager, may over-allot or effect
transactions on any exchange, in any over-the-counter market or otherwise which
stabilize or maintain the market prices of the International Securities at
levels other than those which might otherwise prevail, but in such event and in
relation thereto, the Managers will act for themselves and not as agents of the
Company, and any loss resulting from over-allotment and stabilization will be
borne, and any profit arising therefrom will be beneficially retained, by the
Managers. Such stabilizing, if commenced, may be discontinued at any time.
5. Certain Agreements of the Company. The Company agrees with the
several Managers that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file each of the Prospectuses with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable
and if consented to by CSFBL, subparagraph (4)) of Rule 424(b) not
later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business
day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBL promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a
portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of
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<PAGE> 9
such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective
amendment thereto with the Commission pursuant to and in accordance
with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, on or prior to the time either
Prospectus is printed and distributed to any Manager or U.S.
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBL.
(b) The Company will advise CSFBL promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or either of the related prospectuses or the
Initial Registration Statement, the Additional Registration Statement
(if any) or either of the Prospectuses, and will not effect such
amendment or supplementation without CSFBL's prior consent (which
consent shall not be withheld unreasonably); and the Company will also
advise CSFBL promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or either of the Prospectuses and of the
institution by the Commission of any stop order proceedings in respect
of a Registration Statement and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any U.S. Underwriter, Manager or dealer, any event
occurs as a result of which either or both of the Prospectuses as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend
either or both of the Prospectuses to comply with the Act, the Company
will promptly notify CSFBL of such event and will promptly prepare and
file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission. Neither
CSFBL's consent to, nor the Managers' delivery of, any such amendment
or supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the
end of the fourth fiscal quarter following the fiscal quarter that
includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Managers such number of
copies of the Registration Statement and each amendment thereto as
CSFBL reasonably requests (at least four of which will be signed and
will include all exhibits), each preliminary prospectus relating to
the International Securities, and, until completion of the
distribution of the International Securities as determined by CSFBL,
the International Prospectus and all amendments and supplements to
such documents, in each case in such quantities as CSFBL reasonably
requests. The International Prospectus shall be so furnished on or
prior to 3:00 P.M., New York time, on the business day following the
later of the execution and delivery of this Agreement or the Effective
Time of the Initial Registration Statement. All other such documents
shall be so furnished as soon as available. Without limiting the
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<PAGE> 10
generality of clause (h) below, the Company expressly agrees to pay
the expenses of printing and distributing to the Managers all such
documents.
(f) No action has been or, prior to the completion of the
distribution of the Offered Securities, will be taken by the Company
in any jurisdiction outside the United States and Canada that would
permit a public offering of the Offered Securities, or possession or
distribution of the International Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus issued in
connection with the offering of the Offered Securities, or any other
offering material, in any country or jurisdiction where action for
that purpose is required.
(g) During the period of 6 years hereafter, (i) the Company
will furnish to CSFBL and, upon request, to each of the other
Managers, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and (ii) the
Company will furnish to CSFBL, as soon as available, a copy of each
report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders. As soon as practicable following the request therefor,
the Company will furnish CSFBL with such other information concerning
the Company as CSFBL may reasonably request from time to time at any
time during the period of 3 years hereafter.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement and will reimburse
the Managers (if and to the extent incurred by them), for: (i) any
filing fees and other expenses (including fees and disbursements of
counsel) incurred by them in connection with (A) qualification of the
Offered Securities for sale under the laws of such jurisdictions in
Japan and countries in the European Economic Community as CSFBL
designates, (B) the preparation and printing of memoranda relating to
the foregoing qualifications, and (C) the filings with and any
required review by the National Association of Securities Dealers,
Inc. relating to the Offered Securities or the Offerings; (ii) any
travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities; and
(iii) expenses incurred in distributing preliminary prospectuses and
the Prospectuses (including any amendments and supplements thereto) to
the Managers. It is understood that, except as provided in this
Section 5 or in Sections 7 or 9 of this Agreement, (x) the Managers
shall pay all of their own costs and expenses, including fees and
disbursements of their legal counsel, stock transfer taxes on resale
of any of the Offered Securities owned by them, and (y) each of the
Company and the Managers will bear their own costs in connection with
any selling efforts made in connection with the Offerings.
(i) For a period of 180 days after the date hereof, the
Company will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any additional
shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CSFBC, except
(x) grants of employee stock options pursuant to the terms of a plan
in effect on the date hereof, issuances of Securities pursuant to the
exercise of such options or the exercise of any other employee stock
options outstanding on the date hereof, and (y) the filing of a
registration statement under the Act with respect to any of the
issuances or grants permitted by the foregoing clause (x).
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<PAGE> 11
6. Conditions of the Obligations of the Managers. The obligations of
the several Managers to purchase and pay for the International Firm Securities
on the First Closing Date and the International Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Managers shall have received a comfort letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to
the registration statement to be filed shortly prior to such Effective
Time), of Deloitte & Touche LLP in the form set forth in Section 6(a)
of the Underwriting Agreement.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by CSFBL. If the Effective Time
of the Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Manager or U.S. Underwriter, or shall have
occurred at such later date as shall have been consented to by CSFBL.
If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, each of the
Prospectuses shall have been filed with the Commission in accordance
with the Rules and Regulations and Section 5(a) of this Agreement.
Prior to such Closing Date, no stop order suspending the effectiveness
of a Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or, to the knowledge of
the Company or the Managers, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (A) a change in U.S. or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the judgment of
CSFBL, be likely to prejudice materially the success of the proposed
issue, sale or distribution of the International Securities, whether
in the primary market or in respect of dealings in the secondary
market, or (B)(i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries
which, in the judgment of CSFBL, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the International Securities;
(ii) any downgrading in the rating of any debt securities of the
Company by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or
review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and
no implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New
York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any
banking moratorium declared by U.S. Federal or New York authorities;
or (v) any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by the United States
Congress or any other substantial national or
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<PAGE> 12
international calamity or emergency if, in the judgment of CSFBL, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
International Securities.
(d) The Managers shall have received legal opinions, dated
such Closing Date, of Latham & Watkins (counsel for the Company), Van
Cott, Bagley, Cornwall & McCarthy (Utah counsel for the Company) and
Bernard Cartoon (general counsel for the Company and Weider Health &
Fitness, Inc.), each in the agreed form set forth in Section 6(d) of
the Underwriting Agreement.
(e) The Managers shall have received from Irell & Manella
LLP, counsel for the Managers, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statement, the Prospectuses and other related matters as
the Managers may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(f) The Managers shall have received a certificate, dated
such Closing Date, of the President and the principal financial or
accounting officer of the Company in which such officers, to the best
of their knowledge after reasonable investigation, shall state that:
(i) the representations and warranties of the Company in this
Agreement are true and correct; (ii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; (iii) no stop
order suspending the effectiveness of any Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are contemplated by the Commission; (iv) the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time either
Prospectus was printed and distributed to any Underwriter or Manager;
and (v) subsequent to the date of the most recent financial statements
in the Prospectuses, there has been no material adverse change, nor
any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a
whole except as set forth in or contemplated by the Prospectuses or as
described in such certificate.
(g) The Managers shall have received a "bring down" comfort
letter, dated such Closing Date, of Deloitte & Touche LLP which meets
the requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
(h) On such Closing Date, the U.S. Underwriters shall have
purchased the U.S. Firm Securities or the U.S. Optional Securities, as
the case may be, pursuant to the Underwriting Agreement.
Documents described as being "in the agreed form" are documents which are in
the forms which have been initialed for the purpose of identification by Irell
& Manella LLP, copies of which are held by the Company and CSFBL with such
changes as CSFBL may approve. The Company will furnish the Managers with such
conformed copies of such opinions, certificates, letters and documents as the
Managers reasonably request. CSFBL may in its sole discretion waive on behalf
of the Managers
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<PAGE> 13
compliance with any conditions to the obligations of the Managers hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify
and hold harmless each Manager against any losses, claims, damages or
liabilities, joint or several, to which such Manager may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse each Manager for any legal or other expenses
reasonably incurred by such Manager in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred (notwithstanding the possibility that payments for such expenses
may later be held to be improper); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Manager through CSFBL specifically for use therein (it being
understood and agreed that the only information furnished by any Manager
consists of the information described as such in subsection (b) below); and
provided, further, that with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from any preliminary prospectus,
the indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Manager from whom the person asserting any such losses, claims,
damages or liabilities purchased the Offered Securities concerned, to the
extent that a prospectus relating to such Offered Securities was required to be
delivered by such Manager under applicable law in connection with such purchase
and any such loss, claim, damage or liability of such Manager results from the
fact that there was not sent or given to such person, at or prior to the
written confirmation of the sale of such Offered Securities to such person, a
copy of the International Prospectus, if the Company had previously furnished
copies thereof to such Manager.
(b) Each Manager will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Manager
through CSFBL specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Manager consists of the following information in
the International Prospectus furnished on behalf of each Manager: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Managers, the legend concerning over-allotments, stabilizing and certain
other transactions on the back cover page, the concession and reallowance
figures appearing in the fifth paragraph under the caption "Subscription and
Sale" and the information on over-allotments, stabilizing and certain other
transactions contained in the eleventh paragraph under the caption
"Subscription and Sale."
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(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Managers on the other from the offering
of the International Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Managers on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Managers on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
International Securities (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Managers. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Managers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Manager has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Managers' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
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<PAGE> 15
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Manager within the meaning of the Act; and the obligations of the
Managers under this Section shall be in addition to any liability which the
respective Managers may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
(f) Any payments pursuant to this Section which are held to be
improper by a court of competent jurisdiction in a final judgment not subject
to further appeal shall be refunded promptly to the person making such payments
by the person receiving such payments.
8. Default of Managers. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
Closing Date or any Optional Closing Date and the aggregate number of shares of
International Securities that such defaulting Manager or Managers agreed but
failed to purchase does not exceed 10% of the total number of shares of
International Securities that the Managers are obligated to purchase on such
Closing Date, CSFBL may make arrangements satisfactory to the Company for the
purchase of such International Securities by other persons, including any of
the Managers, but if no such arrangements are made by such Closing Date the
non- defaulting Managers shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the International Securities that
such defaulting Managers agreed but failed to purchase on such Closing Date. If
any Manager or Managers so default and the aggregate number of shares of
International Securities with respect to which such default or defaults occur
exceeds 10% of the total number of shares of International Securities that the
Managers are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBL and the Company for the purchase of such International
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Manager or the Company, except as provided in Section 9
(provided that if such default occurs with respect to International Optional
Securities after the First Closing Date, this Agreement will not terminate as
to the International Firm Securities or any International Optional Securities
purchased prior to such termination). As used in this Agreement, the term
"Manager" includes any person substituted for a Manager under this Section.
Nothing herein will relieve a defaulting Manager from liability for its
default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several Managers set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made
by or on behalf of any Manager, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the International Securities. If this
Agreement is terminated pursuant to Section 8 or if for any reason the purchase
of the International Securities by the Managers is not consummated, the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Managers pursuant to Section 7 shall remain in effect and if any International
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the International Securities by the Managers is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in Section
6(c)(A) or clause (iii), (iv), or (v) of Section 6(c)(B), the Company will
reimburse the Managers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the International Securities.
-15-
<PAGE> 16
10. Notices. All communications hereunder will be in writing and, if
sent to the Managers, will be mailed, delivered or telexed and confirmed to
CSFBL at One Cabot Square, London E14 4QJ England, Attention: Company
Secretary, or, if sent to the Company, will be mailed, delivered or telegraphed
and confirmed to it at 1960 South 4250 West, Salt Lake City, Utah 84104,
U.S.A., Attention: President; provided, however, that any notice to a Manager
pursuant to Section 7 will be mailed, delivered or telexed and confirmed to
such Manager.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
12. Representation of Managers. CSFBL will act for the several
Managers in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by CSFBL will be binding upon all the
Managers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-16-
<PAGE> 17
If the foregoing is in accordance with the Managers' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and
the several Managers in accordance with its terms.
Very truly yours,
WEIDER NUTRITION INTERNATIONAL, INC.
By
-------------------------------------
Richard B. Bizzaro,
President and Chief
Executive Officer
The foregoing Subscription Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:
----------------------------------------
[name and title]
SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
Each by its duly authorized attorney-in-fact:
--------------------------------------------
[name]
-17-
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL FIRM
MANAGER SECURITIES
------- ----------
<S> <C>
Credit Suisse First Boston (Europe) Limited . . . . . . . . . . . . . [$]
Salomon Brothers International . . . . . . . . . . . . . . . . . . . [$]
Adams, Harkness & Hill, Inc. . . . . . . . . . . . . . . . . . . . . [$]
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . . . . [$]
-------------
Total . . . . . . . . . . . . . . . . . . . [$]
=============
</TABLE>
<PAGE> 1
EXHIBIT 1.3
5,600,000 SHARES
WEIDER NUTRITION INTERNATIONAL, INC.
CLASS A COMMON STOCK
AGREEMENT BETWEEN U.S. UNDERWRITERS AND MANAGERS
April __, 1997
AGREEMENT by and between (a) Credit Suisse First Boston Corporation
("CSFBC"), Salomon Brothers Inc, Adams, Harkness & Hill, Inc. and Hambrecht &
Quist LLC, as representatives (the "Representatives") of the several United
States underwriters (the "U.S. Underwriters") named in Schedule A to the
Underwriting Agreement, dated the date hereof (the "Underwriting Agreement"),
among the U.S. Underwriters and Weider Nutrition International, Inc., a
Delaware corporation (the "Company"), and (b) the international managers listed
on the signature page hereof (the "Managers"). The several U.S. Underwriters
are herein called a "Syndicate" and the several Managers are herein called a
"Syndicate". The U.S. Underwriters and the Managers are herein collectively
called the "Underwriters".
WHEREAS, the U.S. Underwriters, severally and not jointly, pursuant to
the Underwriting Agreement, have agreed to purchase from the Company 4,480,000
shares (the "U.S. Firm Securities") of the Company's Class A Common Stock
("Securities"); the Managers, severally and not jointly, pursuant to the
Subscription Agreement, dated the date hereof (the "Subscription Agreement"),
among the Managers and the Company, have agreed to purchase from the Company
1,120,000 shares (the "International Firm Securities") of the Securities; the
Company has granted to the U.S. Underwriters and the Managers, exercisable from
time to time by CSFBC on behalf of the U.S. Underwriters and the Managers,
over-allotment options (collectively, the "Over-allotment Option") to purchase
up to an aggregate of 840,000 additional shares (the "Optional Securities") of
Securities; the U.S. Firm Securities and the International Firm Securities are
herein collectively called the "Firm Securities"; the Firm Securities and the
Optional Securities are herein collectively called the "Securities"; the U.S.
Firm Securities and the Optional Securities that may be sold to the U.S.
Underwriters are herein collectively called the "U.S. Securities"; the
International Firm Securities and the Optional Securities that may be sold to
the Managers are herein collectively called the "International Securities"; and
the U.S. Securities and the International Securities are herein collectively
called the "Offered Securities"; and
WHEREAS, the U.S. Underwriters and the Managers deem it necessary and
advisable that certain of the activities of the U.S. Underwriters and the
Managers be coordinated pursuant to this Agreement;
NOW, THEREFORE, the U.S. Underwriters, acting through the
Representatives, and the Managers hereby agree as follows:
1. Intersyndicate Purchases and Sales. The U.S. Underwriters, acting
through the Representatives, and the Managers, acting through Credit Suisse
First Boston (Europe) Limited ("CSFBL"), agree that they will consult with each
other as to the availability for sale to the public from time to time of
Offered Securities purchased from the Company pursuant to the Underwriting
Agreement and the Subscription Agreement until the earlier of (a) completion of
the distribution of the U.S. Securities being offered by the U.S. Underwriters
and (b) CSFBL's notifying the Managers of the termination of the selling
restrictions under the Agreement Among Managers, dated the date hereof (the
"Agreement Among Managers"). From time to time, at the direction of CSFBC, the
U.S.
<PAGE> 2
Underwriters (acting through the Representatives) and the Managers, may
purchase and sell between Syndicates such number of Offered Securities as may
be directed by CSFBC.
Unless otherwise determined by agreement of the Representatives and
CSFBL, on behalf of the Managers, the price and currency settlement of any
Offered Securities so purchased or sold shall be the then effective public
offering price, in the currency contemplated for the purchase of the Offered
Securities from the Company in the Underwriting Agreement and the Subscription
Agreement, less (a) the selling concession that would otherwise apply to such
Offered Securities if such Offered Securities were not purchased and sold under
this Section 1 or (b) such lesser amount as the Representatives and CSFBL, on
behalf of the Managers, may mutually agree. Settlement with respect to any
Offered Securities transferred hereunder prior to the First Closing Date (as
defined in the Underwriting Agreement) shall be made on the First Closing Date
if feasible but in no event later than three business days after the transfer
date, and, in the case of purchases and sales made after the First Closing
Date, as promptly as practicable but in no event later than three business days
after the transfer date. Certificates representing the Offered Securities so
purchased shall be delivered on the respective settlement dates. For purposes
of Rule 15c6-1 under the United States Securities Exchange Act of 1934, the
settlement dates set forth herein or established pursuant to the provisions
hereof shall prevail if later than the applicable settlement dates prescribed
by or pursuant to such Rule. The liability for payment to the Company of the
purchase price of the Offered Securities being purchased under the Underwriting
Agreement and the liability for payment to the Company of the purchase price of
the Offered Securities being purchased under the Subscription Agreement shall
not be affected by the provisions of this Agreement.
The proportionate share of any U.S. Underwriter or Manager in respect
of the obligation of U.S. Underwriters or Managers to purchase or sell Offered
Securities under this Section 1 shall, unless such U.S. Underwriter or Manager
otherwise agrees with CSFBC or CSFBL, as the case may be, be no greater than
the proportion of (a) the total number of shares of U.S. Firm Securities or
International Firm Securities (plus such additional Offered Securities as may
be required by the Underwriting Agreement or the Subscription Agreement to be
purchased by such U.S. Underwriter or Manager in the event of a default by one
or more of the U.S. Underwriters or Managers) that such U.S. Underwriter or
Manager is obligated to purchase under the Underwriting Agreement or the
Subscription Agreement, respectively (hereinafter referred to as such U.S.
Underwriter's or Manager's "underwriting commitment"), to (b) the total number
of shares of U.S. Firm Securities or International Firm Securities, as the case
may be.
2. Selling Restrictions. Each U.S. Underwriter agrees that, except
for (a) purchases and sales among Underwriters pursuant to this Agreement and
(b) stabilization transactions contemplated under Section 3 hereof, it has not
offered or sold, and will not offer or sell, directly or indirectly, Offered
Securities or distribute any prospectus relating to the Offered Securities to
any person outside the United States or Canada or to any other dealer who does
not so agree.
Each Manager agrees that, except for (a) purchases and sales among
Underwriters pursuant to this Agreement and (b) stabilization transactions
contemplated under Section 3 hereof, it has not offered or sold, and will not
offer or sell, directly or indirectly, Offered Securities or distribute any
prospectus relating to the Offered Securities in the United States or Canada or
to any other dealer who does not so agree.
For purposes hereof, an offer or sale shall be in the United States or
Canada under the same circumstances described as such in the Agreement Among
Managers, and "United States" and "Canada" shall have the meanings set forth
in the Agreement Among Managers.
-2-
<PAGE> 3
Each Manager agrees for the benefit of the several U.S. Underwriters
to comply with the provisions of Section 3 of the Agreement Among Managers.
Each Manager has caused each dealer who has agreed to participate or is
participating in the distribution to give an undertaking similar to Section 3
of the Agreement Among Managers.
Each U.S. Underwriter agrees for the benefit of the several Managers
to comply with the CSFBC Master Agreement Among Underwriters as in effect
(including any modification to the terms thereof by telex or other amendment)
with respect to the Offered Securities (the "Agreement Among U.S.
Underwriters").
3. Stabilizing. The overall direction and planning of
over-allotments and the stabilization transactions contemplated herein shall be
the responsibility of CSFBC. All stabilization transactions, whether in the
United States or otherwise, shall be conducted at the direction of and subject
to the control of CSFBC, so that stabilization activities worldwide shall be
conducted in compliance with any applicable laws and regulations.
The International Primary Market Association (IPMA) limits will not be
complied with in connection with stabilization losses and expenses. All
over-allotments, stabilization purchases, purchases to cover syndicate short
positions, exercises of the Over-allotment Option and related expenses shall be
for the accounts of the several Underwriters in proportion to their respective
underwriting commitments. In no event shall the net commitment of any
Underwriter, for either long or short account, resulting from the transactions
described in the previous sentence exceed 20% of its underwriting commitment.
For the purposes of the foregoing, an Underwriter's net commitment for short
account will be computed assuming that all Optional Securities which may be
purchased for such Underwriter's account pursuant to exercise of the Over-
allotment Option are so acquired, whether or not the Over-allotment Option is
exercised, and are allocated on a pro rata basis between the Syndicates as
contemplated in Section 4 hereof.
If an Underwriter is, or is affiliated with, any U.S. or non-U.S.
bank, such Underwriter hereby represents that its participation in the offering
of the Offered Securities on the terms contemplated herein and in the
Subscription Agreement, Agreement Among Managers, Underwriting Agreement and
the Agreement Among U.S. Underwriters, as applicable, does not contravene any
U.S. or state banking law restricting the exercise of securities powers in the
United States.
4. Over-Allotment Option. As set forth in the Underwriting Agreement
and the Subscription Agreement, the Over-allotment Option shall be exercised at
the direction of CSFBC on behalf of the respective Syndicates. The obligation
of each Syndicate to purchase Optional Securities upon each exercise of the
Over-allotment Option shall be in proportion to the aggregate underwriting
commitment of the Underwriters comprising such Syndicate. The obligations of
the Underwriters comprising a Syndicate to purchase Optional Securities upon
exercise of the Over-allotment Option shall be in such proportions as are
specified in or determined pursuant to the Underwriting Agreement or the
Subscription Agreement, as the case may be, and shall be several and not joint
obligations of such Underwriters.
5. Expenses. To the extent not reimbursed by the Company, the
payment of (a) legal fees and disbursements of United States and foreign
counsel to the U.S. Underwriters and Managers incurred in connection with the
underwriting, (b) advertising fees and (c) other expenses as agreed between the
Representatives and the Managers, will be made on a pro rata basis by the
Syndicates in accordance with their respective underwriting commitments, or on
such other basis as may be agreed between the Representatives and the Managers.
Expenses in connection with stabilization and over-allotment shall be allocated
as contemplated in Section 3 hereof. Subject to the previous two sentences,
the U.S. Underwriters will pay the aggregate expenses incurred in connection
with the
-3-
<PAGE> 4
purchase, carrying or sale of the Offered Securities purchased by the U.S.
Underwriters from the Company, and the Managers will pay the aggregate expenses
incurred in connection with the purchase, carrying or sale of the Offered
Securities purchased by the Managers from the Company.
6. Public Offering. Changes in the respective public offering price
per Offered Security or in the respective concessions and reallowances to
dealers per Offered Security will be made only upon the mutual agreement of the
Representatives and CSFBL, on behalf of the Managers, during the period
referred to in the first sentence of Section 1 hereof. Any such change shall
be made concurrently in the offering by the U.S. Underwriters and the offering
by the Managers.
7. Mutual Information. The Underwriters will provide such
information as CSFBC and CSFBL may request in order to allow CSFBC and CSFBL to
satisfy their obligations hereunder and in order to allow CSFBC and CSFBL to
keep the Underwriters informed of the progress of the offering of the Offered
Securities. Unless otherwise approved by CSFBC, each Underwriter agrees not to
make, in the United States or Canada or elsewhere, any press or public
announcement or public comment which it believes or ought reasonably to believe
is likely to be published in the press or elsewhere concerning (a) the Company
or any of its subsidiaries or (b) the offering of the Offered Securities, in
either case on or after the date hereof and prior to the later of (i)
termination pursuant to Section 10 of the Underwriters' obligations set forth
in Section 2 or (ii) the Closing Date (as defined in Section 8), provided that
the foregoing shall not restrict any Underwriter from making such public
announcement or comment as shall be required for the purpose of the conduct of
the offering of the Offered Securities, subject to such public announcement or
comment being permitted by applicable law to be made in the manner in which it
is made and to its being in the terms approved in writing by CSFBC.
8. Closing Date; Termination of Underwriting or Subscription
Agreement. If any closing date is not on the day provided in the Underwriting
Agreement and in the Subscription Agreement (the "Closing Date") the
Representatives and CSFBL, on behalf of the Managers will mutually agree on a
postponed date within the time permitted by such agreements and the settlement
dates herein provided shall be adjusted accordingly.
The Representatives shall not terminate the Underwriting Agreement
pursuant to the conditions set forth in Section 6 thereof except after
consultation with CSFBL, on behalf of the Managers, and CSFBL shall not
terminate the Subscription Agreement pursuant to the conditions set forth in
Section 6 thereof except after consultation with the Representatives.
9. Counterparts. This Agreement may be signed in various
counterparts, which together shall constitute one and the same instrument.
10. Termination of Syndicate Restrictions. The obligations of the
Underwriters set forth in Section 2 shall terminate upon the earlier of (a) the
mutual agreement of the Representatives and CSFBL, on behalf of the Managers,
or (b) 45 days after the date hereof, unless the Representatives or CSFBL, on
behalf of the Managers, shall have given notice to the other parties hereto
that the sale of Offered Securities by the U.S. Underwriters or the Managers,
as the case may be, has not yet been completed. The Representatives and CSFBL,
on behalf of the Managers, may agree pursuant to clause (a) to terminate the
obligations of the Underwriters set forth in Section 2 other than the last
paragraph of Section 4(a) of the Agreement Among U.S. Underwriters and Section
7(c) of the Agreement Among Managers, which shall survive until separately
terminated pursuant to clause (a) or (b). If the notice referred to in clause
(b) is given, the obligations set forth in Section 2 shall survive until the
expiration of an additional 15 days from the date of such notice.
-4-
<PAGE> 5
11. Position of Representatives and CSFBL. Neither the
Representatives nor CSFBL will be under any liability to any Underwriter for
any act or omission except for obligations expressly assumed by the
Representatives or CSFBL, respectively herein, and no obligations on part of
the Representatives and CSFBL will be implied hereby or inferred herefrom. The
rights and liabilities of the Underwriters are several and not joint and
nothing herein contained shall constitute or be deemed to constitute the
Underwriters as partners with each other or render any Underwriters liable for
the obligations of any other Underwriter. No Underwriter shall be bound in any
way by the acts of any other Underwriter in respect of the issue of the
Securities except as expressly provided. The duties of the Representatives and
CSFBL shall be administrative and not fiduciary in nature.
12. APPLICABLE LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The parties hereby submit to the
non-exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as of the date
and year first above written by the undersigned for themselves and for the
Underwriters as set forth herein.
The U.S. Underwriters
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
As Representatives of the several U.S.
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: _______________________________
[Name]
[Title]
For itself and on behalf of
the Representatives
The Managers:
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
By: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By: __________________________________
[Name]
[Title]
For itself and on behalf of the Managers
-6-
<PAGE> 1
EXHIBIT 1.4
5,600,000 SHARES
WEIDER NUTRITION INTERNATIONAL, INC.
CLASS A COMMON STOCK
AGREEMENT AMONG MANAGERS
London, England
April __, 1997
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
The above-named parties (the "Managers") wish to record the
arrangements agreed among them in relation to the purchase and distribution of
1,120,000 shares (the "International Firm Securities") of Class A Common Stock
(the "Securities"), of Weider Nutrition International, Inc., a Delaware
corporation (the "Company"), and in relation to an option granted to the
Managers and exercisable by CSFBC (as defined below) to purchase up to 168,000
additional shares of Securities (the "International Optional Securities") for
the sole purpose of covering over-allotments. The International Firm Securities
and the International Optional Securities are collectively referred to as the
"International Securities".
1. Subscription Arrangements. On April __, 1997 the Managers will
enter into a subscription agreement (the "Subscription Agreement") with the
Company under which the Managers acting severally and not jointly will agree to
purchase and pay for the International Firm Securities and the International
Optional Securities in the respective amounts and at the price set forth in the
Subscription Agreement, and otherwise upon the terms and conditions of the
Subscription Agreement on the First Closing Date and the Second Closing Date,
respectively, referred to therein (each a "Closing Date"). It is understood
that the Company is concurrently entering into an Underwriting Agreement (the
"Underwriting Agreement") with the underwriters listed on Schedule A attached
thereto (the "U.S. Underwriters"), for whom Credit Suisse First Boston
Corporation ("CSFBC"), Salomon Brothers Inc, Adams, Harkness & Hill, Inc. and
Hambrecht & Quist LLC are acting as representatives (the "Representatives"),
providing for the sale of 4,480,000 shares of Securities (the "U.S. Firm
Securities") in the United States and Canada and granting the U.S. Underwriters
the option, exercisable from time to time by CSFBC, to purchase up to 672,000
additional shares of Securities (the "U.S. Optional Securities") for the sole
purpose of covering over-allotments. The U.S. Firm Securities and the U.S.
Optional Securities are collectively referred to as the "U.S. Securities. The
International Firm Securities and the U.S. Firm Securities are collectively
referred to as the "Firm Securities"; the International Optional Securities and
the U.S. Optional Securities are collectively referred to as the "Optional
Securities". The International Securities and the U.S. Securities are herein
collectively called the "Offered Securities". The term "underwriting
<PAGE> 2
commitment", as used in this Agreement with respect to any Manager, shall refer
to the principal amount or number of shares or units of International
Securities (plus such additional International Securities as may be required by
the Subscription Agreement to be purchased by such Manager in the event of a
default by one or more of the Managers) which such Manager is obligated to
purchase pursuant to the provisions of the Subscription Agreement. It is also
understood that certain matters will be governed by an Agreement Between U.S.
Underwriters and Managers (the "Intersyndicate Agreement") between the U.S.
Underwriters and the Managers, to be dated the date of the Subscription
Agreement.
2. Prospectuses and Registration Statements. Each of the Managers
acknowledges that it has received copies of the registration statement (No.
333-12929) relating to the Offered Securities, the forms of related
prospectuses and the amendment or amendments thereto, filed by the Company with
the United States Securities and Exchange Commission (the "Commission"). If
applicable, an additional registration statement relating to the Offered
Securities may have been or may be filed by the Company with the Commission
pursuant to Rule 462(b) under the United States Securities Act of 1933 (the
"Act"). Each of the Managers acknowledges that such registration statements and
prospectuses may be further amended. The terms "Registration Statement",
"International Prospectus", "U.S. Prospectus" and "Prospectuses" shall have the
meanings ascribed to them in the Subscription Agreement. Each of the Managers
hereby severally confirms its authorization to Credit Suisse First Boston
(Europe) Limited ("CSFBL") as its agent and on its behalf to enter into the
Subscription Agreement and the Intersyndicate Agreement, each in such form as
CSFBL determines, and to take all acts necessary to carry out the provisions
thereof.
3. Open Market Transactions; Selling Restrictions; Sales Allocations.
(a) Each Manager agrees that from the date of the invitation telex to
participate in the offering (the "Telex") in connection with the sale of the
International Securities until CSFBL shall have notified it of the termination
of the selling restrictions set forth in Sections 3(a), (b) and (d) hereof,
neither it nor any of its "affiliated purchasers" (as defined for the purposes
of Rule 101 in Regulation M ("Regulation M") under the United States Securities
Exchange Act of 1934 (the "Exchange Act")) will, except to the extent permitted
by Rule 101 in Regulation M or any applicable exemption therefrom, in each case
as interpreted by the Commission, (i) bid for or purchase for any account in
which such Manager or affiliated purchaser has a beneficial interest, any
Securities, any other class of share capital of the Company, any right to
purchase any Securities or other class of share capital of the Company, any
other security of the same class or series as the Securities or any depositary
shares representing Securities, representing any other class of share capital
of the Company or representing any other security of the same class or series
as the Securities (collectively, the "Subject Securities") or (ii) attempt to
induce any person to purchase any Subject Securities, except, only after the
effectiveness of the Registration Statement, by offers to sell or the
solicitation of offers to buy Subject Securities offered as principal by such
Manager and except for brokerage transactions not involving solicitation of the
customer's order. In addition, each Manager agrees that neither it nor any such
affiliated purchaser will, from the date of the Telex until CSFBL shall have
notified it of the termination of the selling restrictions set forth in
Sections 3(a), (b) and (d) hereof, make bids or purchase for the purpose of
creating actual, or apparent, active trading in or influencing the price of the
Securities. Each Manager confirms that it will comply with Rules 101 and 104
of Regulation M (subject to any applicable exemption therefrom), as interpreted
by the Commission, and all applicable laws and regulations of the U.K.
Securities Investment Board. Each Manager confirms its agreement to the
provisions of Section 3 of the Intersyndicate Agreement concerning the conduct
of stabilization activities in connection with the public offering of the
Securities, including CSFBC's authority to direct and control all stabilizing
activities.
-2-
<PAGE> 3
(b) Each Manager further agrees that, until CSFBL shall have
notified it of the termination of the selling restrictions set forth in
Sections 3(a), (b) and (d) hereof, such Manager will not, directly or
indirectly, offer or sell the International Securities to any person at less
than the offering price to the public to be determined (the "Offering Price"),
other than (i) to a person whose business it is to buy or sell securities, or
to act on behalf of persons who buy or sell securities, and then not below the
Offering Price less a maximum permissible reallowance to be notified to such
Manager by telex or (ii) to a company or other entity that is such Manager's
subsidiary or holding company or another subsidiary of such holding company and
then only on condition that such company will not directly or indirectly sell
the International Securities otherwise than as stated in this Section 3(b).
(c) No action has been or will be taken in any non-United States
jurisdiction by the Managers or the Company that would permit a public offering
of the International Securities, or possession or distribution of the
International Prospectus or any other offering material, in any country or
jurisdiction where action for that purpose is required. Each Manager agrees
that it will not directly or indirectly purchase, offer, sell or deliver any
International Securities or have in its possession or distribute or publish the
International Prospectus or any other offering material in or from any country
or jurisdiction except under circumstances that will result in compliance with
any applicable laws and regulations and that will not impose any obligations on
the Company or the Managers, and all offers, sales and deliveries of
International Securities and distributions of the International Prospectus or
other offering material by such Manager will be made at such Manager's own
expense. No Manager is authorized to make any representation or use any
information in connection with the issue, subscription and sale of the
International Securities other than as contained in the International
Prospectus.
(d) Except for purchases and sales pursuant to the Intersyndicate
Agreement, the International Securities may not be offered or sold, directly or
indirectly, and no International Prospectus may be distributed, in the United
States or Canada as part of the distribution of the International Securities.
Each Manager represents and agrees that it has not offered or sold and will not
offer or sell, directly or indirectly, any International Securities acquired by
it as part of the distribution of the International Securities except to a
Manager or pursuant to the Intersyndicate Agreement, and will not distribute
any International Prospectus, in the United States or Canada.
As used in this Section 3(d), an offer or sale shall be in the United
States or Canada if it is made to (i) any individual resident in the United
States or Canada or (ii) any corporation, partnership, pension, profit-sharing
or other trust or other entity (including any such entity acting as an
investment advisor with discretionary authority) whose office most directly
involved with the purchase is located in the United States or Canada. "United
States" means the United States of America (including the States and the
District of Columbia), its territories and possessions and other areas subject
to its jurisdiction, and "Canada" means Canada, its provinces, territories and
possessions and other areas subject to its jurisdiction.
(e) Each Manager represents and agrees that (i) it has not offered or
sold, and prior to the date six months after the date of issue of the
International Securities will not offer or sell any International Securities to
any persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulation 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the
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<PAGE> 4
International Securities in, from or otherwise involving the United Kingdom,
and (iii) it has only issued or passed on, and will only issue or pass on, in
the United Kingdom any document received by it in connection with the issue of
the International Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
(f) Each Manager represents that it is (i) a foreign bank, broker,
dealer or other institution not eligible for membership in the National
Association of Securities Dealers, Inc. (the "NASD") or (ii) a member in good
standing of the NASD. Each Manager that is not an NASD member agrees that it
will comply, as though it were an NASD member, with Sections 8, 24 and 36 of
Article III of the NASD's Rules of Fair Practice, with Section 25 of such
Article III as it applies to a nonmember broker or dealer in a foreign country,
and with the requirements of the NASD's Interpretation with Respect to
Free-Riding and Withholding. Each Manager that is an NASD member agrees that in
making sales of Securities it will comply with all applicable rules of the
NASD, including, without limitation, Section 24 of Article III of the NASD's
Rules of Fair Practice.
(g) The terms of the Intersyndicate Agreement shall be binding on
each of the Managers (whose acceptance of such terms shall be evidenced by its
signature to this Agreement) as though set forth herein.
(h) If advised by CSFBL that there will be a "pot", each Manager
authorizes CSFBL, in its discretion, to receive for sale and to sell to
investors at the public offering price, directly or through any other Manager
selected by CSFBL, all or any part of the Securities to be purchased by such
Manager, all as CSFBL determines. Upon CSFBL's request, such Manager will
deliver to CSFBL for such Manager's account, or sell to CSFBL for its account
or the account of one or more other Managers, such Securities at the Offering
Price less, in the case of purchases for the account of CSFBL or another
Manager, an amount determined by CSFBL not in excess of the selected dealer's
or selling concession. Such reservations and sales to investors arranged by
CSFBL need not be in proportion to a Manager's underwriting commitment under
the Subscription Agreement.
4. Payment and Delivery. CSFBL shall make arrangements for the
payment for and delivery of the International Securities, shall advise the
Managers of such arrangements by telex and shall receive on behalf of the
Managers the compensation payable by the Company under Section 3 of the
Subscription Agreement. At CSFBL's request, each respective Manager will pay
CSFBL an amount equal to the Managers' purchase price pursuant to the
Subscription Agreement with respect to the International Securities allotted to
such Manager, and such payment will be credited to such Manager's account and
applied to the payment of the purchase price to the Company.
5. Waiver of Conditions. If any Manager wishes to waive compliance
with any of the conditions in Section 6 of the Subscription Agreement, such
Manager shall so notify CSFBL and CSFBL shall then, if reasonably practicable,
consult with the other Managers. CSFBL shall, if it also wishes to so waive
compliance, on receiving notice from each of the other Managers, or may, in its
sole discretion, waive compliance with any such condition.
6. Authority. Each of the Managers hereby authorizes CSFBL, as agent
for and on behalf of such Manager, to do all acts and things that such Manager
is, or all Managers together are, required or entitled to do under the
Subscription Agreement and the Intersyndicate Agreement, including without
prejudice to the generality of the foregoing:
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<PAGE> 5
(a) furnish the Company with the information to be
included in the Registration Statement and International Prospectus
with respect to the terms of the offering of the International
Securities;
(b) arrange for the payment to the Company of the
net purchase price for the International Securities in accordance with
Section 3 of the Subscription Agreement;
(c) arrange for delivery of the International
Securities in accordance with the directions of the Managers in
respect of the International Securities purchased by them; and
(d) borrow in the Managers' names and for their
several accounts (in proportion to their respective underwriting
commitments under the Subscription Agreement) such amount as CSFBL
shall in its sole discretion determine in order that payment for the
International Securities can be effected on each Closing Date in
accordance with Section 3 of the Subscription Agreement; and any
amount so borrowed shall forthwith be reduced by the amount of all
payments subsequently received from the Managers in respect of
International Securities purchased by them.
7. Distribution of Moneys; Expenses; Repurchase. (a) After payment
of the aggregate net purchase price for the International Securities to the
Company in accordance with the provisions of the Subscription Agreement and
deduction of a Global Coordinator's super- praecipuum or other compensation as
contemplated in Section 6 of the Intersyndicate Agreement, and subject to
Section 7(b) below, CSFBL shall, out of the balance of the moneys received by
it pursuant to the issue of the International Securities:
(i) deduct a praecipuum for the account of CSFBL in
the amount of U.S. $ per International Security (which may
be divided among CSFBL, Salomon Brothers International Limited, Adams,
Harkness & Hill, Inc. and Hambrecht & Quist LLC in such proportions as
they may determine); and
(ii) distribute among the Managers the balance of
such moneys pro rata in proportion to their respective underwriting
commitments under the Subscription Agreement, subject to the deduction
for certain expenses as set forth herein, including without limitation
stabilization and other expenses incurred pursuant to Sections 3 and 5
of the Intersyndicate Agreement.
(b) CSFBL may charge the account of each respective Manager with its
proportionate share, based upon its underwriting commitment under the
Subscription Agreement, of any transfer taxes on sales made by CSFBL of the
International Securities purchased by the Managers under the Subscription
Agreement, advertising expenses and all other expenses incurred by CSFBL under
this Agreement or in connection with the purchase, carrying, sale or
distribution of the International Securities (including expenses incurred
pursuant to Section 5 of the Intersyndicate Agreement and expenses of investor
presentations). The accounts hereunder will be settled as promptly as
practicable after the termination of the obligations of the Managers and the
U.S. Underwriters set forth in Section 2 of the Intersyndicate Agreement, but
CSFBL may reserve such amount as it deems advisable for additional expenses.
CSFBL's determination of the amount to be paid to or by the Managers under this
Section 7(b) will be conclusive. CSFBL may at any time make partial
distributions of credit balances or call for payment of debit balances. Any of
the Managers' funds in
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<PAGE> 6
CSFBL's hands may be held with its general funds without accountability for
interest. Notwithstanding any settlement, each Manager will remain liable for
any taxes on transfers for its account, and for its proportionate share, based
on its underwriting commitment under the Subscription Agreement, of all
expenses and liabilities that may be incurred by or for the accounts of the
Managers.
(c) Any International Securities sold or loaned by a Manager (the
"Selling Manager") (otherwise than through the Representatives) that the
Representatives purchases in the open market for the account of any U.S.
Underwriter or any Manager prior to notification from CSFBL of the termination
of the provisions of this subsection will be repurchased by such Selling
Manager on demand at the cost of such purchase plus commissions and taxes on
redelivery. Certificates representing the International Securities delivered on
such repurchase need not be the identical certificates so purchased. In lieu of
such action the Representatives may at their discretion sell for the account of
such Selling Manager the International Securities so purchased and debit or
credit the account of such Selling Manager for the loss or profit resulting
from such sale, or charge the account of such Selling Manager with an amount
not in excess of the selected dealer's or selling concession with respect to
such International Securities. CSFBL may terminate the provisions of this
subsection at any time at or subsequent to the termination of the selling
restrictions set forth in Sections 3(a), (b) and (d) hereof by notice to the
effect that the penalty bid provisions of this Agreement are terminated.
(d) Amounts paid or reimbursed by the Company in respect of Managers'
expenses will be retained by CSFBL (even if in excess of its expenses described
in Section 7(b) above). The other Managers will not be reimbursed for any of
their expenses in connection with the offering of the Securities.
8. Unreimbursed Expenses. Any expenses that may be incurred by the
Managers and not reimbursed by the Company shall be borne by the several
Managers pro rata as nearly as practicable in proportion to their respective
underwriting commitments under the Subscription Agreement.
9. Default by Managers. Default by one or more Managers hereunder or
under the Subscription Agreement will not release the other Managers from their
obligations or affect the liability of any defaulting Manager to the other
Managers for damages resulting from such default. If one or more Managers
default under the Subscription Agreement, CSFBL may arrange for the purchase by
others, including non- defaulting Managers, of International Securities not
taken up by the defaulting Manager or Managers in accordance with Section 7 of
the Subscription Agreement.
10. Position of CSFBL. CSFBL will be under no liability to any
Manager for any act or omission except for obligations expressly assumed by
CSFBL herein, and no obligations on CSFBL's part will be implied hereby or
inferred herefrom. The rights and liabilities of the Managers are several and
not joint, and nothing herein contained shall constitute or be deemed to
constitute the Managers as partners with each other or (except as expressly
provided herein) render any Manager liable for the obligations of any other
Manager. No Manager shall be bound in any way by the acts of any other Manager
in respect of the issue of the International Securities except those of CSFBL
on behalf of the Managers pursuant to the provisions of this Agreement, the
Subscription Agreement or the Intersyndicate Agreement, and no Manager shall
have any right to contribution or account against any other Manager except as
expressly or by necessary implication provided herein. Each Manager shall bear
all losses and expenses incurred by it and be entitled to retain all profits
earned by it in connection with the Subscription Agreement except as otherwise
expressly provided herein.
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<PAGE> 7
11. Indemnification. Each Manager will indemnify and hold harmless
each other Manager and each person, if any, who controls such Manager within
the meaning of Section 15 of the Act to the extent and upon the terms upon
which each Manager agrees to indemnify the Company in the Subscription
Agreement. Each Manager will indemnify the other Managers, each person, if any,
who controls any of such Managers within the meaning of Section 15 of the Act
and their respective directors and officers, against any losses, liabilities,
damages, costs or claims, or actions in respect thereof (including, but not
limited to, all costs of investigating, disputing or defending any such claim
or action) to which any of such Managers may become subject arising out of or
in connection with any unauthorized action by that Manager, failure by that
Manager to observe any of the restrictions or requirements of Section 3 or
otherwise set forth herein or the giving of any information or the making by
that Manager of any unauthorized representation or the use by that Manager of
any information that is not contained in the Prospectuses relating to the
Securities or any amendment or supplement thereto.
12. Contribution. Each Manager (including CSFBL) will pay, upon
CSFBL's request, as contribution, its proportionate share, based upon such
Manager's underwriting commitment under the Subscription Agreement, of any
losses, claims, damages or liabilities, joint or several, paid or incurred by
any Manager to any person other than a Manager, arising out of or based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, the Prospectuses, any amendment or supplement
thereto or any related preliminary prospectus or any other selling or
advertising material approved by CSFBL for use by the Managers in connection
with the sale of the International Securities, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by a Manager through CSFBL specifically for use therein); and will pay
such proportionate share of any legal or other expenses reasonably incurred by
CSFBL or with CSFBL's consent in connection with investigating or defending any
such loss, claim, damage or liability, or any action in respect thereof. In
determining the amount of any Manager's obligation under this Section 12,
appropriate adjustment may be made by CSFBL to reflect any amounts received by
any one or more Managers in respect of such claim from the Company or any other
person (other than a Manager) pursuant to Section 7 of the Subscription
Agreement or otherwise. There shall be credited against any amount paid or
payable by a respective Manager pursuant to this Section 12 any loss, damage,
liability or expense that is incurred by such Manager as a result of any such
claim asserted against it, and if such loss, claim, damage, liability or
expense is incurred by such Manager subsequent to any payment by it pursuant to
this Section 12, appropriate provision shall be made to effect such credit, by
refund or otherwise. If any such claim is asserted, CSFBL may take such action
in connection therewith as it deems necessary or desirable, including retention
of counsel for the Managers, and in CSFBL's discretion separate counsel for any
particular Manager or group of Managers, and the fees and disbursements of any
counsel so retained by CSFBL shall be included in the amounts payable pursuant
to this Section 12. In determining amounts payable pursuant to this Section 12,
any loss, claim, damage, liability or expense incurred by any person
controlling any Manager within the meaning of Section 15 of the Act that has
been incurred by reason of such control relationship shall be deemed to have
been incurred by such Manager. Any Manager may elect to retain at its own
expense its own counsel. CSFBL may settle or consent to the settlement of any
such claim, on advice of counsel retained by CSFBL, upon consultation, if
practicable, with the Managers. Whenever CSFBL receives notice of the assertion
of any claim to which the provisions of this Section 12 would be applicable,
CSFBL will give prompt notice thereof to each Manager. CSFBL will also furnish
each Manager with periodic reports, at such times as it deems appropriate as to
the status of such claim and the action taken by it in connection therewith,
but shall have absolute discretion to
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<PAGE> 8
determine the response to any such claim and to take action in connection
therewith, including directing any action, suit or proceeding on behalf of each
Manager. If any Manager or Managers default in their obligation to make any
payments under this Section 12, each non-defaulting Manager shall be obligated
to pay its proportionate share of all defaulted payments, based on such
Manager's underwriting commitment under the Subscription Agreement as related
to such underwriting commitments of all non-defaulting Managers. Nothing herein
shall relieve such defaulting Manager from liability for its own default.
13. Questionnaire. Each Manager by its execution of this Agreement
hereby confirms that (except as may have been previously set forth in a written
notice from it to CSFBL):
(a) neither it nor any of its directors, officers or partners
have a material relationship with the Company;
(b) except as described in this Agreement, in written notices
to it from CSFBL or in the Prospectuses, it does not know of any
discounts or commissions to be allowed or paid to dealers, including
all cash, securities, contracts or other consideration to be received
by any dealer in connection with the sale of the International
Securities;
(c) it has not prepared any report or memorandum for external
use in connection with the proposed offering; [and]
(d) it is not an "affiliate" of the Company for purposes of
Schedule E to the By-Laws of the NASD. It understands that under
Schedule E (except as provided in Section 2(a)(3) thereof) two
entities are "affiliates" of each other if one entity controls, is
controlled by, or is under common control with, the second entity and
that "control" is presumed to exist if one entity (or, in the case of
an NASD member, the entity and all "persons associated with" it (as
defined in the NASD By-Laws)) beneficially owns 10% or more of the
second entity's outstanding voting securities;
(e) it does not have a "conflict of interest" with the Company
under Schedule E to the NASD By-Laws. In that regard, it specifically
confirms that it, its "parent" (as defined in Schedule E), affiliates
and "persons associated with" it (as defined in the NASD By-Laws) in
the aggregate do not beneficially own 10% or more of the Company's
"common equity", "preferred equity" or "subordinated debt" (as each
such term is defined in Schedule E);
(f) neither it nor any of its directors, officers, partners or
"persons associated with" it (as defined in the NASD By-Laws) nor, to
its knowledge, any "related person" (defined by the NASD to include
counsel, financial consultants and advisors, finders, members of the
selling or distribution group and any other persons associated with or
related to any of the foregoing) or any other broker-dealer (i) within
the last 12 months has purchased in private transactions, or intends
before, at or within six months after, the commencement of the public
offering of the International Securities to purchase in private
transactions, any securities of the Company or any Company Related
Party (as hereinafter defined), (ii) within the last 12 months had any
dealings with the Company or any subsidiary or controlling person
thereof (other than relating to the proposed Subscription Agreement and
the Underwriting Agreement) as to which documents or information are
required to be filed with the NASD pursuant to its Corporate Financing
Rule (a copy of each of the NASD provisions referred to in this Section
13(d) is available from CSFBL upon request), or (iii) during the 12
months immediately preceding the filing of any Registration Statement,
has entered into
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<PAGE> 9
any arrangement which provided or provides for the receipt of
any item of value (including, but not limited to, cash payments and
expense reimbursements) and/or the transfer of any warrants, options or
other securities from the Company or any Company Related Party to it or
any related person. There is no association or affiliation between it
and (i) any officer or director of the Company or any Company Related
Party, or (ii) any securityholder of 5% or more (or, in the case of an
initial public offering of equity securities, any securityholder) of
any class of securities of the Company or a Company Related Party; it
being understood that for purposes of this Section 13(f), the term
"Company Related Party" includes any affiliate of the Company, and the
officers or general partners, directors, employees and securityholders
thereof. (If there are any exceptions, the identity of the person with
whom the association or affiliation exists shall be stated and, if
relevant, the number of equity securities or the face value of debt
securities owned by such person, the date such securities were acquired
and the price paid for such securities shall also be stated.);
(g) No portion of the net offering proceeds from the sale
of the Securities will be paid to us or any of our affiliates or
"persons associated with" us (as defined in the NASD By-Laws) or
members of the immediate family of any such person;
(h) neither it nor any "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) of which it is a member is the
beneficial owner (determined in accordance with Rule 13d-3 under the
Exchange Act) of more than 5% of any class of voting securities of the
Company, nor does it have any knowledge that more than 5% of any class
of voting securities of the Company is held or to be held subject to
any voting trust or other similar agreement;
(i) it has not within the past 12 months prepared or had
prepared for it any engineering, management or similar report or
memorandum relating to broad aspects of the business, operations or
products of the Company. (This confirmation does not apply to reports
solely consisting of recommendations to buy, sell or hold the
Company's securities, unless such recommendations have changed within
the past six months, or to information already contained in documents
filed with the Commission. If there are any exceptions, four copies of
each report and memorandum shall have been furnished to CSFBL and each
class of persons who received such material shall have been identified
and the number of copies distributed to each such class.).
14. Time of the Essence. In the performance of this Agreement time
shall be of the essence.
15. APPLICABLE LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The parties hereby submit to the
non-exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
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<PAGE> 10
16. Counterparts. This Agreement may be signed in various
counterparts, which together shall constitute one and the same instrument.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:_________________________________________
[Name]
SALOMON BROTHERS INTERNATIONAL LIMITED
ADAMS, HARKNESS & HILL, INC.
HAMBRECHT & QUIST LLC
Each by its duly authorized attorney-in-fact:
By:__________________________________________
[Name]
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<PAGE> 1
EXHIBIT 5.1
[L&W NY LETTERHEAD]
April , 1997
Weider Nutrition International, Inc.
1960 South 4250 West
Salt Lake City, Utah 84104-4836
RE: Registration Statement on Form S-1
(File No. 33-12929) of Weider Nutrition International, Inc.
relating to 6,440,000 shares of Class A Common Stock
Ladies and Gentlemen:
In connection with the registration by Weider Nutrition International,
Inc., a Delaware corporation (the "Company"), of 6,440,000 shares of Class A
common stock, par value $0.01 per share (the "Shares"), under the Securities Act
of 1933, as amended (the "Act"), on Form S-1 (File No. 33-12929) filed with the
Securities and Exchange Commission (the "Commission") on September 27, 1996, as
amended by Amendment No. 1 filed with the Commission on October 16, 1996,
Amendment No. 2 filed with the Commission on March 20, 1997 and Amendment No. 3
filed with the Commission on April 2, 1997 (collectively, the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken by the Company in connection with the
authorization, issuance and sale of the Shares. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the internal laws of the State of New York and the General Corporation Law of
the State of Delaware, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law or the laws of any other local agencies within the state.
Subject to the foregoing, it is our opinion that each of the Shares has
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters".
Very truly yours,
Latham & Watkins
<PAGE> 1
EXHIBIT 10.11
RESTATED STANDARD INDEMNITY AGREEMENT CONFIDENTIAL
AGREEMENT
THIS AGREEMENT, dated January 26, 1993, by and between Showa Denko
America, Inc. ("SDA"), and Schiff Products, Inc., a Utah Corporation (which,
together with the subsidiaries listed on Attachment 1 hereto, are referred to
collectively as the "Company").
WITNESSETH
WHEREAS, the Company has manufactured, sold, and/or distributed
products containing L-tryptophan ("LTCPs"), some or all of which may have
contained L-tryptophan ("LT") sold by SDA; and
WHEREAS, claims have been asserted and lawsuits have been instituted
against SDA, the Company, and/or direct or indirect customers of the Company for
whom the Company is or may become responsible to provide a defense (individually
a "Secured Customer" and collectively the "Secured Customers"), alleging that
one or more of them is liable for personal injuries arising from ingestion of
LTCPs manufactured, sold, or distributed by the Company; and
WHEREAS, in partial settlement of the Company's claim for
indemnification against SDA arising from SDA's sale of LT, to the
<PAGE> 2
Company, or to an entity from which the Company may have purchased, without any
admission of liability by SDA or by the Company with respect to the claims
between them or against them, SDA and the Company wish to provide for their
respective responsibilities for the defense of such claims and for the payment
of judgments and settlements in respect of such claims as provided in this
Agreement; and
WHEREAS, the Company is unwilling to enter into this Agreement unless
Showa Denko K.K., a Japanese company ("SDK"), enters into a Guaranty Agreement
with the Company substantially in the form annexed to this Agreement as
Attachment 2;
NOW, THEREFORE:
1. This Agreement shall apply to all claims, whether in litigation or
not, alleging liability for personal injuries arising from the ingestion of
LTCPs manufactured, sold, or distributed by the Company asserted against SDA,
the Company, and/or Secured Customers, or against any one or more of them,
whether on, before, or after the date hereof (except as specifically provided
herein). Each such claim is hereinafter referred to individually as a "Claim,"
and all such claims are hereinafter referred to collectively as the "Claims."
Each person asserting a Claim is hereinafter referred to individually
2
<PAGE> 3
as a "Claimant" and all such persons are hereinafter referred to
collectively as the "Claimants."
2. SDA agrees to indemnify and to hold harmless the Company from and
against any obligation (whether direct or by virtue of any obligation to a
Secured Customer or any cross-claim, third-party claim, claim for contribution
or indemnification, or otherwise) to make payment of any settlement or judgment
for damages in favor of any person in respect of a Claim where the LTCPs
allegedly ingested by the Claimant or Claimants making such Claim contained LT
sold by SDA, as follows:
(a) If a proximate cause of the personal injuries giving rise to
liability, as determined on the basis of a preponderance of the
evidence, including but not limited to epidemiological, chemical, and
medical evidence, was a constituent of the LT product sold by SDA or
was a factor for which SDK, SDA or any other company or other entity
controlling, controlled by or under common control with SDA (SDK and
each such other company or other entity, an "SDA Affiliate") was
responsible, then, subject to subparagraph (b) below, SDA shall be
solely responsible for the Company's payment obligations, whether
direct or indirect as noted above, in respect of such settlement or
judgment;
(b) If a proximate cause of the personal injuries giving rise to
liability, as determined on the basis of a preponderance of the
evidence, including but not limited to
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<PAGE> 4
epidemiological, chemical, and medical evidence, was (i) the sale of
LT, or of an LTCP for which the recommended daily dosage contained more
than 100 mg. of LT, by the Company or by any Secured Customer
subsequent to March 17, 1990, or (ii) the sale of an LTCP for which the
recommended daily dosage contained 100 mg. or less of LT by the Company
or by any Secured Customer subsequent to May 23, 1990, or (iii) the
addition of any substance to, or tampering with, any LT or an LTCP
while that LT or LTCP was in the possession, custody or control of the
Company or any Secured Customer (each such sale, addition or tampering,
an "Exclusion Event"), then SDA and the Company shall seek to reach
agreement regarding the Company's responsibility, if any, for payment
in respect of said settlement or such judgment as is fair under all the
circumstances;
(c) If SDA and the Company are unable to agree on the matters which are
the subject of the provisions of subparagraphs (a) or (b) above, then
SDA and the Company shall submit the matter to binding arbitration as
specified in paragraph 15 hereof;
(d) Either SDA or the Company may make any payment contemplated under
this paragraph 2 Without prejudice to its right to seek reimbursement
from the other under the procedures set forth in paragraph 15;
(e) Each of the Company and SDA agrees that it will provide prompt
notice to the other if it learns of the existence of
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<PAGE> 5
any Exclusion Event (each such notice, an "Notice of Exclusion"), it
being agreed, however, that a failure by SDA or the Company to provide
such notice shall not (i) be deemed to constitute a material breach of
this Agreement or (ii) result in any change in the rights or
obligations of SDA or the Company pursuant to this Agreement, including
without limitation their respective rights and obligations under or
arising by virtue of subparagraph (b) above. A Notice of Exclusion of
any Claim shall be null and void and of no effect unless provided prior
to the earlier to occur of (i) sixty (60) days prior to the date of the
commencement of the earliest to occur of the trial, arbitration or
mediation of such Claim and (ii) thirty (30) days prior to any
settlement of such Claim.
(f) Any Notice of Exclusion pursuant to this paragraph shall be made in
the manner provided in paragraph 19 (which paragraph specifies the
party to whom and the place notice is to be delivered).
3. SDA agrees (i) to designate Citibank, N.A., or another bank mutually
acceptable to the parties as the disbursement agent (the "Disbursement Agent")
pursuant to a Disbursement Agent Agreement substantially in the form annexed to
this Agreement as Attachment 3 (such agreement, or any replacement thereof
substantially in such form, the "Disbursement Agent Agreement") and (ii) to
maintain the Disbursement Agent Agreement in effect
5
<PAGE> 6
during the term of this Agreement. In support of its payment obligations
hereunder and under similar agreements with other customers of SDA, SDA has
delivered to the Disbursement Agent an irrevocable standby letter of credit in
favor of the Disbursement Agent pursuant to the terms of the Disbursement Agent
Agreement in the amount of Twenty Million US Dollars ($20,000,000) substantially
in the form of the letter of credit annexed as Exhibit B to the Disbursement
Agent Agreement. If amounts are drawn on the letter of credit, SDA during the
term of this Agreement will cause an amendment or supplement to the letter of
credit or a new letter of credit to be delivered to the Disbursement Agent
providing for a restored limit of Twenty Million US Dollars ($20,000,000) within
thirty (30) days after such drawing. During the term of this Agreement, no later
than thirty (30) days prior to the expiration date of any letter of credit (as
it may have been extended from time to time), SDA will deliver to the
Disbursement Agent a renewal of the letter of credit for a term of at least two
years or a substitute letter of credit for such term.
The Company shall be a Beneficiary within the meaning of the
Disbursement Agent Agreement, but only so long as (i) this Agreement remains in
effect and to the extent provided in this Agreement or (ii) the Company
otherwise remains entitled to the benefits of the Disbursement Agent Agreement
under paragraph 16 of this Agreement. The Company acknowledges that other direct
6
<PAGE> 7
and indirect customers of SDA will have equal rights as Beneficiaries under the
Disbursement Agent Agreement.
The Company acknowledges (i) that any claim by it to the benefits of
the Disbursement Agent Agreement must be submitted and administered in strict
compliance with the following procedures, (ii) that the Company has no right to
receive, and the Disbursement Agent has no authority to make, payments by the
Disbursement Agent or draws under the letter of credit unless the claim has been
certified for payment to the Disbursement Agent by the Verification Agent
hereafter referred to, and (iii) that it may claim payment hereunder only as
long as this Agreement remains in effect or the Company otherwise remains
entitled to benefits under paragraph 16 hereof.
The procedures for submission and review of any claim by the Company
shall be the following:
(a) The Verification Agent shall be a mutually acceptable lawyer
independent of the parties. If such Verification Agent or any successor
shall die or resign or otherwise become unable or cease to continue to
act as such, SDA, after consultation with the Company and the parties
to any other similar agreements with SDA, shall appoint a successor
Verification Agent, who shall be a lawyer independent of the parties.
The Verification Agent will act independently and impartially on behalf
of both parties in reviewing claims for payment and certifying amounts
to the Disbursement Agent for payment and shall use professional care
in the
7
<PAGE> 8
performance of his function. The Verification Agent shall not be liable to
either party for determinations made by him in good faith and with due care even
though such determinations subsequently are held to be erroneous. The
Verification Agent shall have no duties except to SDA, the Company, and the
parties other than SDA to agreements similar to this Agreement (such parties
being referred to in the Disbursement Agent Agreement as Beneficiaries).
Persons asserting Claims, plaintiffs with judgments against any of SDA, the
Company, or Secured Customers, and Secured Customers shall have no right to
assert any third-party beneficiary relationship against the Verification Agent
or any claim to payment from the Disbursement Agent under this Agreement, except
that any Secured Customer that has entered into a separate indemnification
agreement between itself and SDA entitling it to do so may directly exercise its
rights as a Beneficiary under the Disbursement Agent Agreement pursuant to such
separate indemnification agreement. The Company shall have no responsibility for
any part of the fees and expenses of the Verification Agent or the Disbursement
Agent.
(b) If a judgment for money damages is entered against the Company or its
Secured Customer, or a settlement amount is reduced to a judgment enforceable
against the Company or its Secured Customer, as to which the Company contends
that SDA is required to make payment pursuant to paragraph 2 hereof,
8
<PAGE> 9
the Company may give written notice thereof (the "Payment Request Notice") to
SDA and to the Verification Agent setting forth a brief statement of the basis
for its contention, accompanied by a certified copy of the judgment, together
with evidence that the judgment has become enforceable against the judgment
debtor under applicable law. If SDA does not respond in the terms permitted by
subparagraph (c) hereof within ten (10) business days of the receipt by it of
the Payment Request Notice, the Verification Agent, subject only to his review
of relevant documents and his verification of any pertinent additional
circumstances, shall certify the amount claimed to the Disbursement Agent for
payment pursuant to the provisions of the Disbursement Agent Agreement.
(c) In response to a Payment Request Notice, SDA may
(1) acknowledge to the Company and the Verification Agent its
obligation hereunder to pay part or all of the amount claimed, in which event
the Verification Agent shall forthwith certify the amount or such part thereof,
as the case may be, to the Disbursement Agent for payment pursuant to the
provisions of the Disbursement Agent Agreement, and any portion of such claim as
to which SDA does not acknowledge its obligation hereunder to pay shall be
governed by clause (3) of this subparagraph (c);
(2) state that it proposes to take effective steps to stay or suspend
the enforcement of such judgment pending
9
<PAGE> 10
post-trial applications or appeal, including the posting of any bond or other
security required for that purpose, in which event, provided that the
Verification Agent is satisfied that such stay or suspension has been effected
within five (5) business days after notice to SDA and the Verification Agent
from the Company of an attempted enforcement of such judgment against the
Company, further action by the Verification Agent in respect of such judgment
shall be deferred until such stay or suspension expires; or
(3) object to payment of part or all of the amount requested, stating
briefly its grounds of objection and that it intends to submit its contentions
in arbitration pursuant to paragraph 15 hereof and SDA agrees to use its best
efforts to expedite any such arbitration, to select its arbitrator promptly
pursuant to the applicable procedures and to cause such person to select the
neutral arbitrator expeditiously, and to have the arbitration held no later than
180 days after submission of the matter to arbitration. If SDA submits the
matter to arbitration within thirty (30) days of its response, the liability of
SDA, if any, shall be determined by the decision of the arbitrators. If the
arbitrators award an amount to the Company, then the Verification Agent shall
certify the sum so awarded by the arbitrators to the Disbursement Agent for
payment pursuant to the provisions of the Disbursement Agent Agreement. If in
subsequent proceedings in conformity with the CPR Rules
10
<PAGE> 11
(as defined in paragraph 15) and the U.S. Arbitration Act the award of the
arbitrators is overturned and it is determined that the amount awarded by the
arbitrators and paid by the Disbursement Agent to or on behalf of the Company
exceeds the amount that was properly owed by SDA, then the Company agrees to pay
promptly such excess amount plus interest at the legal rate. If the Company
shall commence judicial proceedings to review a decision of the arbitrators, the
Verification Agent shall certify to the Disbursement Agent for payment the
amount determined in such judicial proceedings to be due from SDA. If SDA shall
object to payment of less than all the amount claimed by the Company, then the
Verification Agent shall proceed, as to the balance claimed, pursuant to clause
(1) of this subparagraph (c).
(d) If SDA in response to a Payment Request Notice objects to payment of part or
all of the amount requested by the Company, so that the Verification Agent
cannot certify to the Disbursement Agent a payment to be made in full
satisfaction of the judgment, then the Company may elect to require such a full
payment by SDA notwithstanding its objection by (i) giving notice to the
Verification Agent of such election not later than ten (10) business days after
receipt of SDA's objection, including therewith evidence acceptable to the
Verification Agent demonstrating the Company's compliance with the Escrow
Requirement, and
11
<PAGE> 12
(ii) satisfying the Escrow Requirement, as hereinafter defined, with respect to
all that part of the judgment as to which SDA made objection. Promptly upon
receipt of such timely notice with such evidence, the Verification Agent shall
certify the amount to which SDA objected to the Disbursement Agent for payment
pursuant to the provisions of the Disbursement Agent Agreement. To exercise this
election, the Company must deposit a sum of money in an amount equal to all that
part of the judgment to which SDA made objection in an interest-bearing escrow
account with a substantial mutually acceptable bank and execute an escrow
agreement in standard form (the "Escrow Agreement") with said bank for the
benefit of SDA (the "Escrow Requirement"). If the Company exercises this
election, then SDA will submit the dispute to arbitration within thirty (30)
days as provided in subparagraph 3(c)(3) above. The Escrow Agreement shall
provide that the deposited escrow funds, with interest earnings net after escrow
fees thereon, will be released by the escrow agent to the parties as their
interests may appear pursuant to and in accordance with the award of the
arbitrators on the dispute as to such amount to which SDA made objection, or as
otherwise directed in a writing signed by both SDA and the Company. If the award
is overturned in any subsequent proceedings (as above provided), and it is
determined that either SDA or the Company received an amount from the escrow
larger than that
12
<PAGE> 13
to which it was entitled, then the party receiving such excess agrees to pay
promptly such excess amount, plus the attributable share of the net interest
earnings on the amount that it received, plus interest at the legal rate
accruing after the escrow distribution, to the party determined to be entitled
thereto.
(e) In any case in which the Verification Agent is required to verify the
appropriateness of payment of an amount claimed by the Company, the Verification
Agent shall promptly review the documents submitted and conduct such further
investigation, if any, of additional facts and circumstances as he determines to
be appropriate. SDA and the Company shall cooperate fully in any such
investigation and shall respond to inquiries from the Verification Agent and
provide explanations within two (2) business days of any such inquiry. The
Company shall use its best efforts to cause any Secured Customer to cooperate in
like manner. Whenever he deems it appropriate, the Verification Agent may seek
information by conference telephone calls with counsel for the parties, and the
parties agree to cause their respective counsel to cooperate fully with the
Verification Agent for that purpose, subject to the maintenance of any
privilege.
(f) At the request of either party, the Verification Agent may require that
procedures be followed to assure that a payment from the Disbursement Agent will
be applied solely
13
<PAGE> 14
to payment of the judgment or arbitral award as to which claim has been made,
and for no other purpose. These procedures may include a direction to the
Disbursement Agent to issue a check directly to the order of a judgment
plaintiff against delivery of a satisfaction of the judgment and release of the
defendant or defendants against which the judgment or portion thereof being paid
was entered, satisfactory to counsel for the parties.
4. SDA shall have no obligation to indemnify for or to make any
payments in respect of any judgment or part of a judgment (i) for damages caused
by the intentional tort of the Company or any Secured Customer, (ii) for
punitive damages attributable to conduct of the Company or any Secured Customer,
(iii) for civil or criminal penalties, or (iv) for any award of multiple damages
caused by the intentional misconduct or violations of law by the Company or by
any Secured Customer; but SDA's obligation to indemnify shall apply to the
extent that the Company's or any Secured Customer's liability for such damages
or penalties is attributable solely to the acts or the failure to act of SDA or
of any SDA Affiliate. However, nothing in the preceding sentence shall
constitute a waiver of any rights that the Company or a Secured Customer may
have under common law or statute to seek indemnification or contribution from
SDA or any affiliate thereof in respect of damages or penalties of a type
specifically described in the preceding sentence that are imposed
14
<PAGE> 15
upon the Company or the Secured Customer, subject to the provisions of
paragraphs 14 and 15. SDA shall not be obligated to make any payments in respect
of a default judgment on a Claim against the Company or any Secured Customer
unless SDA or counsel retained by SDA was responsible for defense of the Claim
in litigation at the time of default. SDA shall have no obligation under this
Agreement to pay for any settlement of any Claim entered into by the Company or
any Secured Customer prior to the date of this Agreement, but SDA may agree to
accept such obligation in a separate agreement in writing.
5. The parties hereto agree that the Company shall use best efforts to
secure the compliance of its Secured Customers with the provisions of this
Agreement that pertain to them. Failure of such compliance on the part of a
Secured Customer that adversely affects the ability of SDA to conduct a defense
against any Claim shall be a basis for SDA to withhold the benefits of this
Agreement from such Secured Customer with respect to such Claim, but shall not
be a basis for SDA to withhold the benefits of this Agreement from the Company
except as expressly provided in the last sentence of paragraph 6(b), paragraph
9(d), or the third sentence of paragraph 14 of the Agreement.
6. (a) SDA shall pay the legal fees and expenses as incurred in, and
shall be entitled to supervise and
15
<PAGE> 16
direct, the defense of any Claims which fall within the provisions of this
Agreement made against SDA, the Company, or any Secured Customer including,
without limitation, any Claim presented to any court, administrative body, other
tribunal, or otherwise and including the negotiation of settlement of any Claim
before or after such presentation.
(b) The Company hereby consents to be jointly represented with SDA by common
counsel selected by SDA (such common counsel, so selected, "Common Counsel") in
respect of any Claim where SDA, in its sole discretion, deems it advisable to
retain such Common Counsel. The Company will use best efforts to obtain the
consent of each Secured Customer involved in the Claim to such joint
representation. SDA shall be responsible for all fees and disbursements of such
Common Counsel as they are incurred. SDA and the Company agree promptly to enter
into a common representation agreement or agreements substantially in the form
annexed to this Agreement as Attachment 4 (and the Company will use best efforts
to cause any involved Secured Customers to become parties thereto) providing for
the retention of Common Counsel on a Claim-by-Claim basis, which agreements
shall provide for the waiver of any conflicts of interest that may exist. SDA
shall have no obligation to defend any Secured Customer who shall
16
<PAGE> 17
refuse to agree to a request for such common representation, and SDA shall have
no obligation to make payment hereunder to the extent that such payment
obligation is in respect of a Claim against a Secured Customer who refused to
participate in the common defense against such Claim.
(c) If the Company or SDA shall terminate this Agreement, and SDA is not then in
default of its obligations under the provisions of paragraph 3 above, then the
terminating party shall withdraw from representation by Common Counsel;
provided, however, that in the event SDA terminates this Agreement pursuant to
the second sentence of paragraph 16 of this Agreement, the Company will be
deemed to have withdrawn from all applicable common representation agreements
and to have consented to the continued representation by Common Counsel of SDA
and all other parties to any common representation agreement in respect of any
Claims. Except as set forth in the immediately preceding proviso, the Company
and SDA each hereby expressly agrees that the non-terminating party may continue
to be represented by Common Counsel. The Company and SDA each waives any
conflicts of interest that continued representation of the other party by Common
Counsel in accordance with this Agreement might otherwise entail. If SDA is in
default of its
17
<PAGE> 18
obligations under the provisions of paragraph 3 above, and if the Company or SDA
shall terminate this Agreement, then at the Company's request SDA shall withdraw
from representation by Common Counsel, and each party hereby expressly agrees
that the Company and the Secured Customers may continue to be represented by
Common Counsel and waives any conflicts of interest that such representation
might otherwise entail. If the Company terminates this Agreement or if SDA
terminates this Agreement pursuant to the provisions of the second sentence of
paragraph 16, SDA shall have no further obligation to defend Secured Customers
under this Agreement.
(d) Nothing herein shall preclude SDA, the Company, or any Secured Customer from
retaining separate counsel in respect of any Claim, but the party retaining
separate counsel shall instruct such separate counsel to cooperate with SDA's
counsel unless it is prejudicial to do so, and a party retaining separate
counsel shall be responsible for payment of the fees and disbursements of its
separate counsel unless otherwise agreed by SDA.
(e) At the request of the Company, SDA will pay the reasonable fees, costs and
disbursements of one national coordinating counsel for the Company, who shall
also be responsible for contact with each of the
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<PAGE> 19
Company's Secured Customers. If the Company shall have retained national
coordinating counsel, then SDA will use best efforts to consult with such
counsel regarding the selection of counsel for particular cases and
regarding important decisions in the litigation. SDA will instruct common
Counsel (i) to provide such national coordinating counsel, on a timely
basis, copies of all pleadings, discovery, and status reports and material
correspondence so that such national coordinating counsel will be kept
fairly apprised of the progression of the litigation; (ii) to consult with
such national coordinating counsel regarding material Court filings made on
behalf of the Company or a Secured Customer on a timely basis in advance of
making such filings; and (iii) to keep such national coordinating counsel
advised of settlement negotiations at least bimonthly. SDA and Common
Counsel shall endeavor to contact the Company and the Secured Customers
through the Company's national coordinating counsel. National coordinating
counsel will be provided reasonable access to the files of Common Counsel
for the review and copying of such files on all matters related to the joint
defense.
7. The Company will cooperate fully with SDA, and will use best efforts
to obtain the Secured Customers' cooperation with
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<PAGE> 20
SDA, in the investigation and defense of Claims, including but not limited to
making its or their records and personnel available to SDA and its attorneys and
providing witnesses to present testimony at any trial, arbitration, or
proceeding, if requested to do so, and consulting with SDA's attorneys prior to
providing any documents or information to any claimant or any person acting on
behalf of a claimant. SDA will also cooperate in the defense of Claims in cases
in which it is not a party. The Company agrees promptly to instruct all counsel
which, prior to the date of this Agreement, have represented the Company in
connection with any Claim (i) to provide counsel for SDA with copies of all
written communications, and to disclose to counsel for SDA the substance of all
oral communications, made prior to the date of this Agreement to counsel for any
plaintiff in any Claim (other than documents or oral statements either
previously provided to counsel for SDA or exclusively in respect of procedural
issues); and (ii) except with respect to a Withdrawn Claim (as defined in
paragraph 13 below) to refrain from oral or written communications with any such
plaintiff's counsel (x) without providing Common Counsel prior notice of the
opportunity to attend, or (y) as authorized by counsel for SDA, or (z) as
required by law.
8. The Company represents and agrees that (a) no default judgment on
any Claim has been entered against it or to its knowledge any of its Secured
Customers as of the date of this
20
<PAGE> 21
Agreement, and it will not, and will use best efforts to cause its Secured
Customers not to, knowingly permit a default judgment to be taken against it or
them hereafter without SDA's express written consent; (b) neither it nor, to its
knowledge, any of its Secured Customers has knowingly made, and it will not, and
will use best efforts to cause its Secured Customers not to, knowingly make, any
admission of liability for any Claim; and (c) neither it nor, to its knowledge,
any of its Secured Customers has entered into any agreement for the compromise
or settlement of any Claim (except for any such agreements as have been
identified in writing to SDA prior to execution of this Agreement) or will
hereafter enter into any agreements for the compromise or settlement of any
Claim without SDA's consent (which consent shall not be unreasonably withheld),
and any such settlement payment made shall be subject to paragraph 2(d) above.
9. (a) In the event of any material breach by the Company or by
SDA of this Agreement, then the other party ("the
non-breaching party") may, at its sole option, waive the
breach or, in addition to any other remedies provided herein
(including without limitation arbitration pursuant to
paragraph 15), (i) terminate this Agreement or (ii) terminate
this Agreement with respect to any Claim the defense of which
has been materially adversely affected by such breach. If the
party alleged to be in material breach disputes the
21
<PAGE> 22
grounds for termination of the Agreement, then such party must submit the matter
to arbitration within 30 days after the notice of termination or be deemed to
have accepted it.
(b) The failure of a Secured Customer to comply with the provisions of this
Agreement shall not be deemed a breach of this Agreement by the Company
entitling SDA to invoke the termination rights in subparagraph (a) above if and
so long as the company has exercised, and continues to exercise, its best
efforts to persuade the Secured Customer to comply.
(c) In the event of a material breach by the Company, and in addition to the
remedy in subparagraph (a) above, SDA may seek to reduce (in whole or in part)
the portion of any settlement or judgment it must pay under this Agreement to
the extent such amount was adversely affected by such breach. If the Company
disputes any such reduction in payment, then SDA must submit the matter to
arbitration pursuant to paragraph 15 hereof. Should SDA reduce its portion of
any settlement or judgment as provided herein, the Company shall not be
required to pay any part or all of said settlement or judgment by virtue of this
provision except by order of the arbitrators.
(d) SDA may also invoke the provisions of paragraph 9(c) above to seek to reduce
its obligation
22
<PAGE> 23
as to amounts attributable to a Secured Customer in a situation
described in paragraph 9(b) above.
(e) Nothing contained in this paragraph 9 shall limit the right of a
party to terminate this Agreement pursuant to paragraph 16 of this
Agreement.
10. SDA shall be solely responsible for retaining and supervising
claims adjusters for Claims, except for any Claims asserted before the date
hereof for which the Company has engaged an adjuster who has already contacted
the claimant or the claimant's lawyer or representative (the "Contacted
Claimants"), and the Company agrees not to retain claims adjusters for any other
Claims. The Company has, concurrently with the execution of this Agreement,
provided SDA with a list of all such Contacted Claimants, specifying the
responsible adjuster and the status of the Claims. SDA will pay all costs of the
adjusters retained by it and, beginning with the date of this Agreement, all
reasonable costs of adjusters previously retained by the Company for purposes of
adjusting Claims of Contacted Claimants. Notwithstanding the foregoing, if SDA
shall fail to retain and supervise such claims adjusters in a timely manner, as
a result of which the Company or the Secured Customers may be adversely
prejudiced, the Company shall have the right to retain and supervise such
adjusters at SDA's expense.
23
<PAGE> 24
11. Adjusters retained by SDA will keep the Company's national
coordinating counsel (if any) and/or its insurer fully apprised of the status of
all Claims not in litigation on at least a bimonthly basis. Adjusters retained
by the Company in respect of Contacted Claimants shall keep SDA apprised of the
status of such Claims as reasonably requested by SDA, and such adjusters shall
be available to pursue settlement as requested by SDA.
12. (a) SDA may settle any Claim without prior approval of or
prior notice to the Company or any Secured Customer if such
settlement makes no admissions, acknowledges no liabilities,
includes an unconditional release of the Company and any
involved Secured Customers and either (i) the amount of the
settlement is $5,000 or less, or (ii) the Company or any
Secured Customer will have no responsibility for payment of
such settlement pursuant to paragraph 2 hereof. If SDA shall
settle a Claim without prior notice to the Company or any
Secured Customer, SDA shall provide prompt notice of the
settlement thereafter.
(b) SDA may settle any Claim with prior notice to the Company
or any Secured Customer for an amount in excess of $5,000 if
the Company or any of its Secured Customers may have some
responsibility for payment of such settlement pursuant to
paragraph 2, but only if
24
<PAGE> 25
SDA has given the Company a timely Notice of Exclusion with respect to such
Claim as required by paragraph 2(e) hereof. Any such settlement shall make no
admissions, acknowledge no liabilities, and include an unconditional release of
the Company and any involved Secured Customers. If SDA intends to assert any
claim against the Company for contribution pursuant to paragraph 2(b) relating
to the settlement, such prior notice of the settlement will also contain notice
of such intent, stating the portion of the settlement amount expected to be so
claimed by SDA and an explanation in reasonable detail of SDA's basis for such
claim. SDA shall have no obligation to delay settlement to await a response from
the Company or any Secured Customer, but SDA will endeavor to give the Company
or any Secured Customer such reasonable period to respond as will not jeopardize
the opportunity to settle. It is agreed that neither party is the agent or the
attorney in fact of the other party and cannot bind the other party to any
settlement agreement in any Claim or suit.
(c) Whether the provisions of paragraphs 2(a) or 2(b) of this Agreement apply to
the settlement of any Claim, unless the parties hereto have agreed otherwise all
amounts payable to the plaintiff or claimant in such settlement shall be
advanced by SDA, without prejudice
25
<PAGE> 26
to SDA's rights to seek reimbursement pursuant to the provisions of
paragraph 2(b) and, in the event of disagreement, to arbitrate the
dispute pursuant to the provisions of paragraph 15, and in any such
arbitration the Company may raise any disagreement it may have had
regarding the amount of settlement. If SDA settles any Claim against
itself in an action in which a Claim is also asserted against the
Company, such settlement will also extend to and cover the Company. SDA
shall expressly extend releases achieved by such settlement to cover
the Company's Secured Customer(s); provided, however, that the
Company's Secured Customer(s) have participated with SDA in the common
defense and have executed a waiver of conflicts satisfactory to SDA.
13. Notwithstanding any other provision of this Agreement to the
contrary, the Company may elect not to be represented by Common Counsel, or to
terminate its representation by Common Counsel, in respect of any particular
Claim (each such election by the Company, an "Election") in the event that the
Company determines in its sole discretion that representation of the Company by
Common Counsel in respect of such Claim is not or may not be in the best
interest of the Company (each Claim in respect of which the Company makes an
Election, a "Withdrawn Claim"). Any Election (i) shall be made in writing and
shall expressly refer to this paragraph 13, and (ii) shall be effective when
26
<PAGE> 27
delivered to SDA and, in the event that Common Counsel has represented the
Company in defending the Claim to which such Election relates, to Common
Counsel. It is agreed that SDA's obligations under paragraphs 1, 2, 3 and 6 of
this Agreement shall be inapplicable with respect to any Withdrawn Claim, and,
without limiting the generality of the foregoing, that SDA shall have no
obligation (i) to make any indemnification or other payment to the Company
pursuant to this Agreement in respect of any Withdrawn Claim, or (ii) to provide
or pay for any national coordinating counsel for the Company in respect of any
Withdrawn Claim; provided, however, that nothing in the foregoing sentence shall
affect the obligation of SDA to pay any fees or disbursements of Common Counsel
incurred in defending the Company in a Claim prior to the date of an Election by
the Company with respect to that Claim. In addition, the Company irrevocably
waives any right it may have (whether under this Agreement, at common law or
otherwise) to recover from SDA or any SDA Affiliate any fees or disbursements of
any counsel (other than Common Counsel) incurred by the Company in connection
with any Withdrawn Claim or the defense thereof.
14. Each of SDA and the Company hereby covenant during the term of this
Agreement not to sue or to assert any cross-claim, third-party claim, or other
claim against the other or against any SDA Affiliate or against any parent,
subsidiary, or affiliate of the Company in respect of any Claim, but the
foregoing shall
27
<PAGE> 28
not preclude a judicial action to compel arbitration or to enforce an award
resulting from an arbitration pursuant to the provisions of paragraph 15. The
Company covenants to use its best efforts to cause its Secured Customers to
covenant during the term of this Agreement not to sue or to assert any
cross-claim, third-party claim, or other claim against SDA or any SDA Affili-
ate, in which event SDA will agree not to assert any such claims against such
Secured Customers or their parents, subsidiaries, or affiliates in respect of
any Claim. If the Company or any Secured Customer (whether or not such Secured
Customer shall have agreed not to do so) shall bring any claim against SDA or
any SDA Affiliate in respect of a Claim, SDA shall have available the remedies
provided in the last sentence of paragraph 6(b) and paragraph 9(d) hereof. The
provisions of this paragraph only apply for so long as this Agreement is in
effect. After termination by any party, cross-claims, third-party claims or
other claims may be brought without restriction. Each party hereto waives any
statute of limitations, any defense of laches, and any procedural rules of court
which apply to the assertion of cross-claims, third-party claims, or other
claims against each other relating to any Claim for the period from the date
hereof through the date that is one year from and after the latest of (i) the
date a settlement is entered into with the claimant/plaintiff relating to such
Claim, (ii) the date a non-appealable, final judgment relating to such Claim is
entered as to any party hereto; and (iii) the date of termination of this
28
<PAGE> 29
Agreement. Each party also agrees that no pleading, discovery response, order,
verdict, judgment, or court decision in any lawsuit asserting a Claim shall have
collateral-estoppel or similarly preclusive effect with respect to any
litigation or other proceedings between the parties.
15. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes (the "CPR Rules"), by three arbitrators, of whom each party
shall appoint one and the third shall be the Chairman. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. ch. 1, and judgment upon
the award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Arbitration shall take place in a city to be agreed upon
by the parties or, in the absence of agreement, in New York City, Chicago,
Atlanta, Los Angeles, or San Francisco (whichever city is geographically closest
to the venue of the Claim out of which the matter is to be arbitrated), subject
to the power of the arbitrators to hold hearings or meetings wherever they deem
it appropriate. The arbitrators shall apply the substantive law of the State of
New York. Arbitration of disputes concerning the parties' payment obligations in
respect of a judgment rendered on a Claim shall be based on the trial record
with respect to such Claim and such further evidence as either party may present
to
29
<PAGE> 30
the arbitrators. Arbitration of disputes concerning the parties' payment
obligations in respect of a settlement of a Claim shall be based on the pretrial
record developed with respect to such Claim and such further evidence as either
party may present to the arbitrators. No pleading, discovery response, order,
verdict, judgment or court decision in any lawsuit asserting a Claim shall have
a collateral-estoppel or similarly preclusive effect with respect to an
arbitration to determine the proximate cause of the personal injuries or the
cause of damages giving rise to the liability (the responsibility for which is
being disputed in the arbitration). The parties agree that discovery authorized
by the arbitrators can be pursued anywhere in the world and that each will
cooperate to accomplish same. Any party obstructing orderly discovery can be
sanctioned at the discretion of the Chairman. As provided in the CPR Rules,
attorneys fees and costs may be awarded to a prevailing party as part of the
arbitral award.
16. Either party may terminate this Agreement at any time in the event
the terminating party is entitled to do so under Paragraph 9(a). In addition,
SDA may terminate this Agreement in the event that (i) the Company has made an
Election in respect of one or more Claims and (ii) SDA determines in its sole
discretion that the exercise of the right by the Company to make such Election
is or may be prejudicial to SDA. Paragraphs 2, 4, 13 and 15 (with respect only
to all settlements and judgments
30
<PAGE> 31
entered into or awarded prior to termination), paragraph 6(c) (except in respect
of any Withdrawn Claim), this paragraph 16 and paragraph 17 shall survive
termination of this Agreement. In addition, SDA will have the right to terminate
this Agreement with respect to a Claim, and promptly retender the defense of a
Claim back to the Company, in the event it is determined (and SDA shall have the
burden of proof to establish) that such Claim arises solely out of LTCPs and is
based upon LT contained therein acquired from some person or entity other than
SDA (directly or indirectly), or that the LTCPs sold by the Company to the
claimant contained no LT sold by SDA; provided, however, that the right of
termination granted to SDA in this sentence may be exercised no later than sixty
(60) days prior to the date of commencement of the trial, arbitration or
mediation of such Claim.
Notwithstanding termination, SDA shall be responsible for adjustment
costs for services rendered pursuant to paragraph 10 and the Company's national
coordinating counsels' fees and costs pursuant to paragraph 6 (except as
otherwise provided in paragraph 13), incurred prior to termination. Once
terminated, this Agreement will not survive or affect the rights of the parties
except as specifically set forth in this paragraph.
17. Communications concerning and/or the exchange of information or
materials of any kind between or among the parties hereto or their counsel,
Secured Customers, insurers, or
31
<PAGE> 32
adjusters concerning the Claims are and shall be made in furtherance of the
common defense of such Claims (whether pursued through common or separate
counsel) and are intended to be, and shall remain, confidential and privileged
to the full extent permitted under the attorney-client privilege, work-product
doctrine, trade secret privilege, and any other applicable privilege or
protective doctrine. Neither participation in this Agreement nor the sharing of
information pursuant to it is intended to reduce or diminish the confidentiality
of such information or to waive any privilege or protection which may apply in
the absence of such participation or sharing of information. The obligations
under this paragraph shall survive termination of this Agreement.
This Agreement in no way restricts the rights of any party hereto to
use evidence against each other in any arbitration under this Agreement or
litigation between the parties hereto following termination of this Agreement.
18. This Agreement contains the entire agreement between the parties,
and replaces all prior agreements, if any, between or among the parties, with
respect to the settlement of Claims and to the allocation of responsibility
between the parties for the payment of settlements of or judgments on Claims. No
modifications of this Agreement shall be effective unless in a written agreement
properly executed by authorized representatives of each of the parties hereto.
Nothing in this Agreement shall
32
<PAGE> 33
amend or modify any agreement or understanding between the parties hereto, or
preclude any action, relating to reimbursement of costs and expenses of the
Company, and any other damages associated therewith, incurred in connection with
the product recall of LTCPs, nor shall this paragraph preclude any party to
argue the pertinence to proceedings between the parties of purchase orders,
invoices or other agreements between the parties relating to the purchase and
sale of LT.
19. Notices by either party to the other with respect to the subject
matter of this Agreement shall be provided by facsimile with confirming copy by
mail, addressed as follows:
If to SDA:
Showa Denko America, Inc.
280 Park Avenue
27th Floor, West Building
New York, New York 10017
tel: (212) 687-0773
fax: (212) 573-9007
Attention: President
with a copy to:
Christopher H. Lunding, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
tel: (212) 225-2000
fax: (212) 225-3999
If to the Company:
Mr. Richard Bizzaro
Weider Food Companies
1911 South 3850 West
Salt Lake City, Utah 84104
tel: (801) 975-1166
fax: (801)
33
<PAGE> 34
with a copy to:
Kenneth R. Campbell, Esq.
Campbell & Miller
427 C Street, Suite 410
San Diego, California
Tel: (619) 232-0086
Fax: (619) 232-0089
The Company and SDA each reserves the right to change its address and/or
facsimile number for the purposes set forth above by giving fifteen (15) days'
prior written notice of such change to the other party either at its address for
the giving of notices set forth above in this paragraph or to such other address
as the party giving such notice shall have specified to the other party in the
manner set forth above.
20. The signatures of the representatives of SDA and the Company at the
end of this Agreement constitute the representation by each that it is the duly
authorized representative of SDA and the Company, respectively, and that they
are authorized to enter into this Agreement.
21. This Agreement shall be governed by the law of the State of New
York; provided, however, that if applying Federal law would result in upholding
a claim of the attorney-client privilege, the work product-doctrine, the trade
secret privilege, or any other applicable privilege or protective doctrine which
otherwise would be lost or waived if New York law were to be
34
<PAGE> 35
applied, then Federal law shall govern this Agreement insofar as such privilege
or doctrine is concerned.
22. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
23. The Company represents, covenants, and agrees that (i) it will
cause its subsidiaries listed on Attachment 1 to fulfill each of the
obligations, representations, and warranties required of or made by the Company
in this Agreement; (ii) each of the obligations, representations, and warranties
required of or made by the Company will be deemed to have been made by or
required of the Company and each of its subsidiaries listed on Attachment 1;
(iii) a breach of such obligations, representations, or warranties by any one or
more of the subsidiaries listed on Attachment 1 that is not timely performed by
the Company deemed to be a breach by the Company; and (iv) the Company has full
authority to act for and bind its said subsidiaries, and can act for them, in
all matters covered by this Agreement. It is further agreed that each subsidiary
listed on Attachment 1 shall be considered to be part of the Company and shall
be entitled to benefits under this Agreement only so long as it remains a
wholly-owned subsidiary (direct or indirect) of the Company, and the Company
shall no longer be responsible under this paragraph 23 for conduct of any such
subsidiary after the date the
35
<PAGE> 36
subsidiary ceases to be a wholly-owned subsidiary of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
SHOWA DENKO AMERICA, INC.
By /s/Norio Masubuchi
-------------------------
Norio Masubuchi
President
SCHIFF PRODUCTS INC., A UTAH
CORPORATION
By /s/Richard Bizzaro
-------------------------
Richard Bizzaro
President
36
<PAGE> 37
Attachment 1
to Agreement Dated as of January __, 1993
By and Between Showa Denko America, Inc.
and Schiff Products, Inc., a Utah Corporation
List of Subsidiaries
<PAGE> 38
SDK Guaranty Agreement CONFIDENTIAL
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of January __, 1993, by and between SHOWA
DENKO K.K. (the "Guarantor"), a corporation organized and existing under the
laws of Japan, and Schiff Products, Inc., A Utah Corporation (the
"Beneficiary"), a corporation organized and existing under the laws of Utah.
WITNESSETH
WHEREAS the Beneficiary and SHOWA DENKO AMERICA, INC. ("SDA") have entered into
a written agreement dated as of the date of this Guaranty Agreement providing
(among other things) that SDA agrees to indemnify the Beneficiary from and
against certain obligations in respect of Claims relating to L-tryptophan
manufactured by the Guarantor, all to the extent specified and pursuant to the
terms and conditions contained in that agreement (that agreement, as the same
may be amended, modified or supplemented from time to time, referred to herein
as the "Agreement"), and
WHEREAS it is a requirement of the Agreement that SDA deliver the guaranty of
SDA's obligations under the Agreement to the Beneficiary contained in this
Guaranty Agreement;
NOW, THEREFORE, the Guarantor and the Beneficiary agree as follows :
1. Guaranty. (a) The Guarantor unconditionally and irrevocably guarantees (as
primary obligor and not merely as surety) payment in full as provided in the
Agreement of all amounts payable by SDA under the Agreement, as and when those
amounts become payable by SDA pursuant to the terms and conditions contained in
the Agreement. The Guarantor further unconditionally and irrevocably guarantees
the performance by SDA, as and when required pursuant to the terms and
conditions of the Agreement, of all obligations of SDA under the Agreement. The
Guaranty contained herein is made subject to all of the terms and conditions
contained in the Agreement evidencing the obligations of SDA guaranteed hereby,
and nothing contained herein shall be deemed to amend or modify any of such
terms or conditions in any way.
(b) This is a continuing Guaranty and a guaranty of payment (not merely of
collection) and performance, and it shall remain in full force and effect until
the later to occur of (i) termination of the Agreement in accordance with its
terms and (ii) such time as all amounts payable by SDA under
<PAGE> 39
the Agreement have been validly, finally and irrevocably paid in full. This
Guaranty shall not be affected in any way by the absence of any action to obtain
those amounts from SDA. With respect to this Guaranty, the Guarantor waives all
requirements as to presentment, demand for payment, demand for performance,
notice of default, protest or notice of any kind regarding SDA or the breach by
SDA of its obligations under the Agreement.
(c) This Guaranty shall not be affected by the occurrence of any circumstance
(other than complete, irrevocable payment) that might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor. If SDA merges
or consolidates with or into another entity, loses its separate legal identity
or ceases to exist, or files any petition for bankruptcy or any other insolvency
proceeding, the Guarantor shall nonetheless continue to be liable for the
payment of all amounts payable by SDA under the Agreement and for the
performance of all obligations of SDA under the Agreement.
(d) This Guaranty shall remain in full force and effect or shall be reinstated
(as the case may be) if at any time any payment by SDA made pursuant to the
Agreement, in whole or in part, is rescinded or must otherwise be returned by
the Beneficiary upon the insolvency, bankruptcy or reorganization of SDA or
otherwise, all to the same extent as if that payment had not been made.
(e) So long as any amount payable by SDA under the Agreement is overdue and
unpaid, the Guarantor shall not (i) exercise any right of subrogation or
indemnity, or similar right or remedy, against SDA or any of its assets or
property in respect of any amount paid by the Guarantor under this Guaranty or
(ii) file a proof of claim in competition with the Beneficiary for any amount
owing to the Guarantor by SDA on any account whatsoever in the event of the
bankruptcy, insolvency or liquidation of SDA.
2. Contractual Currency. All payments by the Guarantor under this Guaranty shall
be made in United States currency.
3. No Conflict With Law; Remedies Not Exclusive. (a) Neither the execution or
delivery of this Guaranty Agreement by the Guarantor, nor the performance by the
Guarantor of its obligations hereunder, conflicts with or will result in the
breach of any applicable Japanese law, regulation or statute.
(b) The rights and remedies set forth in the Agreement are in addition to and
not exclusive of any rights and remedies
2
<PAGE> 40
available to the Beneficiary by law in respect of this Guaranty.
4. Amendments, Waivers. All amendments, waivers and modifications of or to any
provision of this Guaranty and any consent to departure by the Guarantor from
the terms hereof shall be in writing and signed and delivered by the Beneficiary
and, in the case of any such amendment or modification, by the Guarantor, and
shall not otherwise be effective. Any such waiver or consent shall be effective
only in the specific instance and for the purpose for which it is given.
5. Binding Effect. This Guaranty shall be binding on the Guarantor and its
successors and assigns. However, the Guarantor shall not transfer any of its
obligations hereunder without the prior written consent of the Beneficiary, and
any purported transfer without that consent shall be void. This Guaranty shall
inure to the benefit of the Beneficiary and its successors and assigns.
6. Governing Law: Jurisdiction; Waiver of Jury Trial. (a) This Guaranty shall be
governed by and construed. and interpreted in accordance with the law of the
State of New York.
(b) The Guarantor irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of New York and of the United States sitting in the Borough
of Manhattan in connection with any action or proceeding by the Beneficiary to
enforce the Guarantor's obligations under this Guaranty (each, a "Proceeding")
and irrevocably appoints CT CORPORATION SYSTEM, 1633 Broadway, New York, New
York 10019 as its agent for the sole purpose of receiving service of process or
other legal summons in connection with any Proceeding brought in any such court.
So long as the Guarantor has any obligation under this Guaranty, it will
maintain a duly appointed agent in New York City for the service of such process
or summons and, if it fails to maintain such an agent, any such process or
summons may be served on it by mailing a copy thereof to the Guarantor at its
address set forth, and in the manner provided, in Paragraph 7 hereof, with such
service deemed effective on the fifteenth day after the date of such mailing.
(c) The Guarantor irrevocably waives, to the fullest extent permitted by
applicable law, any defense or objection it may now or hereafter have to the
laying of venue of any Proceeding brought in the courts of the State of New York
or of the United States sitting in the Borough of Manhattan (a Proceeding
brought in any such court, a "New York Proceeding") and any claim that any
Proceeding brought in
3
<PAGE> 41
any such court has been brought in an inconvenient forum. Nothing herein
contained shall preclude the Beneficiary from bringing an action or proceeding
to enforce the Guarantor's obligations under this Guaranty in any other place
where jurisdiction over the Guarantor properly may be obtained.
(d) The Guarantor irrevocably agrees that it will not raise as a defense or
set-off in any New York Proceeding an allegation that the Beneficiary is
indebted to the Guarantor or SDA, or interpose a counter-claim in a New York
Proceeding seeking recovery of any such alleged indebtedness, unless that
indebtedness allegedly arose out of the same operative facts as form the basis
of the Beneficiary's claims in that New York Proceeding.
(e) The Guarantor and the Beneficiary each irrevocably waives trial by jury in
any New York Proceeding.
(f) The Guarantor and the Beneficiary each irrevocably agree that the party
prevailing in any New York Proceeding shall be entitled to be awarded therein an
amount equal to the reasonable fees and expenses of its attorneys incurred in
connection with that Proceeding.
7. Enforcement in Japan. The Guarantor solemnly covenants that in the event that
a final, non-appealable judgment is rendered against it in a New York Proceeding
(any such final, non-appealable judgment, a "Judgment"), the Guarantor (i) will
not raise any defense to the enforcement of such Judgment in Japan which would,
or seeks to, require relitigation of that New York Proceeding; and (ii) will do
everything within its power to assure that such Judgment becomes enforceable in
Japan as soon as is possible under Japanese law after the time enforcement of
such Judgment is sought in that country.
8. Notices. All notices, requests, demands and other communications to the
Guarantor or the Beneficiary which are required or permitted hereunder shall be
made in writing and shall be deemed properly given hereunder when provided by
confirmed facsimile transmission, with a separate confirming copy sent by United
States registered mail, return receipt requested, with sufficient postage
prepaid thereon to carry it to its addressed destination, as follows:
SHOWA DENKO K.K.
13-9, Shiba Daimon 1-chome
Minato-ku, Tokyo 105
Japan
Attention: President
Facsimile: 011-81-3-5470-3709
4
<PAGE> 42
with a copy to:
CLEARY, GOTTLIEB, STEEN & HAMILTON
One Liberty Plaza
New York, New York 10006
Attention: Christopher H. Lunding, Esq.
Facsimile: 212-225-3999
If to the Beneficiary:
Weider Food Companies
1911 South 3850 West
Salt Lake City, Utah 84104
Attention: Mr. Richard Bizzaro
Confirmation: (801) 975-1166
with a copy to:
Campbell & Miller
427 C Street, Suite 410
San Diego, California 92101
Attention: Kenneth R. Campbell. Esq.
Facsimile: (619) 232-0089
The Guarantor and the Beneficiary each reserves the right to change its address
and/or facsimile number for the purposes set forth above by giving fifteen days'
prior written notice of such change to the other either at its address for the
giving of notices set forth in the Agreement or to such other address as the
party giving such notice shall have specified to the other party in the manner
set forth above.
9. Headings. The section headings in this Guaranty are for convenience of
reference only and shall not affect the meaning or construction of any provision
hereof.
5
<PAGE> 43
IN WITNESS WHEREOF the Guarantor and the Beneficiary each has duly executed this
Guaranty Agreement as of the date first written above.
SHOWA DENKO K.K.
By: /s/Daiya Miyoshi
---------------------
Daiya Miyoshi
Representative Director
and Executive Vice president
SCHIFF PRODUCTS, INC., A UTAH CORPORATION
By: /s/Richard Bizzaro
---------------------
Richard Bizzaro
President
6
<PAGE> 1
EXHIBIT 11
WEIDER NUTRITION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MAY 31, 1996 FEBRUARY 28, 1997
------------ -----------------
<S> <C> <C>
Net income $14,964 $8,075
Addback after-tax interest expense reduction 1,980 2,190
---------- ----------
Net income as adjusted $16,944 $10,265
========== ==========
Weighted average common shares outstanding
-- historical 1,195 1,195
Effects of 14,371.3 for one stock split 17,174,995 17,174,995
Issuance of shares necessary to pay one-time
$25.0 Class B dividend 1,666,667 1,666,667
---------- ----------
Pro forma weighted average common shares
outstanding 18,842,858 18,842,858
========== ==========
Pro forma net income per common and common
equivalent share $0.79 $0.43
===== =====
Pro forma weighted average common shares
outstanding 18,842,858 18,842,858
Issuance of remaining shares per the
offerings 3,933,333 3,933,333
Issuance of common stock pursuant to
Management Incentive agreements 992,856 992,856
Issuance of common stock to certain
employees with minimum service period
of six months 42,000 42,000
---------- ----------
Supplemental pro forma common and common
equivalent shares outstanding 23,811,047 23,811,047
========== ==========
Supplemental pro forma net income per common
and common equivalent share $0.71 $0.43
===== =====
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT OF SCHEDULE
To the Board of Directors of
Weider Nutrition International, Inc.
Salt Lake City, Utah
We consent to the use in this Amendment No. 3 to the Registration
Statement (relating to shares of Class A Common Stock) of Weider Nutrition
International, Inc. on Form S-1 of our report dated July 10, 1996 (September
26, 1996 as to last paragraph in Note 5 and the "Litigation" paragraph of Note
7), appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of Weider Nutrition International, Inc. and subsidiaries, listed in
Item 16. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedule,
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.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AT MAY
31, 1995 AND 1996 AND FOR THE YEARS ENDING MAY 31, 1994, 1995 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN THE REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-12929) OF
WEIDER NUTRITION INTERNATIONAL, INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAY-31-1996 FEB-28-1997
<PERIOD-START> JUN-01-1995 JUN-01-1996
<PERIOD-END> MAY-31-1996 FEB-28-1997
<CASH> 1,592 1,065
<SECURITIES> 0 0
<RECEIVABLES> 33,526 34,739
<ALLOWANCES> 137 253
<INVENTORY> 42,382 46,677
<CURRENT-ASSETS> 86,045 90,277
<PP&E> 27,037 35,024
<DEPRECIATION> 5,626 8,726
<TOTAL-ASSETS> 133,147 148,685
<CURRENT-LIABILITIES> 38,540 28,475
<BONDS> 55,275<F1> 79,907<F1>
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 39,331 40,302
<TOTAL-LIABILITY-AND-EQUITY> 133,147 148,685
<SALES> 186,405 151,407
<TOTAL-REVENUES> 186,405 151,407
<CGS> 116,177 94,008
<TOTAL-COSTS> 116,177 94,008
<OTHER-EXPENSES> 3,989 5,096
<LOSS-PROVISION> 98 156
<INTEREST-EXPENSE> 3,816 4,684
<INCOME-PRETAX> 25,171 13,458
<INCOME-TAX> 10,207 5,383
<INCOME-CONTINUING> 14,964 8,075
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,964 8,075
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>AS OF MAY 31, 1996, THE COMPANY INTENDED TO REFINANCE A PORTION OF THE PAYABLE
TO WEIDER BALANCE. THE $15 MILLION NOTE WAS EXECUTED ON SEPTEMBER 26, 1996;
THEREFORE, $15 MILLION HAS BEEN RECLASSIFIED TO LONG TERM DEBT.
</FN>
</TABLE>
