<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
REGISTRATION NO. 333-12929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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. [ ]
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
============================================================================================================
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Class A Common Stock, $.01 par
value............................... 6,440,000 shares $16.50 $106,260,000 $36,642
============================================================================================================
</TABLE>
(1) Includes shares that the U.S. Underwriters and Managers have options to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(3) $35,690 was paid by the Company at the time of the initial filing.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 20, 1997
5,600,000 Shares
LOGO
WEIDER NUTRITION INTERNATIONAL, INC.
Class A Common Stock
($.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.
Unless otherwise indicated, all information contained herein assumes no exercise
by the U.S. Underwriters and the Managers of their over-allotment option. 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 66.3%,
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 $35.6 million, together
with approximately $28.4 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 $16.2 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 Underwriters' over-allotment options
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 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 36,095
Income from operations.......... 5,958 7,106 8,239 11,290 29,160 19,838 19,209(1)
Net income...................... 2,598 3,563 4,134 6,092 14,964 10,055 8,468(1)
Pro forma net income per common
and common equivalent
share(2)..................... -- -- -- -- $ 0.79 -- $ 0.45
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) -- $ 0.45(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 6,344
Net sales increase.............. --% 9% 7% 34% 105% --% 18%
Income from operations
increase(6).................. -- 19 16 37 158 -- 7
Net income increase
(decrease)(6)................ -- 37 16 47 146 -- (3)
</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 25,043 47,505 61,539 61,539
Total assets....................... 39,548 70,048 133,147 149,341 155,047
Total debt......................... 7,410 28,616 68,054 88,550 38,856
Total stockholders' equity......... 22,946 28,100 39,332 40,696 96,096
</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 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. 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 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
8
<PAGE> 10
$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 manufacturing and
marketing of products containing Ma Huang, there can be no assurance that the
Company will not be
9
<PAGE> 11
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 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
Manager's over-allotment options are exercised in full). The Company intends to
apply the net proceeds of the Offerings as follows: (i) approximately $35.6
million, together with approximately $28.4 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 $16.2 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 February 28, 1997, 9.5% for the term notes and 9.3% for the
revolving line of credit) and mature on various dates from May 1997 through
January 2000. Of the approximately $16.2 million of intercompany indebtedness
owed to Parent, $15.0 million is represented by a note payable (the "Parent
Note"), which bears interest at LIBOR plus 2.25% 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." 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 may 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 $13.4
million, or $0.78 per share, representing the $40.7 million net book value less
trademarks, goodwill, and other acquired intangibles of $27.3 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 $68.8 million or $2.89 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
$12.11 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................ $0.78
Increase attributable to new investors...................... 2.11
------
--
Pro forma net tangible book value after the Offerings......... 2.89
--------
Dilution to new investors..................................... $ 12.11
========
</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 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............................................. 1,187 --
------- -------
Total short-term obligations............................. 8,643 3,456
------- -------
Long-term debt:
Existing Credit Agreement................................... 60,007 --
New Credit Agreement(1)..................................... -- 30,500
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 35,400
------- -------
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 -- 1195.17 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)................................. 36,346 (606)
------- -------
Total stockholders' equity(3)............................ 40,696 96,096
------- -------
Total capitalization................................ $129,246 $ 134,952
======= =======
</TABLE>
- ---------------
(1) Includes approximately $28.4 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 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 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 3,688
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 36,095
------- ------- ------- ------- --------- -------- ---------
Total operating expenses................ 18,385 19,036 20,344 24,226 41,068 28,191 38,190
------- ------- ------- ------- --------- -------- ---------
Income from operations.................... 5,958 7,106 8,239 11,290 29,160 19,838 19,209
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 14,113
Provision for income taxes................ 1,750 2,423 2,845 4,266 10,207 6,858 5,645
------- ------- ------- ------- --------- -------- ---------
Net income................................ $ 2,598 $ 3,563 $ 4,134 $ 6,092 $ 14,964 $ 10,055 $ 8,468
======= ======= ======= ======= ========= ======== =========
Pro forma net income per common and common
equivalent share(2)..................... -- -- -- -- $ 0.79 -- $ 0.45
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) -- $ 0.45(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 6,344
Net sales increase........................ --% 9% 7% 34% 105% --% 18%
Income from operations increase(6)........ -- 19 16 37 158 -- 7
Net income increase (decrease)(6)......... -- 37 16 47 146 -- (3)
</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 25,043 47,505 61,539
Total assets....................................................... 39,548 70,048 133,147 149,341
Total debt......................................................... 7,410 28,616 68,054 88,550
Total stockholders' equity......................................... 22,946 28,100 39,332 40,696
</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 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 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 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 36,095 23.8
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses.... 20,344 30.0 24,226 26.6 41,068 22.0 28,191 21.9 38,190 25.2
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Income from operations...... 8,239 12.1 11,290 12.4 29,160 15.6 19,838 15.4 19,209 12.7
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 5,645 3.7
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Net income.................. $ 4,134 6.1% $ 6,092 6.7% $ 14,964 8.0% $ 10,055 7.8% $ 8,468 5.6%
======= ===== ======= ===== ======== ===== ======== ===== ======== =====
</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 35.5% to
$38.2 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 28.0% to $36.1 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 23.8% 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 declined during the nine month
period ended February 28, 1997, as compared to the nine month period ended
February 28, 1996, primarily as a result of the Company's decision to extend the
useful life of certain intangible assets. 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
75.9% 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 increased depreciation from additions to property and
equipment.
Provision for Income Taxes. Provisions for income taxes decreased 18.8% to
$5.6 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.
In fiscal 1997, the Company reevaluated its economic factors for
determining requisite recovery periods for certain intangible assets. Management
determined that the economic factors had changed and, effective September 1,
1996, extended the useful lives for goodwill associated with three acquisitions
consummated prior to fiscal 1997 to 35 years. The Company now recognizes
amortization of goodwill over periods of 15 to 35 years. The effect of this
change is not significant to the Company's operating results for the nine month
period ending February 28, 1997.
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 in fiscal 1996. The combined sales for the operations
acquired in fiscal 1996 amounted to $32.6 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,
----------------------------------------
1995 1996
------------------------------
------------------
(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 $3.7 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 $ 14,085
Net increases in Existing Credit Agreement..... 19,200 18,750 26,057
Net loans from (payments to) the Parent........ 1,914 15,182 (2,561)
------- ------- --------
$28,403 $52,445 $ 37,581
======= ======= ========
</TABLE>
In September 1996, the Company received a commitment from General Electric
Capital Corporation ("GECC") for a $75.0 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. 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 $35.6 million of the net
proceeds of the Offerings, together with approximately $28.4 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,
together with any remaining proceeds from the Offerings, 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, if necessary, to support capital expenditures, to effect acquisitions and
to accelerate growth. As a result, upon the consummation of the Offerings, the
Company expects to have approximately $46.6 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) increasing investment
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) increasing advertising and
promotional investments to continue 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 term
notes 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 February 28, 1997, 9.5% for the term notes and 9.3% for the revolving
line of credit) and mature on various dates from February 1997 through January
2000. Each of the Borrowers has joint 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.
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 not yet determined whether it will adopt the fair value method or
continue to account for stock-based compensation under APB No. 25.
27
<PAGE> 29
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.
28
<PAGE> 30
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
29
<PAGE> 31
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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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> 33
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> 34
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> 35
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> 36
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> 37
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
36
<PAGE> 38
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
37
<PAGE> 39
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> 40
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,
39
<PAGE> 41
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
40
<PAGE> 42
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
41
<PAGE> 43
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
42
<PAGE> 44
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
43
<PAGE> 45
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.
44
<PAGE> 46
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> 47
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 and options to purchase 7,000 shares of Class A Common
Stock for each 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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<PAGE> 48
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> 49
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
48
<PAGE> 50
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 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 will 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 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.
49
<PAGE> 51
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 participation in the
Equity Plan. In addition, the Equity Plan provides for automatic grants of
non-qualified stock options to Independent Directors.
50
<PAGE> 52
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, and provided further
that upon the occurrence of a "Change in Control" of the Company (as defined in
the Equity Plan) all outstanding options shall become immediately exercisable.
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.
51
<PAGE> 53
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.
52
<PAGE> 54
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. 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). 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. After the Transition Date,
rights and awards granted under the Equity Plan, other than options and SARs,
will not 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
53
<PAGE> 55
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
The Company and Messrs. Bizzaro and Reynolds entered into employment
agreements effective January 1, 1997 that extend through December 31, 2000 and
then continue on a month-to-month basis unless terminated by either party.
Pursuant to the terms of the employment agreements, the base salary per year for
Messrs. Bizzaro and Reynolds is $300,000 and $230,000, respectively. Messrs.
Bizzaro and Reynolds are eligible for bonuses that are limited to 150% of their
yearly base salaries. Pursuant to the employment agreements within 90 days of
the Offerings, Messrs. Bizzaro and Reynolds will be granted options to purchase
160,000 shares and 120,000 shares, respectively, of Class A Common Stock. In
addition, the employment agreements contain provisions that prevent Messrs.
Bizzaro and Reynolds from competing with the Company during the duration of the
agreements or while Messrs. Bizzaro and Reynolds are receiving any post
employment payments.
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).
54
<PAGE> 56
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 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.
55
<PAGE> 57
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> 58
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."
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") pursuant to which the Company is obligated 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
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,
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<PAGE> 59
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 $375,000 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.
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.
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<PAGE> 60
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 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.
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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.
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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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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
64
<PAGE> 66
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
65
<PAGE> 67
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.
66
<PAGE> 68
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
67
<PAGE> 69
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.
68
<PAGE> 70
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.
69
<PAGE> 71
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> 72
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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<PAGE> 73
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> 74
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> 75
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 27,314
Deposits and other assets..................... 804 1,404 4,918
Deferred taxes................................ 225 504 534
------- -------- --------
Total other assets......................... 15,481 25,691 32,766
------- -------- --------
Total assets.......................... $70,048 $133,147 $149,341
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.............................. $11,451 $ 19,093 $ 13,136
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 1,187
------- -------- --------
Total current liabilities.................. 19,569 38,540 28,738
------- -------- --------
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 36,346 11,346
------- -------- --------
Total stockholders' equity................. 28,100 39,332 40,696 $ 15,696
------- -------- --------
Total liabilities and stockholders'
equity.............................. $70,048 $133,147 $149,341
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 76
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 1,570 845
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 38,190
------- ------- ---------- ------- ----------
Income from operations............... 8,239 11,290 29,160 19,838 19,209
------- ------- ---------- ------- ----------
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 14,113
Provision for income taxes........... 2,845 4,266 10,207 6,858 5,645
------- ------- ---------- ------- ----------
Net income........................... $ 4,134 $ 6,092 $ 14,964 $ 10,055 $ 8,468
======= ======= ========== ======= ==========
Pro forma net income per common and
common equivalent share
(unaudited)........................ -- -- $ 0.79 -- $ 0.45
========== ==========
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 -- $ 0.45
========== ==========
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> 77
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).............. -- -- -- 8,468 8,468
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) $ 36,346 $40,696
==== ====== ===== ======= =======
</TABLE>
F-5
<PAGE> 78
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 $ 8,468
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 3,769
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) (224)
------- ------- -------- -------- --------
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 (2,561)
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 13,015
------- ------- -------- -------- --------
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> 79
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> 80
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> 81
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1997, the Company reevaluated its economic factors for
determining requisite recovery periods for certain intangible assets. Management
determined that the economic factors had changed and, effective September 1,
1996, extended the useful lives for goodwill associated with three acquisitions
to 35 years. The Company now recognizes amortization of goodwill over periods of
15 to 35 years. The effect of this change is not significant to the Company's
operating results.
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
F-9
<PAGE> 82
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 121 subsequent to May 31, 1996 resulted in an impairment loss of
approximately $2.1 million ($1.3 million, net of tax).
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
------- -------
17,821 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> 83
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 LIBOR plus 2.50% (8.03125% at May 31,
1996), or 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......................................................... $ 10,200 $ 18,250
$40,000 revolving line of credit to GECC bearing interest at
LIBOR plus 2.25% (7.78125% at May 31, 1996) or prime plus 1%,
through January 2000........................................... 9,000 19,700
Note payable to Weider, unsecured, bearing interest at LIBOR plus
2.25%, or 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> 84
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> 85
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> 86
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> 87
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.
Included in deposits and other assets are loans to officers in principal
amount of $200 at May 31, 1995 and 1996.
F-15
<PAGE> 88
- ------------------------------------------------------
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.............................. 28
Management............................ 45
Principal Stockholders................ 56
Certain Relationships and Related
Party Transactions.................. 57
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 64
Underwriting.......................... 67
Notice to Canadian Residents.......... 70
Legal Matters......................... 71
Experts............................... 71
Available Information................. 71
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> 89
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 MARCH 20, 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> 90
[ARTWORK]
2
<PAGE> 91
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.
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............................. 28
Management........................... 45
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders............... 56
Certain Relationships and Related
Party Transactions................. 57
Description of Capital Stock......... 61
Shares Eligible for Future Sale...... 63
Certain United States Federal Income
Tax Consequences to Non-United
States Holders..................... 64
Subscription and Sale................ 67
Legal Matters........................ 70
Experts.............................. 70
Available Information................ 70
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
<PAGE> 92
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
67
<PAGE> 93
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.
68
<PAGE> 94
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.
69
<PAGE> 95
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.
70
<PAGE> 96
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............................................ *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue Sky fees and expenses................................................. *
Transfer Agent and Registrar fees.......................................... *
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> 97
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.**
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 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> 98
<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> 99
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> 100
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 March 20, 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 March 20, 1997
- ------------------------------------------ Director
Eric Weider
/s/ RICHARD B. BIZZARO Chief Executive Officer, March 20, 1997
- ------------------------------------------ President and Director
Richard B. Bizzaro (Principal Executive Officer)
/s/ ROBERT K. REYNOLDS Chief Operating Officer, March 20, 1997
- ------------------------------------------ Executive Vice President and
Robert K. Reynolds Director (Principal Financial
and Accounting Officer)
* Director March 20, 1997
- ------------------------------------------
Ronald L. Corey
* Director March 20, 1997
- ------------------------------------------
Roger H. Kimmel
* Director March 20, 1997
- ------------------------------------------
George F. Lengvari
*By: /s/ ROBERT K. REYNOLDS
- ------------------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE> 101
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 $ 107,976 $ (7,976)(1) $ 50,000
---------- ---------- ----------- ----------
1995................................... $ 50,000 $ 207,976 $ (107,976)(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> 102
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**...........................................................
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 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 4.1
CLASS A COMMON STOCK CLASS A COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN
SALT LAKE CITY AND NEW YORK CITY SEE REVERSE FOR CERTAIN DEFINITIONS
WEIDER NUTRITION
INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK, $0.01 PAR VALUE
PER SHARE, OF
WEIDER NUTRITION INTERNATIONAL, INC. transferable on the books of the
Corporation in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
In Witness Whereof, the said [ CORPORATE ] caused this Certificate to be
Corporation has signatures of SEAL endorsed by the facsimile sealed
its duly authorized officers 1996 with the facsimile seal of the
and to be Dated: [ DELAWARE ] Corporation.
[Signature] [Signature]
Secretary Chairman
<PAGE> 2
<TABLE>
<CAPTION>
<S><C>
WEIDER NUTRITION INTERNATIONAL, INC.
The following abbreviations, when used in the inscription on the face of this certificate, shall be constrained as though
they were written out in full accounting to applicable laws or regulations:
TEN COM - as tenant in common UNIF. GIFT MIN ACT - CUSTODIAN
TEN ENT - as tenants ???? ------------------- ---------------
JT TEN - as joint tenant with right of ownership (Cust.) (Minor)
and as tenant in common
under Uniform Gifts to Minors Act
---------------------------------------------
State
Additional abbreviations may also be used though not in above list.
For Value Received, hereby sell, assign and transfer unto
-------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------
of Class A Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- ----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated,
------------------------------
X
-----------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS AGREEMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
X
-----------------------------------------------------------------
SIGNATURE(S) GUARANTEED.
By
-----------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTRUCTION, STOCK ????? SAVINGS AND LOAN ASSOCIATION AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDAL
PROGRAM, PURSUANT TO SEC FILE .
</TABLE>
<PAGE> 1
THE 1997 EQUITY PARTICIPATION PLAN
OF
WEIDER NUTRITION INTERNATIONAL, INC.
Weider Nutrition International, Inc., a Delaware corporation,
has adopted The 1997 Equity Participation Plan of Weider Nutrition
International, Inc. (the "Plan"), effective February 28, 1997, for the benefit
of its eligible employees, consultants and directors. The Plan consists of two
plans, one for the benefit of Employees (as such term is defined below) and
consultants and one for the benefit of Independent Directors (as such term is
defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors,
Employees and consultants to further the growth, development and financial
success of the Company by personally benefiting through the ownership of
Company stock and/or rights which recognize such growth, development and
financial success.
(2) To enable the Company to obtain and retain the
services of directors, Employees and consultants considered essential to the
long range success of the Company by offering them an opportunity to own stock
in the Company and/or rights which will reflect the growth, development and
financial success of the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in
this Plan they shall have the meanings specified below, unless the context
clearly indicates otherwise.
1.2 Award Limit. "Award Limit" shall mean 300,000 shares
of Common Stock.
1.3 Board. "Board" shall mean the Board of Directors of
the Company.
1.4 Change in Control. "Change in Control" shall mean a
change in ownership or control of the Company effected through either of the
following transactions:
(a) any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) directly
or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does
not recommend such stockholders to accept; or
(b) there is a change in the composition of the Board
over a period of thirty-six (36) consecutive months (or less) such
that a majority of the Board members (rounded up to the nearest whole
number) ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.
1.5 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.6 Committee. "Committee" shall mean the Compensation
Committee of the Board, or another committee of the Board, appointed as
provided in Section 9.1.
1
<PAGE> 2
1.7 Common Stock. "Common Stock" shall mean the Class A
Common Stock of the Company, par value $0.01 per share, and any equity security
of the Company issued or authorized to be issued in the future, but excluding
any preferred stock and any warrants, options or other rights to purchase
Common Stock. Debt securities of the Company convertible into Common Stock
shall be deemed equity securities of the Company.
1.8 Company. "Company" shall mean Weider Nutrition
International, Inc., a Delaware corporation.
1.9 Corporate Transaction. "Corporate Transaction" shall
mean any of the following stockholder-approved transactions to which the
Company is a party:
(a) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose
of which is to change the State in which the Company is incorporated,
form a holding company or effect a similar reorganization as to form
whereupon this Plan and all Options are assumed by the successor
entity;
(b) the sale, transfer, exchange or other disposition of
all or substantially all of the assets of the Company, in complete
liquidation or dissolution of the Company in a transaction not covered
by the exceptions to clause (a), above; or
(c) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred or issued to a person or
persons different from those who held such securities immediately
prior to such merger.
1.10 Deferred Stock. "Deferred Stock" shall mean Common
Stock awarded under Article VII of this Plan.
1.11 Director. "Director" shall mean a member of the
Board.
1.12 Dividend Equivalent. "Dividend Equivalent" shall
mean a right to receive the equivalent value (in cash or Common Stock) of
dividends paid on Common Stock, awarded under Article VII of this Plan.
1.13 Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company, or of any corporation which is a Subsidiary.
1.14 Exchange Act. "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
1.15 Fair Market Value. "Fair Market Value" of a share of
Common Stock as of a given date shall be (i) the closing price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares
were not traded on the trading day previous to such date, then on the next
preceding date on which a trade occurred, or (ii) if Common Stock is not traded
on an exchange but is quoted on NASDAQ or a successor quotation system, the
mean between the closing representative bid and asked prices for the Common
Stock on the trading day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a successor quotation system, the Fair
Market Value of a share of Common Stock as established by the Committee (or the
Board, in the case of Options granted to Independent Directors) acting in good
faith; provided, however, that the Fair Market Value of a share of Common Stock
as of the date of the initial public offering of Common Stock shall equal the
initial public offering price (net of underwriting discounts and commissions)
per share of Common Stock.
2
<PAGE> 3
1.16 Grantee. "Grantee" shall mean an Employee or
consultant granted a Performance Award, Dividend Equivalent, Stock Payment or
Stock Appreciation Right, or an award of Deferred Stock, under this Plan.
1.17 Incentive Stock Option. "Incentive Stock Option"
shall mean an option which conforms to the applicable provisions of Section 422
of the Code and which is designated as an Incentive Stock Option by the
Committee.
1.18 Independent Director. "Independent Director" shall
mean a member of the Board who (i) is not an Employee of the Company, and (ii)
who is not an employee or director of any parent corporation of the Company.
1.19 Non-Qualified Stock Option. "Non-Qualified Stock
Option" shall mean an Option which is not designated as an Incentive Stock
Option by the Committee.
1.20 Option. "Option" shall mean a stock option granted
under Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted to Independent
Directors and consultants shall be Non-Qualified Stock Options.
1.21 Optionee. "Optionee" shall mean an Employee,
consultant or Independent Director granted an Option under
this Plan.
1.22 Performance Award. "Performance Award" shall mean a
cash bonus, stock bonus or other performance or incentive award that is paid in
cash, Common Stock or a combination of both, awarded under Article VII of this
Plan.
1.23 Plan. "Plan" shall mean The 1997 Equity
Participation Plan of Weider Nutrition International, Inc.
1.24 QDRO. "QDRO" shall mean a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
1.25 Restricted Stock. "Restricted Stock" shall mean
Common Stock awarded under Article VI of this Plan.
1.26 Restricted Stockholder. "Restricted Stockholder"
shall mean an Employee or consultant granted an award of Restricted Stock under
Article VI of this Plan.
1.27 Rule 16b-3. "Rule 16b-3" shall mean that certain
Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to
time.
1.28 Section 162(m) Participant. "Section 162(m)
Participant" shall mean any Employee designated by the Committee as an Employee
whose compensation for the fiscal year in which the Employee is so designated
or a future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
3
<PAGE> 4
1.29 Stock Appreciation Right. "Stock Appreciation Right"
shall mean a stock appreciation right granted under Article VIII of this Plan.
1.30 Stock Payment. "Stock Payment" shall mean (i) a
payment in the form of shares of Common Stock, or (ii) an option or other right
to purchase shares of Common Stock, as part of a deferred compensation
arrangement or otherwise, made in lieu of or in addition to all or any portion
of the compensation, including without limitation, salary, bonuses and
commissions, that would otherwise become payable to an Employee or consultant
in cash, awarded under Article VII of this Plan.
1.31 Subsidiary. "Subsidiary" shall mean any corporation
in an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.32 Termination of Consultancy. "Termination of
Consultancy" shall mean the time when the engagement of an Optionee, Grantee or
Restricted Stockholder as a consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.33 Termination of Directorship. "Termination of
Directorship" shall mean the time when an Optionee who is an Independent
Director ceases to be a Director for any reason, including, but not by way of
limitation, a termination by resignation, removal, failure to be elected, death
or retirement. The Board, in its sole and absolute discretion, shall determine
the effect of all matters and questions relating to Termination of Directorship
with respect to Independent Directors.
1.34 Termination of Employment. "Termination of
Employment" shall mean the time when the employee-employer relationship between
an Optionee, Grantee or Restricted Stockholder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (i) terminations where there is a
simultaneous reemployment or continuing employment of an Optionee, Grantee or
Restricted Stockholder by the Company or any Subsidiary, (ii) at the discretion
of the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former
employee. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Employment;
provided, however, that, unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for
the purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
4
<PAGE> 5
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan
(a) The shares of stock subject to Options, awards of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of Deferred
Stock, Stock Payments or Stock Appreciation Rights shall be Common Stock,
initially shares of the Company's Class A Common Stock, par value $0.01 per
share. The aggregate number of such shares which may be issued upon exercise
of such options or rights or upon any such awards under the Plan shall not
exceed one million six hundred forty-six thousand (1,646,000). The shares of
Common Stock issuable upon exercise of such options or rights or upon any such
awards may be either previously authorized but unissued shares or treasury
shares.
(b) The maximum number of shares which may be subject to
Options, awards of Restricted Stock, Performance Awards, Dividend Equivalents,
awards of Deferred Stock, Stock Payments or Stock Appreciation Rights granted
under the Plan to any individual in any fiscal year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit and
if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and a grant
of a new Option and both the Option deemed to be canceled and the Option deemed
to be granted are counted against the Award Limit. Furthermore, to the extent
required by Section 162(m) of the Code, if, after grant of a Stock Appreciation
Right, the base amount on which stock appreciation is calculated is reduced to
reflect a reduction in the Fair Market Value of the Company's Common Stock, the
transaction is treated as a cancellation of the Stock Appreciation Right and a
grant of a new Stock Appreciation Right and both the Stock Appreciation Right
deemed to be canceled and the Stock Appreciation Right deemed to be granted are
counted against the Award Limit.
2.2 Add-back of Options and Other Rights. If any Option,
or other right to acquire shares of Common Stock under any other award under
this Plan, expires or is canceled without having been fully exercised, or is
exercised in whole or in part for cash as permitted by this Plan, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Options or other awards
which are adjusted pursuant to Section 10.3 and become exercisable with respect
to shares of stock of another corporation shall be considered cancelled and may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Shares of Common Stock which are delivered by the Optionee or
Grantee or withheld by the Company upon the exercise of any Option or other
award under this Plan, in payment of the exercise price thereof, may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. If any share of Restricted Stock is forfeited by the Grantee or
repurchased by the Company pursuant to Section 6.6 hereof, such share may again
be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of
Common Stock may again be optioned, granted or awarded if such action would
cause an Incentive Stock Option to fail to qualify as an incentive stock option
under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee or consultant selected by
the Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be
granted Options at the times and in the manner set forth in Section 3.4(d).
3.2 Disqualification for Stock Ownership. No person may
be granted an Incentive Stock Option under this Plan if such person, at the
time the Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.
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3.3 Qualification of Incentive Stock Options. No
Incentive Stock Option shall be granted to any person who is not an Employee.
3.4 Granting of Options
(a) The Committee shall from time to time, in its
absolute discretion, and subject to applicable limitations of this Plan:
(i) Select from among Employees and consultants
(including Employees or consultants who have previously received
Options or other awards under this Plan) such of them as in its
opinion should be granted Options;
(ii) Subject to the Award Limit, determine the
number of shares to be subject to such Options granted to the selected
Employees or consultants;
(iii) Subject to Section 3.3, determine whether
such Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such
Options, consistent with this Plan; provided, however, that the terms
and conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of an Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option as
it deems appropriate. Without limiting the generality of the preceding
sentence, the Committee may, in its discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option to an Employee or
consultant that the Employee or consultant surrender for cancellation some or
all of the unexercised Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments or other rights which have been previously granted to him under this
Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price
of such surrendered Option or other award, may cover the same (or a lesser or
greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan
may be modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an
Independent Director as of the date of the consummation of the initial public
offering of Common Stock automatically shall be granted (i) an Option to
purchase twenty thousand (20,000) shares of Common Stock (subject to adjustment
as provided in Section 10.3) on the date of such initial public offering and
(ii) an Option to purchase seven thousand (7,000) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on each anniversary of such
date on which such Independent Director is then serving as such. During the
term of the Plan, a person who is initially elected or appointed to the Board
after the consummation of the initial public offering of Common Stock and who
is an Independent Director at the time of such initial election or appointment
automatically shall be granted (i) an Option to purchase twenty thousand
(20,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of such initial election or appointment and (ii) an Option to
purchase seven thousand (7,000) shares of Common Stock (subject to adjustment
as provided in Section 10.3) on each anniversary of such date on which such
Independent Director is then serving as such. Members of the Board who are
employees of the Company who subsequently retire from the Company and remain on
the Board will not receive an initial Option grant pursuant to clause (i) of
the preceding sentence, but to the extent that they are otherwise eligible,
will receive, after Termination of Employment, Options as described in clause
(ii) of the preceding sentence on each anniversary of the date of Termination
of Employment. All the foregoing Option grants authorized by this Section
3.4(d) are subject to stockholder approval of the Plan.
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ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by
a written Stock Option Agreement, which shall be executed by the Optionee and
an authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of Options granted to
Independent Directors) shall determine, consistent with this Plan, including
non-compete, non-disclosure, non- solicitation or similar provisions. Stock
Option Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain
such terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code. Stock Option Agreements evidencing Incentive
Stock Options shall contain such terms and conditions as may be necessary to
meet the applicable provisions of Section 422 of the Code.
4.2 Option Price. The price per share of the shares
subject to each Option shall be set by the Committee; provided, however, that
such price shall be no less than the par value of a share of Common Stock,
unless otherwise permitted by applicable state law, and (i) in the case of
Incentive Stock Options and Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted (or modified in the case of an Incentive Stock
Option); (ii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code) such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted (or modified); and
(iii) in the case of Options granted to Independent Directors, such price shall
equal 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted.
4.3 Option Term. The term of an Option shall be set by
the Committee in its discretion but shall not exceed eight (8) years from the
date the Option is granted; provided, however, that, (i) in the case of Options
granted to Independent Directors, the term shall be eight (8) years from the
date the Option is granted, without variation or acceleration hereunder, but
subject to Section 5.6, and (ii) in the case of Incentive Stock Options, the
term shall not be more than five (5) years from such date if the Incentive
Stock Option is granted to an individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code). Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Optionee, or amend any other term or
condition of such Option relating to such a termination.
4.4 Option Vesting
(a) The period during which the right to exercise an
Option in whole or in part vests in the Optionee shall be set by the Committee
and the Committee may determine that an Option may not be exercised in whole or
in part for a specified period after it is granted; provided, however, that,
unless the Committee otherwise provides in the terms of the Option or
otherwise, no Option shall be exercisable by any Optionee who is then subject
to Section 16 of the Exchange Act within the period ending six months and one
day after the date the Option is granted; and provided, further, that Options
granted to Independent Directors shall become exercisable in cumulative annual
installments of 20% on each of the first, second, third, fourth and fifth
anniversaries of the date of Option grant, without variation or acceleration
hereunder except as provided in Section 10.3(b). At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an
Option (except an Option granted to an Independent Director) vests.
(b) No portion of an Option which is unexercisable at
Termination of Employment, Termination of Directorship or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as may
be otherwise provided by the Committee in the case of Options granted to
Employees or consultants either in the Stock Option Agreement or by action of
the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth
in the preceding sentence shall be applied by taking Options into account in
the order in which they were granted. For purposes of this Section 4.4(c), the
Fair Market Value of stock shall be determined as of the time the Option with
respect to such stock is granted.
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4.5 Consideration. In consideration of the granting of
an Option, the Optionee shall agree, in the written Stock Option Agreement or
otherwise, to render faithful and efficient services to the Company or any
Subsidiary with such duties and responsibilities as the Company or the
Subsidiary shall from time to time prescribe, and, in addition, such written
Stock Option Agreement may contain non-compete, non-disclosure,
non-solicitation or similar provisions. Nothing in this Plan or in any Stock
Option Agreement hereunder shall confer upon any Optionee any right to continue
in the employ of, or as a consultant for, the Company or any Subsidiary, or as
a director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or
without good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be
exercised in whole or in part. However, an Option shall not be exercisable
with respect to fractional shares and the Committee (or the Board, in the case
of Options granted to Independent Directors) may require that, by the terms of
the Option, a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an
exercisable Option shall be deemed exercised upon delivery of all of the
following to the Secretary of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors) stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee
(or the Board, in the case of Options granted to Independent Directors), in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may,
in its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised
pursuant to Section 10.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option; and
(d) Full cash payment to the Secretary of the Company for
the shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors), may in its discretion (i) allow a delay in payment up
to thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow payment,
in whole or in part, through the surrender of shares of Common Stock then
issuable upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through the
delivery of a notice that the Optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of
the Option, and that the broker has been directed to pay a sufficient portion
of the net proceeds of the sale to the Company in satisfaction of the Option
exercise price; or (v) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii), and (iv).
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5.3 Conditions to Issuance of Stock Certificates. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other
qualification of such shares under any state or federal law, or under the
rulings or regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee or Board shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Committee (or Board, in the
case of Options granted to Independent Directors) shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following
the exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time for reasons
of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall
not be, nor have any of the rights or privileges of, stockholders of the
Company in respect of any shares purchasable upon the exercise of any part of
an Option unless and until certificates representing such shares have been
issued by the Company to such holders.
5.5 Ownership and Transfer Restrictions. The Committee
(or Board, in the case of Options granted to Independent Directors), in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing
shares acquired by exercise of an Option refer to such requirement to give
prompt notice of disposition.
5.6 Limitations on Exercise of Options Granted to Independent
Directors. No Option granted to an Independent Director may be exercised to
any extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of
the Optionee's death;
(b) The expiration of twelve (12) months from the date of
the Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) The expiration of sixty (60) days from the date of
the Optionee's Termination of Directorship for any reason other than such
Optionee's death or his permanent and total disability, unless the Optionee
dies within said sixty-day period; or
(d) The expiration of eight (8) years from the date the
Option was granted.
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ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 Award of Restricted Stock
(a) The Committee may from time to time, in its absolute
discretion:
(i) Select from among the Employees or
consultants (including Employees or consultants who have previously
received other awards under this Plan) such of them as in its opinion
should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and
other terms and conditions applicable to such Restricted Stock,
consistent with this Plan.
(b) The Committee shall establish the purchase price, if
any, and form of payment for Restricted Stock; provided, however, that such
purchase price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all cases,
legal consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of an Employee or consultant to
be awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
6.2 Restricted Stock Agreement. Restricted Stock shall
be issued only pursuant to a written Restricted Stock Agreement, which shall be
executed by the selected Employee or consultant and an authorized officer of
the Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.
6.3 Consideration. As consideration for the issuance of
Restricted Stock, in addition to payment of any purchase price, the Restricted
Stockholder shall agree, in the written Restricted Stock Agreement or
otherwise, to render faithful and efficient services to the Company or any
Subsidiary with such duties and responsibilities as the Company or the
Subsidiary shall from time to time prescribe, and, in addition, such written
Restricted Stock Agreement may contain non-compete, non-disclosure,
non-solicitation or similar provisions. Nothing in this Plan or in any
Restricted Stock Agreement hereunder shall confer on any Restricted Stockholder
any right to continue in the employ of, or as a consultant for, the Company or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Restricted Stockholder at any time for any reason whatsoever, with or
without good cause.
6.4 Rights as Stockholders. Upon delivery of the shares
of Restricted Stock to the escrow holder pursuant to Section 6.7, the
Restricted Stockholder shall have, unless otherwise provided by the Committee,
all the rights of a stockholder with respect to said shares, subject to the
restrictions in his Restricted Stock Agreement, including the right to receive
all dividends and other distributions paid or made with respect to the shares;
provided, however, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 Restriction. All shares of Restricted Stock issued
under this Plan (including any shares received by holders thereof with respect
to shares of Restricted Stock as a result of stock dividends, stock splits or
any other form of recapitalization) shall, in the terms of each individual
Restricted Stock Agreement, be subject to such restrictions as the Committee
shall provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that, unless the Committee otherwise provides in the terms
of the Restricted Stock Agreement or otherwise, no share of Restricted Stock
granted to a person subject to Section 16 of the Exchange Act shall be sold,
assigned or otherwise transferred until at least six months and one day have
elapsed from the date on which the Restricted Stock was issued, and provided,
further, that by action taken after the Restricted Stock is issued, the
Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. Restricted Stock may not be sold or encumbered
until all restrictions are terminated or expire. Unless provided otherwise by
the Committee, if no consideration was paid by the Restricted Stockholder upon
issuance, a Restricted Stockholder's rights in unvested Restricted Stock shall
lapse upon Termination of Employment or, if applicable, upon Termination of
Consultancy with the Company.
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6.6 Repurchase of Restricted Stock. The Committee shall
provide in the terms of each individual Restricted Stock Agreement that the
Company shall have the right to repurchase from the Restricted Stockholder the
Restricted Stock then subject to restrictions under the Restricted Stock
Agreement immediately upon a Termination of Employment or, if applicable, upon
a Termination of Consultancy between the Restricted Stockholder and the
Company, at a cash price per share equal to the price paid by the Restricted
Stockholder for such Restricted Stock; provided, however, that provision may be
made that no such right of repurchase shall exist in the event of a Termination
of Employment or Termination of Consultancy without cause, or following a
change in control of the Company or because of the Restricted Stockholder's
retirement, death or disability, or otherwise.
6.7 Escrow. The Secretary of the Company or such other
escrow holder as the Committee may appoint shall retain physical custody of
each certificate representing Restricted Stock until all of the restrictions
imposed under the Restricted Stock Agreement with respect to the shares
evidenced by such certificate expire or shall have been removed.
6.8 Legend. In order to enforce the restrictions imposed
upon shares of Restricted Stock hereunder, the Committee shall cause a legend
or legends to be placed on certificates representing all shares of Restricted
Stock that are still subject to restrictions under Restricted Stock Agreements,
which legend or legends shall make appropriate reference to the conditions
imposed thereby.
6.9 Provisions Applicable to Section 162(m) Participants
(a) Notwithstanding anything in the Plan to the contrary,
the Committee may grant Restricted Stock awards to a Section 162(m) Participant
the restrictions with respect to which lapse upon the attainment of performance
targets for the Company 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 reductions or
savings.
(b) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the
Code, with respect to Restricted Stock awards which may be granted to one or
more Section 162(m) Participants, no later than ninety (90) days following the
commencement of any fiscal year in question or any other designated fiscal
period (or such other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (i) designate one or more Section
162(m) Participants, (ii) select the performance goal or goals applicable to
the fiscal year or other designated fiscal period, (iii) establish the various
targets and bonus amounts which may be earned for such fiscal year or other
designated fiscal period and (iv) specify the relationship between performance
goals and targets and the amounts to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period. Following
the completion of each fiscal year or other designated fiscal period, the
Committee shall certify in writing whether the applicable performance targets
have been achieved for such fiscal year or other designated fiscal period. In
determining the amount payable to a Section 162(m) Participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designated fiscal period.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 Performance Awards. Any Employee or consultant
selected by the Committee may be granted one or more Performance Awards. The
value of such Performance Awards may be linked to the market value, book value,
net profits or other measure of the value of Common Stock or other specific
performance criteria determined appropriate by the Committee, in each case on a
specified date or dates or over any period or periods determined by the
Committee, or may be based upon the appreciation in the market value, book
value, net profits or other measure of the value of a specified number of
shares of Common Stock over a fixed period or periods determined by the
Committee. In making such determinations, the Committee shall consider (among
such other factors as it deems relevant in light of the specific type of award)
the contributions, responsibilities and other compensation of the particular
Employee or consultant.
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7.2 Dividend Equivalents. Any Employee or consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option, Stock Appreciation Right,
Deferred Stock or Performance Award is granted, and the date such Option, Stock
Appreciation Right, Deferred Stock or Performance Award is exercised, vests or
expires, as determined by the Committee. Such Dividend Equivalents shall be
converted to cash or additional shares of Common Stock by such formula and at
such time and subject to such limitations as may be determined by the
Committee. With respect to Dividend Equivalents granted with respect to
Options intended to be qualified performance-based compensation for purposes of
Section 162(m) of the Code, such Dividend Equivalents shall be payable
regardless of whether such Option is exercised.
7.3 Stock Payments. Any Employee or consultant selected
by the Committee may receive Stock Payments in the manner determined from time
to time by the Committee. The number of shares shall be determined by the
Committee and may be based upon the Fair Market Value, book value, net profits
or other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
7.4 Deferred Stock. Any Employee or consultant selected
by the Committee may be granted an award of Deferred Stock in the manner
determined from time to time by the Committee. The number of shares of
Deferred Stock shall be determined by the Committee and may be linked to the
market value, book value, net profits or other measure of the value of Common
Stock or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Grantee of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the award has vested and the Common Stock underlying the award has been
issued.
7.5 Performance Award Agreement, Dividend Equivalent
Agreement, Deferred Stock Agreement, Stock Payment Agreement. Each Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall
be evidenced by a written agreement, which shall be executed by the Grantee and
an authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the
Committee in its discretion, but shall not exceed eight (8) years from the date
of grant.
7.7 Exercise Upon Termination of Employment. A
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment is exercisable or payable only while the Grantee is an Employee or
consultant; provided that the Committee may determine that the Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
7.8 Payment on Exercise. Payment of the amount
determined under Section 7.1 or 7.2 above shall be in cash, in Common Stock or
a combination of both, as determined by the Committee. To the extent any
payment under this Article VII is effected in Common Stock, it shall be made
subject to satisfaction of all provisions of Section 5.3.
7.9 Consideration. In consideration of the granting of a
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment, the Grantee shall agree, in a written agreement or otherwise, to
render faithful and efficient services to the Company or any Subsidiary with
such duties and responsibilities as the Company or the Subsidiary shall from
time to time prescribe, and, in addition, such written agreement may contain
non-compete, non-disclosure, non-solicitation or similar provisions. Nothing
in this Plan or in any agreement hereunder shall confer on any Grantee any
right to continue in the employ of, or as a consultant for, the Company or any
Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without good cause.
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7.10 Provisions Applicable to Section 162(m) Participants
(a) Notwithstanding anything in the Plan to the contrary,
the Committee may grant any performance or incentive awards described in
Article VII to a Section 162(m) Participant that vest or become exercisable
upon the attainment of performance targets for the Company 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 and (vii)cost reductions or
savings.
(b) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the
Code, with respect to performance or incentive awards described in Article VII
which may be granted to one or more Section 162(m) Participants, no later than
ninety (90) days following the commencement of any fiscal year in question or
any other designated fiscal period (or such other time as may be required or
permitted by Section 162(m) of the Code), the Committee shall, in writing, (i)
designate one or more Section 162(m) Participants, (ii) select the performance
goal or goals applicable to the fiscal year or other designated fiscal period,
(iii) establish the various targets and bonus amounts which may be earned for
such fiscal year or other designated fiscal period and (iv) specify the
relationship between performance goals and targets and the amounts to be earned
by each Section 162(m) Participant for such fiscal year or other designated
fiscal period. Following the completion of each fiscal year or other
designated fiscal period, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period. In determining the amount earned by a Section 162(m)
Participant, the Committee shall have the right to reduce (but not to increase)
the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant to the assessment of
individual or corporate performance for the fiscal year or other designated
fiscal period.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. A Stock
Appreciation Right may be granted to any Employee or consultant selected by the
Committee. A Stock Appreciation Right may be granted (i) in connection and
simultaneously with the grant of an Option, (ii) with respect to a previously
granted Option, or (iii) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with this Plan
as the Committee shall impose and shall be evidenced by a written Stock
Appreciation Right Agreement, which shall be executed by the Grantee and an
authorized officer of the Company. The Committee, in its discretion, may
determine whether a Stock Appreciation Right is to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code and Stock
Appreciation Right Agreements evidencing Stock Appreciation Rights intended to
so qualify shall contain such terms and conditions as may be necessary to meet
the applicable provisions of Section 162(m) of the Code. Without limiting the
generality of the foregoing, the Committee may, in its discretion and on such
terms as it deems appropriate, require as a condition of the grant of a Stock
Appreciation Right to an Employee or consultant that the Employee or consultant
surrender for cancellation some or all of the unexercised Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, or other rights which have been
previously granted to him under this Plan or otherwise. A Stock Appreciation
Right, the grant of which is conditioned upon such surrender, may have an
exercise price lower (or higher) than the exercise price of the surrendered
Option or other award, may cover the same (or a lesser or greater) number of
shares as such surrendered Option or other award, may contain such other terms
as the Committee deems appropriate, and shall be exercisable in accordance with
its terms, without regard to the number of shares, price, exercise period or
any other term or condition of such surrendered Option or other award.
8.2 Coupled Stock Appreciation Rights
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to the
extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than
the number of shares subject to the simultaneously or previously granted Option
to which it is coupled.
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(c) A CSAR shall entitle the Grantee (or other person
entitled to exercise the Option pursuant to this Plan) to surrender to the
Company unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the Company
in exchange therefor an amount determined by multiplying the difference
obtained by subtracting the Option exercise price from the Fair Market Value of
a share of Common Stock on the date of exercise of the CSAR by the number of
shares of Common Stock with respect to which the CSAR shall have been
exercised, subject to any limitations the Committee may impose.
8.3 Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right ("ISAR")
shall be unrelated to any Option and shall have a term set by the Committee.
An ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as the
Committee may determine; provided, however, that unless the Committee otherwise
provides in the terms of the ISAR or otherwise, no ISAR granted to a person
subject to Section 16 of the Exchange Act shall be exercisable until at least
six months have elapsed from (but excluding) the date on which the Option was
granted. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Grantee
is an Employee or consultant; provided that the Committee may determine that
the ISAR may be exercised subsequent to Termination of Employment or
Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.
(b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to this Plan) to exercise all or a
specified portion of the ISAR (to the extent then exercisable pursuant to its
terms) and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of exercise
of the ISAR by the number of shares of Common Stock with respect to which the
ISAR shall have been exercised, subject to any limitations the Committee may
impose.
8.4 Payment and Limitations on Exercise
(a) Payment of the amount determined under Section 8.2(c)
and 8.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to satisfaction of
all provisions of Section 5.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required
to comply with any timing or other restrictions with respect to the settlement
or exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed in the discretion of the Board or Committee.
8.5 Consideration. In consideration of the granting of a
Stock Appreciation Right, the Grantee shall agree, in the written Stock
Appreciation Right Agreement or otherwise, to render faithful and efficient
services to the Company or any Subsidiary with such duties and responsibilities
as the Company or the Subsidiary shall from time to time prescribe, and, in
addition, such written Stock Appreciation Right Agreement may contain
non-compete, non-disclosure, non-solicitation or similar provisions. Nothing
in this Plan or in any Stock Appreciation Right Agreement hereunder shall
confer on any Grantee any right to continue in the employ of, or as a
consultant for, the Company or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Grantee at any time for any reason
whatsoever, with or without good cause.
ARTICLE IX
ADMINISTRATION
9.1 Compensation Committee. Prior to the Company's
initial registration of Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall consist of the entire Board. As soon as
practicable following such registration, the Compensation Committee (or another
committee of the Board assuming the functions of the Committee under this Plan)
shall consist solely of two or more Independent Directors appointed by and
holding office at the pleasure of the Board, each of whom is both a
"non-employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
may be filled by the Board.
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9.2 Duties and Powers of Committee. It shall be the duty
of the Committee to conduct the general administration of this Plan in
accordance with its provisions. The Committee shall have the power to
interpret this Plan and the agreements pursuant to which Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments are granted or awarded, and to
adopt such rules for the administration, interpretation, and application of
this Plan as are consistent therewith and to interpret, amend or revoke any
such rules. Notwithstanding the foregoing, the full Board, acting by a
majority of its members in office, shall conduct the general administration of
the Plan with respect to Options granted to Independent Directors. Any such
grant or award under this Plan need not be the same with respect to each
Optionee, Grantee or Restricted Stockholder. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board
may at any time and from time to time exercise any and all rights and duties of
the Committee under this Plan except with respect to matters which under Rule
16b-3 or Section 162(m) of the Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.
9.3 Majority Rule; Unanimous Written Consent. The
Committee shall act by a majority of its members in attendance at a meeting at
which a quorum is present or by a memorandum or other written instrument signed
by all members of the Committee.
9.4 Compensation; Professional Assistance; Good Faith
Actions. Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Optionees, Grantees, Restricted
Stockholders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, and all members of the
Committee and the Board shall be fully protected by the Company in respect of
any such action, determination or interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable. Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of
descent and distribution or pursuant to a QDRO, unless and until such rights or
awards have been exercised, or the shares underlying such rights or awards have
been issued, and all restrictions applicable to such shares have lapsed. No
Option, Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the
Optionee, Grantee or Restricted Stockholder or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the preceding
sentence.
During the lifetime of the Optionee or Grantee, only he may
exercise an Option or other right or award (or any portion thereof) granted to
him under the Plan, unless it has been disposed of pursuant to a QDRO. After
the death of the Optionee or Grantee, any exercisable portion of an Option or
other right or award may, prior to the time when such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement or other
agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's or Grantee's will or under the
then applicable laws of descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan.
Except as otherwise provided in this Section 10.2, this Plan may be wholly or
partially amended or otherwise modified, suspended or terminated at any time or
from time to time by the Board or the Committee. However, without approval of
the Company's stockholders given within twelve months before or after the
action by the Board or the Committee, no action of the Board or the Committee
may, except as provided in Section 10.3, increase the limits imposed in Section
2.1 on the maximum number of shares which may be issued under this Plan or
modify the Award Limit, and no action of the Board or the Committee may be
taken that would otherwise require stockholder approval as a matter of
applicable law, regulation or rule. No amendment, suspension or termination of
this Plan shall, without the consent of the holder of Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments, alter or impair any rights or
obligations under any Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Options, Restricted Stock, Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted or awarded during any period of suspension or after
termination of this Plan, and in no event may any Incentive Stock Option be
granted under this Plan after the first to occur of the following events:
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(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 10.4.
10.3 Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events
(a) Subject to Section 10.3(d), in the event that the
Committee (or the Board, in the case of Options granted to Independent
Directors)determines that any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company
(including, but not limited to, a Corporate Transaction), or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or in the
case of Options granted to Independent Directors, the Board's sole discretion),
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or with
respect to an Option, Restricted Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent, Deferred Stock award or Stock Payment,
then the Committee (or the Board, in the case of Options granted to Independent
Directors) shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock
(or other securities or property) with respect to which Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments may be granted under the Plan, or which may be granted
as Restricted Stock or Deferred Stock (including, but not limited to,
adjustments of the limitations in Section 2.1 on the maximum number
and kind of shares which may be issued and adjustments of the Award
Limit),
(ii) the number and kind of shares of Common Stock
(or other securities or property) subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
or Stock Payments, and in the number and kind of shares of outstanding
Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to
any Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the
event of any Corporate Transaction or other transaction or event described in
Section 10.3(a) or any unusual or nonrecurring transactions or events affecting
the Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the case of Options
granted to Independent Directors) in its discretion is hereby authorized to
take any one or more of the following actions whenever the Committee (or the
Board, in the case of Options granted to Independent Directors) determines that
such action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any option, right or other award under this Plan, to facilitate
such transactions or events or to give effect to such changes in laws,
regulations or principles:
(i) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the Committee (or
the Board, in the case of Options granted to Independent Directors)
may provide, either by the terms of the agreement or by action taken
prior to the occurrence of such transaction or event and either
automatically or upon the optionee's request, for either the purchase
of any such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or any Restricted Stock or
Deferred Stock for an amount of cash equal to the amount that could
have been attained upon the exercise of such option, right or award or
realization of the optionee's rights had such option, right or award
been currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights or
property selected by the Committee (or the Board, in the case of
Options granted to Independent Directors) in its sole discretion;
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(ii) In its sole and absolute discretion, the
Committee (or the Board, in the case of Options granted to Independent
Directors) may provide, either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or
Stock Payment, or Restricted Stock or Deferred Stock or by action
taken prior to the occurrence of such transaction or event that it
cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the Committee (or
the Board, in the case of Options granted to Independent Directors)
may provide, either by the terms of such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock or by action taken prior to the
occurrence of such transaction or event, that for a specified period
of time prior to such transaction or event, such option, right or
award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in (i) Section 4.4 or (ii)
the provisions of such Option, Performance Award, Stock Appreciation
Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or
Deferred Stock;
(iv) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the Committee (or
the Board, in the case of Options granted to Independent Directors)
may provide, either by the terms of such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock or by action taken prior to the
occurrence of such transaction or event, that upon such event, such
option, right or award be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the Committee (or
the Board, in the case of Options granted to Independent Directors)
may make adjustments in the number and type of shares of Common Stock
(or other securities or property) subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents,
or Stock Payments, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and conditions
of (including the grant or exercise price), and the criteria included
in, outstanding options, rights and awards and options, rights and
awards which may be granted in the future.
(vi) In its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, the Committee may
provide either by the terms of a Restricted Stock award or Deferred
Stock award or by action taken prior to the occurrence of such event
that, for a specified period of time prior to such event, the
restrictions imposed under a Restricted Stock Agreement or a Deferred
Stock Agreement upon some or all shares of Restricted Stock or
Deferred Stock may be terminated, and, in the case of Restricted
Stock, some or all shares of such Restricted Stock may cease to be
subject to repurchase under Section 6.6 or forfeiture under Section
6.5 after such event.
(vii) None of the foregoing discretionary actions
taken under this Section 10.3(b) shall be permitted with respect to
Options granted under Section 3.4(d) to Independent Directors to the
extent that such discretion would be inconsistent with the applicable
exemptive conditions of Rule 16b-3. In the event of a Corporate
Transaction, to the extent that the Board does not have the ability
under Rule 16b-3 to take or to refrain from taking the discretionary
actions set forth in Section 10.3(b)(ii) above, no Option granted to
an Independent Director may be exercised following such Corporate
Transaction unless such Option is, in connection with such Corporate
Transaction, either assumed by the successor or survivor corporation
(or parent or subsidiary thereof) or replaced with a comparable right
with respect to shares of the capital stock of the successor or
survivor corporation (or parent or subsidiary thereof).
(viii) Notwithstanding the foregoing provisions of
this Section 10.3(b), in the event of any Change in Control or
Corporate Transaction, each outstanding Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, Stock Payment,
Restricted Stock, or Deferred Stock award shall, upon such Change in
Control or immediately prior to the effective date of the Corporate
Transaction, automatically become fully exercisable for all of the
shares of Common Stock at the time subject to such rights or fully
vested, as applicable, and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an
outstanding right shall not so accelerate if and to the extent: (i)
such right is, in connection with the Change in Control or Corporate
Transaction, either to be assumed by the successor or survivor
corporation (or parent thereof) or to be replaced with a comparable
right with respect to shares of the capital stock of the successor or
survivor corporation (or parent thereof) or (ii) the acceleration of
exercisability of such right is subject to other limitations imposed
by the Committee at the time of grant. The determination of
comparability of rights under clause (i) above shall be made by the
Committee, and its determination shall be final, binding and
conclusive.
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(c) Subject to Section 10.3(d) and 10.8, the Committee
(or the Board, in the case of Options granted to Independent Directors) may, in
its discretion, include such further provisions and limitations in any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock agreement or certificate, as it
may deem equitable and in the best interests of the Company.
(d) With respect to Options, Stock Appreciation Rights
and performance or incentive awards described in Article VII which are granted
to Section 162(m) Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C), no adjustment or action described in
this Section 10.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such option or stock appreciation
right to fail to so qualify under Section 162(m)(4)(C), as the case may be, or
any successor provisions thereto. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Committee (or the Board, in the case of
Options granted to Independent Directors) determines that the option or other
award is not to comply with such exemptive conditions. The number of shares of
Common Stock subject to any option, right or award shall always be rounded to
the next whole number.
10.4 Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within twelve months
after the date of the Board's initial adoption of this Plan. Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted and Restricted Stock or Deferred Stock may be awarded
prior to such stockholder approval, provided that such Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments shall
not be exercisable and such Restricted Stock or Deferred Stock shall not vest
prior to the time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said
twelve-month period, all Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments previously granted and all
Restricted Stock or Deferred Stock previously awarded under this Plan shall
thereupon be canceled and become null and void.
10.5 Tax Withholding. The Company shall be entitled to
require payment in cash or deduction from other compensation payable to each
Optionee, Grantee or Restricted Stockholder of any sums required by federal,
state or local tax law to be withheld with respect to the issuance, vesting or
exercise of any Option, Restricted Stock, Deferred Stock, Performance Award,
Stock Appreciation Right, Dividend Equivalent or Stock Payment. The Committee
(or the Board, in the case of Options granted to Independent Directors) may in
its discretion and in satisfaction of the foregoing requirement allow such
Optionee, Grantee or Restricted Stockholder to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option or other
award (or allow the return of shares of Common Stock) having a Fair Market
Value equal to the sums required to be withheld.
10.6 Loans. The Committee may, in its discretion, extend
one or more loans to Employees in connection with the exercise or receipt of an
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted under this Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under this Plan. The terms and conditions of any such
loan shall be set by the Committee.
10.7 Forfeiture Provisions. Pursuant to its general
authority to determine the terms and conditions applicable to awards under the
Plan, the Committee (or the Board, in the case of Options granted to
Independent Directors) shall have the right (to the extent consistent with the
applicable exemptive conditions of Rule 16b-3) to provide, in the terms of
Options or other awards made under the Plan, or to require the recipient to
agree by separate written instrument, that (i) any proceeds, gains or other
economic benefit actually or constructively received by the recipient upon any
receipt or exercise of the award, or upon the receipt or resale of any Common
Stock underlying such award, must be paid to the Company, and (ii) the award
shall terminate and any unexercised portion of such award (whether or not
vested) shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the award, or
(b) the recipient at any time, or during a specified time period, engages in
any activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee
(or the Board, as applicable).
10.8 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, this Plan, and any Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment granted, or Restricted Stock or Deferred
Stock awarded, to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan, Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents, Stock Payments, Restricted Stock and Deferred Stock granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other
provision of this Plan, any Option, Stock Appreciation Right or performance or
incentive award described in Article VII which is granted to a Section 162(m)
Participant and is intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such
requirements.
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10.9 Effect of Plan Upon Options and Compensation Plans.
The adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company or any Subsidiary. Nothing in this Plan shall
be construed to limit the right of the Company (i) to establish any other forms
of incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (ii) to grant or assume options or other rights
otherwise than under this Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
10.10 Compliance with Laws. This Plan, the granting and
vesting of Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under
this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments granted or
Restricted Stock or Deferred Stock awarded hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations (including
but not limited to state and federal securities law and federal margin
requirements) and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Any securities delivered under this Plan
shall be subject to such restrictions, and the person acquiring such securities
shall, if requested by the Company, provide such assurances and representations
to the Company as the Company may deem necessary or desirable to assure
compliance with all applicable legal requirements. To the extent permitted by
applicable law, the Plan, Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
10.11 Titles. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of this
Plan.
10.12 Governing Law. This Plan and any agreements
hereunder shall be administered, interpreted and enforced under the internal
laws of the State of Delaware without regard to conflicts of laws thereof.
* * * * * * *
I hereby certify that the foregoing Plan was duly adopted by
the Board of Directors of Weider Nutrition International, Inc. and approved by
the Company's stockholders on February 28, 1997.
Executed on this ____ day of _______________, 1997.
______________________________
Secretary
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Exhibit 10.4
INCOME TAX SHARING AGREEMENT
This Income Tax Sharing Agreement (the "Agreement"), is made as
of March ____, 1997, by and among Weider Nutrition International, Inc., a
Delaware corporation, and each of its subsidiaries listed on the signature page
hereof (collectively, the "Company"), and Weider Health and Fitness, a Nevada
corporation, and each of its subsidiaries listed on the signature page hereof
(collectively, "Parent").
RECITALS
WHEREAS, Parent is the "common parent" of an "affiliated
group" of corporations (the "WHF Group") as such terms are used in section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
Parent is a "member" of the WHF Group as such term is used in section 1.1502-1
of the Treasury regulations promulgated thereunder (the "Regulations"); and
WHEREAS, the Company is a "subsidiary" of Parent and a
"member" of the WHF Group within the meaning of section 1.1502-1 of the
Regulations; and
WHEREAS, the WHF Group includes certain other members
affiliated with Parent within the meaning of section 1504 of the Code; and
WHEREAS, through Parent the WHF Group previously has filed a
consolidated federal income tax return in accordance with section 1501 of the
Code, and the WHF Group is required to file consolidated federal income tax
returns for the current and future taxable years; and
WHEREAS, the Company intends to sell a percentage of the
issued and outstanding shares of the Company's common stock to persons who are
not members of the WHF Group pursuant to a public offering (the "Offering")
such that the Company will no longer be a member of the WHF Group; and
WHEREAS, the Company owns, directly or indirectly, stock of
other corporations, each of which would be a "subsidiary" of the Company and a
"member" of an "affiliated group" of corporations (the "Company Group") of
which the Company would be the "common parent" if the status of a corporation
as "common parent" were determined by disregarding ownership of stock in such
corporation by a higher tier parent corporation (such as Parent) which causes
such corporation to be a member of an affiliated group of which it is not the
common parent; and
WHEREAS, upon the closing (the "Closing") of the Offering on
the closing date (the "Closing Date"), the Company and the other "members" of
the Company Group will no longer be "members" of the WHF Group; and
WHEREAS, the Company and Parent desire to comply with
provisions of the Code and applicable State statutes so that the Company and
Parent remain penalty proof with each and every taxing authority; and
WHEREAS, the Company, its subsidiaries, Parent and its
subsidiaries desire to set forth their agreement in relation to liability for
taxes (including interest and penalties thereon) of the
<PAGE> 2
Company that are or may be owed to, or asserted by, federal, state, local or
foreign taxing authorities.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants and conditions hereinafter contained, the parties
hereto agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" -- with respect to any corporation (the "given
corporation"), each person, corporation, partnership or other entity that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the given corporation. For
purposes of this definition, "control" means the possession, directly or
indirectly, of 50% or more of the voting power or value of outstanding voting
interests.
"Affiliated Group" -- an affiliated group of corporations
within the meaning of Code section 1504(a) for the Taxable Period or, for
purposes of any state, local or foreign income tax matters, any consolidated,
combined or unitary group of corporations within the meaning of the
corresponding provisions of tax law for the state or other jurisdiction in
question.
"Closing" -- the completion of the Public Offering.
"Closing Date" -- the date on which the Closing occurs.
"Code" -- the Internal Revenue Code of 1986, as amended, or
any successor thereto, as in effect for the Taxable Period in question.
"Combined Income Tax Return" -- any consolidated, combined,
unitary or similar state, local or foreign Income Tax Return in which the
Company or any member of the Company Group is or may be included.
"Company" -- as defined in the preamble to this Agreement.
"Company Group" -- as defined in the Recitals to this
Agreement.
"Income Tax(es)" -- any and all Taxes based upon or measured
in whole or in part by net income (regardless of whether denominated as an
"income tax," "franchise tax" or otherwise and including any Tax imposed on
alternative bases, one of which is net income), imposed by any Taxing
Authority, together with any interest, penalties and other additions thereto.
"Income Tax Return(s)" -- all Tax Returns relating to, or
required to be filed in connection with, any payment or refund of any Income
Tax.
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<PAGE> 3
"Information Return(s)" -- any and all reports, returns,
declarations or other filings (other than Tax Returns) required by, or to be
furnished to, any Taxing Authority.
"Other Tax(es)" -- any and all Taxes, other than Income Taxes,
together with any interest, penalties and other additions thereto.
"Other Tax Return(s)" -- all Tax Returns relating to, or
required to be filed in connection with, any payment or refund of any Other
Tax.
"Overdue Rate" -- the rate specified under Code section
6621(a)(2) (or any successor provision) for the underpayment of tax.
"Parties" -- the entities identified in the heading and on the
signature pages hereof.
"Post-Closing Straddle Period" -- with respect to any Straddle
Period, the period beginning the day after the Closing Date and ending on the
last day of such Taxable Year.
"Post-Closing Taxable Period(s)" -- any Taxable Year that
begins after the close of the Closing Date; in addition, solely with respect to
the WHF Group as a whole and not with respect to the Company or any member of
the Company Group, the term shall also include the Taxable Year of the WHF
Group that includes the Closing Date and ends after the close of the Closing
Date.
"Pre-Closing Straddle Period" -- with respect to any Straddle
Period, the period beginning on the first day of such Taxable Year and ending
at the close of the Closing Date.
"Pre-Closing Taxable Period(s)" -- any Taxable Year that ends
at or before the close of the Closing Date.
"Prior Tax Sharing Agreement" -- that Tax Sharing Agreement
made and entered into as of the 1st day of June 1992 by and between Weider
Nutrition Group, Inc., on behalf of itself and each of its wholly-owned and
controlled subsidiaries, and Parent.
"Receipt Date" -- with respect to any notification given to
any party to this Agreement, the date on which such party is deemed to have
received the notification pursuant to Section 9.1 hereof.
"Representative(s)" -- with respect to any person or entity,
any of such person's or entity's directors, officers, employees, agents,
consultants, accountants, attorneys and other advisors.
"Separate Income Tax Return(s)" -- any state, local or foreign
Income Tax Return for the Company or any member of the Company Group other than
a Combined Income Tax Return.
"Straddle Period" -- any Taxable Period of the Company or any
member of the Company Group that begins before and ends after the close of the
Closing Date.
"Tax(es)" -- any domestic or foreign net income, gross income,
gross receipts, sales, use, excise, franchise, transfer, payroll, employment,
stamp, gains, capital, premium, property or
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<PAGE> 4
windfall profits tax, alternative, add-on or other minimum tax, value added, or
other tax, fee or assessment, together with any interest and any penalty,
addition to tax or additional amount imposed by any Taxing Authority, whether
any such tax is imposed directly or through withholding.
"Tax Benefit(s)" -- (i) in the case of any Income Tax for
which a consolidated federal Income Tax Return or a Combined Income Tax Return
is filed, the amount by which the Tax liability of the Affiliated Group, any
other relevant group of corporations or any member of the Affiliated Group is
reduced by deduction, entitlement to refund, credit, offset or otherwise,
whether available in the current Taxable Year, as an adjustment to taxable
income in any other Taxable Year or as a carryforward or carryback, and
including the effect on other Income or Other Taxes of such reduction, plus any
interest (a) received with respect to any related Tax refund or (b) saved by
application of any credit, offset or deduction, and (ii) in the case of any
Income Tax for which a Separate Income Tax Return is filed or any Other Tax,
the amount by which the Tax liability of a corporation is reduced by deduction,
entitlement to refund, credit, offset or otherwise, whether available in the
current taxable year, as an adjustment to taxable income in any other Taxable
Year or as a carryforward or carryback, and including the effect on other
Income or Other Taxes of such reduction, plus any interest received with
respect to any related Tax refund.
"Tax Practices" -- the most recently applied policies,
procedures and practices employed by the WHF Group in the preparation and
filing of, and positions taken on, any Tax Returns of the Company or any member
of the Company Group for any Pre-Closing Taxable Period, including, without
limitation, the policies, procedures and practices specified in the Prior Tax
Sharing Agreement.
"Tax Return(s)" -- all returns, reports, estimates,
information statements, declarations and other filings relating to, or required
to be filed in connection with, the payment or refund of any Tax or as required
by applicable law.
"Taxable Period(s)" -- one or more Pre- or Post-Closing
Taxable Period or Pre- or Post-Closing Straddle Period.
"Taxable Year(s)" -- one or more taxable years (which may be
shorter than a full calendar or fiscal year), years of assessment or periods
with respect to which any Tax may be imposed or for which a Tax Return is
required to be filed.
"Taxing Authority" -- the Internal Revenue Service or any
other domestic or foreign governmental authority responsible for the
administration, imposition or collection of any Tax.
"WHF Group" -- as defined in the Recitals to this Agreement.
ARTICLE II
TERMINATION OF PRIOR TAX SHARING AGREEMENT
Except to the extent provided herein, the Prior Tax Sharing
Agreement shall, as of the Closing, be terminated and superseded by this
Agreement.
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<PAGE> 5
ARTICLE III
PREPARATION OF TAX RETURNS; PAYMENT OF TAXES
3.1 Preparation and Filing of Tax Returns.
(a) By Parent. To the extent not filed
prior to the close of the Closing Date, Parent shall prepare and timely file
(or cause to be prepared and timely filed):
(i) all federal Income Tax Returns
and Combined Income Tax Returns of the WHF Group (including the
Company or any member of the Company Group for all Pre-Closing Taxable
Periods) and all Separate Income Tax Returns of the Company or any
member of the Company Group for all Pre-Closing Taxable Periods; and
(ii) all federal, state, local and
foreign Tax Returns and Information Returns of the WHF Group
(excluding the Company and any member of the Company Group for their
Taxable Years beginning after the Closing) for all Post-Closing
Taxable Periods.
(b) By the Company. Except as provided
in Section 3.1(a), the Company shall prepare and timely file (or cause to be
prepared and timely filed):
(i) all federal, state, local and
foreign Income Tax Returns of the Company or any member of the Company
Group for all Straddle Periods and Post-Closing Taxable Periods; and
(ii) all Other Tax Returns and
Information Returns of the Company or any member of the Company Group.
(c) Review of Tax Returns. At least
thirty (30) days prior to the filing of any Straddle Period Tax Return
(including amendments thereto) to which this Article III applies, the Company
shall provide Parent with the portions of such Tax Return in draft form related
to the Company or any member of the Company Group. All such Tax Returns shall
be prepared in a manner consistent with past Tax Practices, except as otherwise
required by law. Parent (or, as the case may be, the Company) shall not
voluntarily (i) accelerate (or defer) or shift deductions and other similar
items into a Pre-Closing Taxable Period, or (ii) defer (or accelerate) or shift
income and other similar items into a Post-Closing Taxable Period through
original or amended portions of Tax Returns that relate to the Company or any
member of the Company Group, or otherwise voluntarily change the reporting of
such items, unless otherwise required by law; provided, however, that such
prohibition shall not extend to the correction of mathematical errors or other
adjustments necessary to conform such Tax Returns to past Tax Practices. The
preparing party shall solicit the other party's comments with respect to such
portions of Tax Returns and shall in good faith (a) consult with the other
party in an effort to resolve any differences with respect to the preparation
and accuracy of such Tax Returns and their consistency with past Tax Practices
and (b) consider the other party's recommendations for alternative positions
with respect to items reflected on such portions of Tax Returns.
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<PAGE> 6
3.2 Payment of Taxes.
(a) By Parent. Except to the extent
provided herein, Parent shall pay (or cause to be paid) all Taxes shown to be
due and payable on all Tax Returns filed (or caused to be filed) by Parent
pursuant to Section 3.1(a) hereof and, subject to the other provisions of this
Agreement, all Taxes that shall thereafter become due and payable with respect
to such Tax Returns; provided, however, that with respect to all Pre-Closing
Taxable Periods, the Company shall be liable for Taxes of the Company Group in
an amount equal to Taxes computed for the Company Group as if the Company Group
were to file separate Tax Returns for such Periods, whether such Taxes are
shown to be due and payable on Tax Returns filed (or caused to be filed) by
Parent pursuant to section 2.1(a) hereof or, subject to the other provisions of
this Agreement, thereafter become due and payable with respect to such Tax
Returns (the "Company's Taxes"). Payments for the Company's Taxes shall be
calculated and made in accordance with the terms of the Prior Tax Sharing
Agreement, as if the Company were a party to such agreement (i.e., as if the
Company were the "Company" as defined in such agreement).
(b) By the Company. Except to the
extent specifically provided by Section 3.2(d) or any other provision of this
Agreement, the Company shall pay (or cause to be paid) all Taxes shown to be
due and payable on all Tax Returns filed (or caused to be filed) by the Company
pursuant to Section 3.1(b) hereof, and all Taxes that shall thereafter become
due and payable with respect to such Tax Returns.
(c) Information and Other Tax Returns.
Any party required to file any Information or other Tax Return pursuant to this
Article III shall pay any related fees or charges (including any such fees or
charges that shall thereafter become due and payable with respect to such
Information or other Tax Return) and shall indemnify and hold the other party
harmless against any related interest and penalties, as well as any such fees
or charges which are assessed against such party as the result of a failure by
the party responsible for such failure to file any Information Return in a
timely and accurate manner.
(d) Straddle Periods. For purposes of
this Agreement, Income Taxes shown on a Tax Return for a Straddle Period shall
be allocated between the Pre- and Post-Closing Straddle Periods on the basis of
the actual Taxable income for each such Period, determined by an interim
closing of the books of the Company at the close of the Closing Date (or such
other allocation method as the Parties may agree to in writing). The Company
shall pay to Parent within ten (10) days after receipt of such executed Income
Tax Return the excess of any amount so allocated (based upon the amount of Tax
shown on such Tax Return) to the Pre-Closing Straddle Period over the amount of
any estimated Income Taxes previously paid by the Company or the Company Group
prior to the Closing Date; or Parent shall pay to the Company within ten (10)
days after filing such Income Tax Return the excess of the amount of any
estimated Income Taxes previously paid by the Company or the Company Group
prior to the Closing Date over the amount allocated to such Period.
3.3 Refunds.
(a) Parent. Parent shall be entitled to
any refund of Taxes of the Company or any member of the Company Group for any
Pre-Closing Taxable Period or Pre-Closing Straddle Period. In connection
therewith, the Company shall provide Parent with irrevocable powers
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<PAGE> 7
of attorney with respect to the endorsement of all such refunds. Parent shall,
in accordance with the terms of the Prior Tax Sharing Agreement, pay to the
Company any refund with respect to a Pre-Closing Taxable Period to which the
Company would be entitled under such Prior Tax Sharing Agreement, assuming the
Company were a party to such agreement. The amount of any refund for any
Straddle Period shall be allocated between the Pre-Closing Straddle Period and
the Post-Closing Straddle Period using the principles described in Section
3.2(d) of this Agreement.
(b) The Company. The Company shall be
entitled to any refund of any and all Taxes of the Company and the Company
Group for all Post-Closing Taxable Periods and Post-Closing Straddle Periods.
The amount of any refund for any Straddle Period shall be allocated between the
Pre-Closing Straddle Period and the Post-Closing Straddle Period using the
principles described in Section 3.2(d) of this Agreement.
(c) Transmittal of Refunds to Which
Recipient Is Not Entitled. If Parent receives a Tax refund to which the
Company or any member of the Company Group is entitled pursuant to this
Agreement, Parent shall pay the amount of such refund (including any interest
received thereon) to the Company within ten (10) days after receipt thereof.
Conversely, if the Company or any member of the Company Group receives a Tax
refund to which Parent is entitled pursuant to this Agreement, the Company or
such member of the Company Group, as the case may be, shall pay the amount of
such refund (including any interest received thereon) to Parent within ten (10)
days after receipt thereof.
3.4 Amendments to Tax Returns. Parent shall be
entitled to amend any Tax Return filed by Parent pursuant to Section 3.1(a)
hereof, and the Company and any member of the Company Group shall be entitled
to amend any Tax Return for any Taxable Period filed by any of them pursuant to
Section 3.1(b) hereof; provided, however, that any amended Tax Return filed
pursuant to this Section 3.4 shall be subject to the provisions of Section
3.1(c) hereof.
3.5 Carrybacks. Without the prior written
consent of Parent, which may be granted or withheld in Parent's discretion,
neither the Company nor any member of the Company Group shall carry back any
net operating loss or other item or attribute from a Post-Closing Taxable
Period to a Pre-Closing Taxable Period. The Company agrees to reimburse Parent
for any reasonable administrative costs connected therewith, including, but not
limited to, a reasonable cost of time spent preparing such carryback Tax
Returns.
3.6 Provision of Filing Information. The Company
(or Parent, as the case may be) shall cooperate and assist Parent (or the
Company) in the preparation and filing of all Tax Returns and Information
Returns subject to Section 3.1 and submit to Parent (or the Company) (i) all
necessary filing information in a manner consistent with past Tax Practices
and, in no event, later than sixty (60) days after the Closing Date and (ii)
all other information reasonably requested by Parent (or the Company) in
connection with the preparation of such Tax Returns and Information Returns
promptly after such request. It is expressly understood and agreed that
Parent's (or the Company s) ability to discharge its Tax Return and Information
Return preparation and filing responsibilities is contingent upon the Company
(or Parent) providing Parent (or the Company) with all cooperation, assistance
and information reasonably necessary or requested for the filing of such Tax
Returns and Information Returns and that the Company (or Parent) shall
indemnify Parent (or the Company), and Parent's (or the Company )
indemnification obligations of Article IV shall not
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<PAGE> 8
apply, if, and to the extent that, Taxes are increased as a result of material
inaccuracies in such information or failures to timely provide material
information and assistance after reasonable notice and written request
therefor.
ARTICLE IV
INDEMNIFICATION
4.1 By Parent.
(a) Taxes. Subject to Sections 4.2 and
4.3, Parent shall indemnify and hold the Company and the members of the Company
Group harmless against any and all Income Taxes of the WHF Group or any member
thereof (other than the Company and each member of the Company Group) for any
and all Pre-Closing Taxable Periods and all Pre-Closing Straddle Periods to the
extent of payments required by Parent pursuant to Section 3.2(d) of this
Agreement.
(b) Member Liability. Parent shall
indemnify and hold the Company and the members of the Company Group harmless
against each and every liability for Taxes of the WHF Group (other than Taxes
attributable to the Company or any member of the Company Group) under Treasury
Regulation section 1.1502-6 or any similar law, rule or regulation administered
by any Taxing Authority.
4.2 By the Company.
(a) [ ]
(b) Member Liability. Company shall
indemnify and hold Parent and the members of the WHF Group harmless against
each and every liability for Taxes of the Company Group under Treasury
Regulation section 1.1502-6 or any similar law, rule or regulation administered
by any Taxing Authority.
4.3 Indemnification Procedure. Parent (or the
Company, as the case may be) shall notify the Company (or Parent) of any Taxes
paid by the WHF Group or any member thereof (or the Company Group or any member
thereof) which are subject to indemnification under this Article IV. To the
extent not otherwise provided in this Article IV, any notification contemplated
by this Article IV shall include a detailed calculation (including, if
applicable, separate allocations of such Taxes between Pre- and Post-Closing
Taxable Periods and supporting work papers) and a brief explanation of the
basis for indemnification hereunder. Whenever a notification described in this
Article IV is given, the notified party shall pay the amount requested in such
notice to the notifying party in accordance with Article V, but only to the
extent that the notified party agrees with such request. To the extent the
notified party disagrees with such request, it shall, within twenty (20) days,
so notify the notifying party, whereupon the Parties shall use their best
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<PAGE> 9
efforts to resolve any such disagreement. If the parties are unable to resolve
such disagreement, it shall be resolved in accordance with Article V. To the
extent not otherwise provided for in this Article IV or in Article V, any
payment made after such 20-day period shall include interest at the Overdue
Rate beginning on the Receipt Date based upon the original notice given by the
notifying party.
ARTICLE V
METHOD, TIMING AND CHARACTER OF PAYMENTS REQUIRED BY THIS AGREEMENT; DISPUTES
5.1 Payment in Immediately Available Funds. All payments
made pursuant to this Agreement shall be made in immediately available funds.
Except as otherwise provided herein, any payment not made when due hereunder
shall thereafter bear interest at the Overdue Rate, beginning on the Receipt
Date. In the absence of a specified date, a payment shall be due 20 days after
the later of (i) the date on which the notifying party actually incurs the
out-of-pocket cost with respect to which such notice relates or (ii) the
Receipt Date.
5.2 Disputes. In the event that the Company and Parent
cannot agree on any calculation required under any provision of this Agreement,
such calculation shall be made by Deloitte & Touche, LLP or, if that firm
refuses to serve, by any other nationally recognized independent public
accounting firm acceptable to the Company and Parent. The decision of such
firm shall be final and binding, and the fees and expenses incurred by it in
connection with such calculation shall be shared equally by Parent and the
Company.
ARTICLE VI
COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY
6.1 Provision of Cooperation, Documents and Other
Information. Upon the request of any party to this Agreement, Parent or the
Company shall provide (and shall cause their affiliates to provide) the
requesting party, promptly upon request, with such cooperation and assistance,
documents, and other information, without charge, as may reasonably be
requested by such party in connection with (i) the preparation and filing of
any original or amended Tax Return, (ii) the conduct of any audit or other
examination or any judicial or administrative proceeding involving to any
extent Taxes, Tax Returns or Information Returns within the scope of this
Agreement, or (iii) the verification by a party of an amount payable hereunder
to, or receivable hereunder from, another party. Such cooperation and
assistance shall include, without limitation: (a) the provision on demand of
books, records, Tax Returns, documentation or other information relating to any
relevant Tax Return or Information Return, (b) the execution of any document
that may be necessary or reasonably helpful in connection with the filing of
any Tax Return or Information Return by the WHF Group, the Company, or a member
of the WHF Group or the Company Group, or in connection with any audit,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limiting the foregoing, the execution of
irrevocable powers of attorney, on or before the Closing Date, with respect to
Tax Returns which Parent may be obligated to file pursuant to Section 3.1, (c)
the prompt and timely filing of appropriate claims for refund, and (d) the use
of reasonable best efforts to obtain any documentation
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from a governmental authority or a third party that may be necessary or helpful
in connection with the foregoing. Each party shall make its employees and
facilities available on a mutually convenient basis to facilitate such
cooperation. Notwithstanding the foregoing, nothing herein shall entitle the
Company to any information concerning Parent businesses and operations not
owned by the Company or a member of the Company Group.
6.2 Retention of Books and Records. Parent and
each member of the WHF Group, the Company and each member of the Company Group
shall retain or cause to be retained all Tax Returns and Information Returns
related to Pre-Closing Taxable Periods, Straddle Periods and, in the case of
Parent and the WHF Group, the Post-Closing Taxable Period that includes the
Closing Date, and all books, records, schedules, workpapers, and other
documents relating thereto, until the expiration of the later of (i) all
applicable statutes of limitations (including any waivers or extensions
thereof), and (ii) any retention period required by law or pursuant to any
record retention agreement. The Parties will, at least thirty (30) days prior
thereto, provide written notice of any intended destruction of the documents
referred to in the preceding sentence. A party giving such a notification will
not dispose of any of the foregoing materials without first offering to
transfer possession thereof to all notified Parties, provided, however, that
nothing herein shall entitle the Company to any information concerning Parent
businesses and operations not owned by the Company or a member of the Company
Group.
6.3 Status and Other Information Regarding Audits
and Litigation. Parent shall use reasonable best efforts to keep the Company
advised, and the Company shall use reasonable best efforts to keep Parent
advised, as to the status of Tax audits and litigation involving any issue
relating to any Taxes, Tax Returns, Information Returns or Tax Benefits subject
to indemnification hereunder. To the extent relating to any such issue, Parent
shall promptly furnish the Company, and the Company shall promptly furnish
Parent, copies of any inquiries or requests for information from any Taxing
Authority or any other administrative, judicial or other governmental
authority, as well as copies of any relevant portions of any revenue agent's
report or similar report, notice of proposed adjustment or notice of
deficiency. The failure of the Company (or Parent) to provide Parent (or the
Company) with copies of such inquiries, requests, reports or notices prior to
the requested reply date shall shift the responsibility to the Company (or
Parent) for any interest and/or penalties that result directly from the failure
to provide a timely reply to the Company (or Parent).
6.4 Confidentiality of Documents and Information.
Except as required by law or with the prior written consent (which shall not be
unreasonably withheld) of (i) Parent, in the case of Tax Returns or Information
Returns relating to Parent or a member of the WHF Group (other than Separate
Income Tax Returns of the Company or members of the Company Group), and (ii)
the Company, in the case of Tax Returns or Information Returns relating to the
Company or a member of the Company Group, all Tax Returns and Information
Returns, documents, schedules, work papers and similar items and all
information contained therein, which Tax Returns and Information Returns and
other materials are within the scope of this Agreement, shall be kept
confidential to the Parties hereto and their Representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
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ARTICLE VII
CONTESTS AND AUDITS
7.1 Notification of Audits or Disputes. Upon the
receipt by Parent or any member of the WHF Group (or the Company, any member of
the Company Group, as the case may be) of notice of any pending or threatened
Tax audit, inquiry or assessment which may affect the liability for Taxes that
are subject to indemnification hereunder, Parent (or the Company) shall
promptly notify the other in writing of the receipt of such notice. The
failure of the Company (or Parent) to provide Parent (or the Company) with
copies of such notice prior to the requested reply date shall shift the
responsibility for any interest and/or penalties resulting directly from the
failure to provide a timely reply to the Company (or Parent). Furthermore, if
without the consent of the other party, the Company or any member of the
Company Group (or Parent or any member of the WHF Group) responds to a notice
of any pending or threatened Tax audit, inquiry or assessment in a manner that
would materially adversely affect the liability for Taxes (or interest and/or
penalties thereon) that are subject to indemnification hereunder by the other
party, the responsibility for additions to such Tax liability, including
interest and/or penalties thereon, resulting from such response shall shift to
the Company (or Parent).
7.2 Control and Settlement.
(a) By Parent. Parent shall have the
right to control, and to represent the interests of all affected taxpayers in,
any Tax audit or administrative, judicial or other proceeding relating, in
whole or in part, to any Pre-Closing Taxable Period or any Taxes for any other
Taxable Period for which Parent is responsible under Article IV, and to employ
counsel of its choice at its expense; provided, however, that, with respect to
such issues that may materially adversely affect the Company or any member of
the Company Group for any Straddle Period or Post-Closing Taxable Period,
Parent shall (i) advise the Company as to the existence and status of any such
proceedings, (ii) afford the Company full opportunity to review any submissions
related to such issues at the Company's own expense, (iii) allow the Company to
employ counsel of its choice at its expense, and (iv) in good faith cooperate
and consult with the Company regarding its comments with respect to such
submissions in an effort to resolve any differences with respect to Parent's
positions with regard to such issues, and (v) in good faith consider the
Company's recommendations for alternative positions with respect to such
issues. In the event of any disagreement regarding the proceedings, Parent
shall have the ultimate control of the contest and any settlement or other
resolution thereof.
(b) By the Company. The Company shall
have the right to control, and to represent the interests of all affected
taxpayers in, any Tax audit or administrative, judicial or other proceeding
relating, in whole or in part, to any Straddle Period or Post-Closing Taxable
Period or any Taxes for any other Taxable Period for which the Company is
responsible under Article IV, and to employ counsel of its choice at its
expense; provided, however, that, with respect to such issues that may
materially adversely affect the Company or any member of the Company Group for
any Pre-Closing Taxable Period, the Company shall (i) advise Parent as to the
existence and status of any such proceedings, (ii) afford Parent full
opportunity to review any submissions related to such issues at Parent's own
expense, (iii) allow Parent to employ counsel of its choice at its expense,
(iv) in good faith cooperate and consult with Parent regarding its comments
11
<PAGE> 12
with respect to such submissions in an effort to resolve any differences with
respect to the Company's positions with regard to such issues, (v) in good
faith consider Parent's recommendations for alternative positions with respect
to such issues. In the event of any disagreement regarding the proceedings,
the Company shall have the ultimate control of the contest and any settlement
or other resolution thereof.
7.3 Delivery of Powers of Attorney. The Company
shall execute and deliver to Parent, promptly upon reasonable request, such
powers of attorney authorizing Parent to extend statutes of limitations,
receive refunds, negotiate audit settlements (subject to the Company's rights
under Section 7.2(a)) and take such other actions that Parent reasonably
considers to be appropriate in exercising its control rights pursuant to
Section 7.2(a).
ARTICLE VIII
TERMINATION OF LIABILITIES
Except for liabilities attributable to items that are then
being contested by Parent or the Company pursuant to Article VII, and
notwithstanding any other provision of this Agreement, all liabilities of
Parent and the Company under this Agreement will terminate on the tenth (10th)
anniversary of the Closing Date.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic
or digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case, notice shall be sent to:
If to Parent: c/o Weider Health and Fitness
21100 Erwin Street
Woodland Hills, CA 91367-3772
If to the Company: Weider Nutrition International, Inc.
1960 South 4250 West
Salt Lake City, Utah 84104-4836
Attention: Chief Financial Officer
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
9.2 Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
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<PAGE> 13
9.3 Guarantee of Performance. Parent and the Company
shall cause the complete and prompt performance by their respective Affiliates
of all of their obligations and undertakings pursuant to this Agreement.
9.4 Amendment. The parties may amend this Agreement, in
whole or in part, at any time or from time to time, by an instrument in writing
signed by an authorized representative of each party.
9.5 Captions. Article, section and sub-section headings
and captions are provided for purposes of reference and convenience only and
shall not be relied on in any way to construe, define, modify, limit or extend
the scope of any provision of this Agreement.
9.6 Choice of Law. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the
laws of the State of California (without reference to the choice of law
provisions thereof), except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the jurisdiction
under which the respective entity derives its powers shall govern.
9.7 Meanings. Whenever appropriate, the singular as used
in this Agreement shall include the plural and vice versa, the masculine gender
shall include the feminine and neuter genders and vice versa, and the neuter
gender shall include the masculine and feminine genders and vice versa.
9.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.9 Invalidity. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such instrument.
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<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
Weider Health and Fitness,
a Nevada corporation
By:_________________________________
Name:_______________________________
Its:________________________________
[subsidiaries of Weider Health & Fitness]
Weider Nutrition International, Inc.
a Delaware corporation
By:_________________________________
Name:_______________________________
Its:________________________________
[subsidiaries of Weider Health & Fitness]
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<PAGE> 1
EXHIBIT 10.7
- --------------------------------------------------------------------------------
Employment Agreement
of
_____________________________
- --------------------------------------------------------------------------------
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered
into as of the day of , by and between WEIDER NUTRITION INTERNATIONAL,
INC., a Delaware corporation (the "Corporation"), and an individual (the
"Employee").
RECITALS
WHEREAS, it is deemed to be in the best interests of the
Corporation and the Employee that the Employee be employed by the Corporation
under and in accordance with the terms and conditions set forth in this
Agreement; and
WHEREAS, the Employee is willing to be employed by the Corporation
in accordance with and subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, to that end and in consideration of the premises,
covenants and agreements set forth below, and the mutual benefits to be derived
from this Agreement, the parties to this Agreement covenant and agree as
follows:
TERMS
1. Nature of Services; Employment; Employment Evaluations. In
accordance with and pursuant to this Agreement:
(a) The Employee shall be employed as the and shall
perform reasonable services as may, from time to time, be
prescribed and directed by the President, the Chief Operating
Officer, or the Board of Directors of the Corporation. The
Employee hereby accepts such employment and agrees to perform
such duties and undertake such responsibilities as are
customarily performed by others holding positions similar to that
assigned to the Employee in similar businesses, subject to the
general and customary supervision of the Corporation's President,
Chief Operating Officer, or Board of Directors. Notwithstanding
anything contained herein to the contrary, the position and
duties of the Employee shall be as from time to time designated
by the President, Chief Operating Officer, or the Board of
Directors.
(b) The Corporation hereby employs the Employee for the term
(or any successive term) specified in this Agreement (the
"Term").
(c) The Employee agrees that he shall, during the Term,
serve the Corporation fully, diligently and competently, and to
the best of his ability, experience and talent, in conformity
with the policies of the Corporation, as adopted from time to
time.
(d) In performing the duties and fulfilling the
responsibilities to be performed and fulfilled by the Employee
hereunder, the Employee shall be provided by the Corporation with
reasonable facilities, services, and support.
(e) The Employee agrees, during the Term, to devote his best
efforts on a full-time basis to the performance of his duties
hereunder and, consistent therewith, the Employee shall not,
without the prior written consent of the Corporation, directly or
indirectly, render
<PAGE> 3
services of a business, professional or commercial nature to or
for himself or any other person, firm or entity, which engages in
any other business or activity, whether or not competitive with
that of the Corporation or any affiliate of the Corporation,
except as otherwise approved by the Corporation.
(f) On or about the 31st day of May, and on or about the
31st day of each May thereafter during the term of this
Agreement, the Corporation shall evaluate the performance of the
Employee under and consistent with this Agreement and, in that
connection, meet with and discuss any such performance evaluation
and the services of the Employee under this Agreement with the
Employee.
2. Duration of Employment; Termination of Agreement. The
Employee's employment under this Agreement shall commence as of , and
shall continue through the (the "Term"), after which this Agreement
shall continue on the same terms and conditions on a month-to-month basis until
otherwise renewed or terminated as set forth below.
This Agreement and the Employee's employment with the Corporation
shall be terminated upon the happening of any of the following events:
(a) The death or "incapacity" (as defined below) of the
Employee;
(b) Ninety (90) days following the Employee's written
resignation as an employee of the Corporation under and pursuant
to this Agreement;
(c) By either party upon default by the other party in the
performance of any covenant, agreement, warranty, obligation, or
condition under this Agreement, if such default is not cured
within thirty (30) days after written notice thereof;
(d) At any time during the term of this Agreement, with the
prior written consent of the other party;
(e) In the event of the dissolution or liquidation of the
Corporation, at the end of the calendar month during which such
liquidation or termination is effected;
(f) Upon fifteen (15) days written notice from the
Corporation, for "cause" as follows:
(i) if the Employee has been convicted of, or pleads
guilty or nolo contendere to, a felony or a crime involving
moral turpitude, in which case the Corporation may terminate
such Employee's employment immediately upon the occurrence
of such conviction or plea; or
(ii) if, as determined in the reasonable judgment of
the Board of Directors, the Employee has (A) engaged in
fraudulent misconduct with respect to the Corporation, or
(B) engaged in theft of Corporation assets; or
(iii) if, as determined in the reasonable judgment of
the Board of Directors, the Employee has committed any
material breach of his obligations, covenants, agreements,
or warranties under this Agreement; or
2
<PAGE> 4
(iv) as determined in the reasonable judgment of the
Board of Directors, in the event of the repeated neglect,
malfeasance, nonfeasance, or other conduct of the Employee
in the performance of the services contemplated by this
Agreement, any of which (in the reasonable judgment of the
Board of Directors of the Corporation) is detrimental to the
best interests of the Corporation; or
(v) if the Employee has a substance abuse problem which
materially impairs the Employee's ability to perform his
functions hereunder.
(g) Following the Term, thirty (30) days following written
notice from the Corporation to the Employee of the termination of
this Agreement and the employment of the Employee by and with the
Corporation.
If (a) the Employee's employment shall be terminated by the
Corporation while this Agreement is in effect for any reason other than (i) for
"cause" (as defined above), (ii) the death of the Employee, (iii) the
"incapacity" (as defined below) of the Employee, or (iv) pursuant to
subparagraph 2(b)-(d), above, or (b) the Employee voluntarily terminates
employment (i) following a change in position with the Corporation if the new
position is not a "comparable" position (as defined below), or (ii) following a
substantial breach of this Agreement by the Corporation, if the breach is not
cured within thirty (30) days after written notice by the Employee to the
Corporation, then the Corporation shall pay the Employee a severance benefit
equal to one hundred percent (100%) of the Base Salary (as defined below)
received by the Employee during the nine (9) month period immediately preceding
the date of termination of the Employee's employment. Such amount shall be paid
in eighteen (18) equal semi-monthly installments payable on or before the first
and the sixteenth day of each calendar month following the date of the
termination of employment and shall be paid regardless of whether the Employee
is able to secure alternative employment; provided that such amount shall be
reduced by the amount of any disability insurance payments received by the
Employee during such period. In the event the Employee has not found employment
at the end of the nine (9) month period during which the severance benefit has
been paid, then and in such case, the Employee shall be entitled to an
additional severance benefit of semi-monthly payments equal to those provided
for above, for up to an additional three (3) months; provided, however, such
additional severance benefit shall be paid only if the Employee continues to
seek employment and advises Weider that he has not found employment prior to the
expiration of the nine (9) month period following the termination of employment
and prior to the 8th and 23rd days of each month thereafter and that Employee
demonstrates to the satisfaction of the Corporation that Employee has continued
to seek employment. If the Employee's employment shall be terminated by the
Corporation while this Agreement is in effect due to the death of the Employee
or the "incapacity" (as defined below) of the Employee, then the Corporation
shall pay the Employee a severance benefit equal to fifty percent (50%) of the
total compensation received by the Employee during the nine (9) month period
immediately preceding the date of the termination of the Employee's employment.
Such amount shall be paid in eighteen (18) equal semi-monthly installments
payable on or before the first and the sixteenth day of each calendar month
following the date of the termination of employment and shall be paid regardless
of whether, in the case of the incapacity of the Employee, the Employee is able
to secure alternative employment; provided that, as required by law, such amount
shall be reduced by the amount of any disability insurance payments received by
the Employee during such nine (9) month period or eliminated in the event of any
such disability insurance payments.
In the event the Employee should die before payment of all of
the installments due hereunder, the remaining installments shall be paid to the
Employee's designated beneficiary, if any, and otherwise to the Employee's
estate. In the event that the Employee shall be entitled to a severance benefit
hereunder, the Corporation shall continue to provide for a period of six (6)
months from the date of the termination of employment medical, dental and life
insurance coverage to the Employee at the same levels of coverage as in effect
immediately prior to such date.
3
<PAGE> 5
For purposes of this Agreement, "incapacity" shall mean that the
Employee is unable to perform his duties effectively for reasons such as mental
illness, mental deficiency, physical illness or disability, or other related
condition for a period of thirty (30) or more days. For purposes of this
Agreement, if at any time a question arises as to the "incapacity" of the
Employee, then the Corporation shall promptly employ three physicians who are
members of the American Medical Association to examine the Employee and
determine if by reason of sickness or injury he is unable to perform the major
duties of his employment with the Corporation. In the event the Employee appears
to have mental capacity to act on his own behalf, then one (1) of the three
physicians employed by the Corporation for this purpose shall be a physician
selected by the Corporation, one (1) shall be a physician selected by the
Employee, and one (1) shall be a physician selected by the other two (2)
physicians. The decision of the three (3) physicians shall be certified in
writing to the Corporation, shall be sent by the Corporation to the Employee or
his representative and shall be conclusive for purposes of this Agreement.
For purposes of this Agreement, a change in position which is
not a "comparable" position shall be deemed to include, without limitation, a
situation in which the Employee is unable to exercise the authorities, powers,
functions, or duties with the discretion customarily enjoyed by others holding
positions similar to that assigned to the Employee in similar businesses. A
position shall be deemed to be "comparable" if it is for the performance of
similar duties, at an equal or greater rate of compensation, all as determined
at the time of the change in position.
Notwithstanding anything in this Agreement to the contrary, no
more than sixty (60) days after the date of the Employee's termination causing
payment of termination benefits, the Corporation shall calculate the amount of
any "parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). If any part of the termination
benefit provided pursuant to this Agreement would not be deductible due to the
provisions of Section 280G of the Code, the termination benefit shall be reduced
to the extent, but only to the extent, necessary so that the amount of the
termination benefit provided hereunder will be deductible by the Corporation.
3. Compensation. The Employee shall be entitled to compensation
sensation for any and all services performed under this Agreement except as may
be otherwise agreed to in writing, by the parties to this Agreement, from the
through the of per year, payable in semi-monthly installments,
in cash or cash equivalents in each month that this Agreement is in effect (the
"Base Salary"), which Base Salary, in the event that this Agreement shall not be
terminated, shall be reviewed at least annually and may be increased or
decreased, consistent with generally salary increases or decreases, as the case
may be, for the Corporation's executive employees or as appropriate in light of
the performance of the Corporation and the Employee.
4. Other Benefits, Bonus and Incentive Compensation. In
addition to the Base Salary, the Employee shall be entitled to an annual bonus
(in each case, the "Bonus"), payable within ninety (90) days of the end of each
fiscal year of the Corporation, in the event that the Corporation achieves at
least (__%) of the annual performance and profitability goal
of the Corporation (as set forth and described in the attached Exhibit "A") (the
"Annual Goal"), in an amount equal to ____% of the budgeted profits of the
Annual Goal (budgeted during the Term only at ).
Within thirty (30) days of the end of each fiscal year of the Corporation, the
Corporation shall determine the annual performance and profitability goal of the
Corporation for the succeeding fiscal year of the Corporation, a copy of which
shall be provided to the Employee and be deemed an integral part of this
Agreement and incorporated herein by this reference. In the event that
acquisitions outside the ordinary course of business are made, directly or
indirectly, by the Corporation during the Term or any successive term of this
Agreement, the Bonus shall be determined as if such acquisitions had not taken
place or, alternatively, the Bonus shall be adjusted by the Corporation in its
sole discretion.
4
<PAGE> 6
In addition to the Base Salary and the Bonus, the Employee shall
be entitled to receive all benefits (such as medical, dental, disability and
life insurance, paid vacation, and retirement plan coverage) as are generally
available from time to time for senior executives of the Corporation. The
Employee shall be eligible to participate in any bonus, incentive compensation,
stock option, performance unit or similar plans or programs as the Corporation
may maintain for compensating senior executives at such levels of participation
as the Corporation may determine in its reasonable discretion based upon the
Employee's responsibilities and performance and, when applicable, the
Corporation's past compensation practices.
Except as specified above or as otherwise determined by the
Corporation, the Employee shall not be entitled to any other or further
compensation or benefits (including any insurance benefits) from the Corporation
as a result of the services to be performed under this Agreement or otherwise.
In the event of termination under this Agreement, all payments and benefits
under this Agreement shall cease effective upon termination of employment
hereunder.
5. Proprietary Information. The Employee covenants to the
Corporation, which covenants shall survive the expiration of the Term (or any
successive term) of this Agreement, as follows:
(a) In the course of his service to the Corporation, the
Employee may have access to confidential business documents or
information, marketing data, marketing research data,
confidential customer lists, and sources of supply and trade
secrets, all of which are confidential and may be proprietary,
owned or used by the Corporation. Such information shall
hereinafter be called "Proprietary Information" and shall include
any and all items enumerated in the preceding sentence and coming
within the scope of the Corporation's business as to which the
Employee may have access, whether conceived or developed by
others or by the Employee alone or with others during the period
of his service to the Corporation, whether or not conceived or
developed during working hours. Proprietary Information shall not
include any records, data, or information which are in the public
domain during the period of service by the Employee or within the
knowledge of the Employee on or before the date of this
Agreement; provided that the same are not in the public domain as
a consequence of disclosure directly or indirectly by the
Employee in violation of this Agreement.
(b) The Employee shall not during the Term or thereafter use
for his own benefit, or disclose, directly or indirectly, any
Proprietary Information to any person other than the Corporation
or authorized employees thereof at the time of such disclosure,
or such other persons to whom the Employee has been specifically
instructed in writing to make disclosure by the Corporation and
in all such cases only to the extent required in the course of
the Employee's service to the Corporation. At the termination of
his employment, the Employee shall deliver to the Corporation all
files, notes, letters, documents and records (whether written,
electronic, or otherwise) which may contain Proprietary
Information which are then in his possession or control and shall
not retain or use any copies or summaries thereof.
(c) Proprietary Information is of critical importance to the
Corporation and a violation of this Agreement would seriously and
irreparably impair and damage the Corporation's business. The
Employee shall keep all Proprietary Information as a fiduciary
for the sole benefit of the Corporation.
6. Restrictions on Activities of the Employee. The Corporation and
the Employee further agree and the Employee covenants that, except in the event
that the Employee's employment shall be terminated other than pursuant to
paragraphs 2(a)-(g), above (unless otherwise agreed in writing, by the parties):
5
<PAGE> 7
(a) During the Term (or any successive term) and for a
period of twenty-four (24) months following termination of
employment as provided in this Paragraph 6, including without
limitation expiration of the Term (or any successive term) of
this Agreement, (collectively, the "Restricted Period"), and for
and in consideration of the amounts paid and to be paid under
this Agreement and otherwise, and except and to the extent and
unless consented to and approved in writing by the Corporation,
the Employee, directly or indirectly, for his own account or for
the account of others, acting alone or as a member of a
partnership or as an officer, holder of, or investor in as much
as five percent (5%) of any security of any class, director,
employee, consultant, representative, or trustee of any
corporation, partnership, other business entity, or agency, from
and/or within North America, shall not engage in businesses or
operations substantially similar to those of the Corporation
(collectively, the "Business") or disrupt, damage, impair, or
interfere with the Corporation's Business, whether by way of
interfering with or raiding its employees, disrupting its
relationships with customers, agents, representatives of vendors,
or otherwise. In the event that the description, length of time
or geographic area set forth in this Paragraph is deemed too
restrictive in any court proceeding, the court may reduce such
restrictions to those which it deems reasonable under the
circumstances, but may not otherwise modify the terms and
conditions of this Agreement.
(b) During the Restricted Period, the Employee shall not,
directly or indirectly, call upon, solicit, divert, or attempt to
solicit or divert any of the customers or suppliers, or any of
the business contacts of the Corporation, or hire or solicit any
person who is or within the preceding twelve (12) months has been
an employee of the Corporation.
(c) Nothing in this Paragraph shall be construed to prohibit
the Employee from owning less than ten percent (10%) of the
common stock or other investment securities of a public
corporation which competes with the Corporation as long as
neither the Employee nor any of his affiliates have any other
involvement or association with such public corporation.
7. Conflicts of Interest. The Employee shall not, during the
Term (or any successive term of this Agreement) be engaged in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage, to the extent the same would reasonably affect the
ability of the Employee to perform his obligations and duties hereunder and
otherwise to and for the Corporation. Notwithstanding the prohibition contained
in the preceding sentence, the Employee shall be entitled to sit on the boards
of directors of companies if such activity is approved in writing by the Board.
In the case of non-profit corporations or charities, such approvals shall not be
unreasonably withheld but, in all other cases, the Board shall have sole
discretion to grant, delay, or withhold approval, with or without conditions.
The Employee shall not invest his personal assets in any business
other than Non-Competing Businesses (as defined below). If the Employee
purchases securities in any corporation whose securities are regularly traded in
a recognized securities market, such purchase shall not result in his
collectively owning beneficially at any the five percent (5%) or more of the
equity securities of any corporation engaged in a business other than a
Non-Competing Business (as defined below).
The foregoing restrictions shall not apply to any investment of
whatever extent the Employee may make in the shares of the Corporation or
affiliates or of any successor company.
For purposes of this Paragraph, "Non-Competing Businesses" shall
mean all businesses other than those which:
(a) Compete with the Business of the Corporation;
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<PAGE> 8
(b) Manufacture, sell, or distribute:
(i) Magazines or other publications concerning fitness
and/or sporting goods; or
(ii) Nutritional supplements, including sports snacks,
vitamins, minerals, drinks, energy bars, and healthy snacks.
(c) Consist of any other business carried on in the future by
the Corporation or its affiliates, during the course of the Employee's
employment by the Corporation if the Employee is provided by the
Corporation or its affiliates, in his capacity as employee, director,
or officer of the Corporation or its affiliates, with confidential
information concerning such business.
Moreover, the Employee shall not knowingly assist any Relative (as
defined below) with a view to permitting any investment to be made or activity
to be engaged in by such Relative which the Employee is not permitted to make or
be engaged in by this Paragraph. For purposes of this Agreement, the term
"Relative" shall mean the Employee's spouse, parent, parents sibling, sibling,
child, or sibling's child, the spouses of the foregoing and any other person who
could be claimed as a dependent on the Employee's or a Relative's federal income
tax returns and any corporation, partnership, or other entity controlled by the
Employee or a Relative.
If the Employee is or becomes a member of the Board of Directors, the
Employee shall retire from and abstain from the discussion and vote at any
meeting of the Board at which this Agreement or any default or matter arising
therefrom is the subject of a discussion or a vote. In addition, the Employee
shall:
(d) Establish written procedures known to operating personnel of
the Corporation to enable him to promptly bring to the attention of the
President and Chief Operating Officer of the Corporation, any matter of which he
is informed by such operating personnel or of which he otherwise has personal
knowledge, and which requires the Corporation's decision or action where his own
interests or those of a Relative of the Employee are involved and to abstain
from taking such decision or action until the President, Chief Operating Officer
or Board decides.
(e) Be absent from and abstain from the discussion and vote at
any meeting of the aforementioned Board where the subject matter being discussed
and voted upon is any matter with which the Employee, or to his knowledge, any
Relative of the Employee may have a conflict of interest.
8. Remedies. It is specifically understood and agreed that any
breach of the provisions of Paragraphs 5, 6 and 7 of this Agreement is likely to
result in irreparable injury to the Corporation and that the remedy at law alone
would be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Corporation shall be entitled to enforce the specific
performance of this Agreement by the Employee and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages. The Corporation and the Employee recognize
that the covenants contained herein constitute a restraint of future employment,
business, and trade rights of the Employee and as such, is enforceable to the
extent necessary to protect and preserve to the Corporation the valuable
goodwill and proprietary rights of the Corporation as they now exist and as they
may be developed in the future by the Employee and others on behalf of the
Corporation. The Corporation and the Employee recognize that the business of the
Corporation, and thus its protectable and valuable goodwill and proprietary
rights, are not restricted to a single geographical area but extend to many
different markets throughout the world. The Corporation and the Employee
recognize that the products and services provided by the Corporation are
international in scope, and therefore, the restrictive covenants reasonably
cover the entire world. The restriction
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<PAGE> 9
or restraint of the Employee's business activities are similarly limited in time
to the expiration of three (3) years after the termination of the Employee's
employment. Accordingly, the Corporation and the Employee agree that the
restrictive covenant contained herein is limited to that which is necessary to
protect the goodwill and propriety rights of the Corporation. The Employee
agrees that the restrictions contained herein will not, in all likelihood,
constitute a serious hardship in securing future employment. The Corporation
agrees that in the event of an unexpected hardship to the Employee resulting
from application of the provisions hereof, it will make every reasonable effort
to minimize the inconvenience to the Employee as far as it is consistent with
the protection of the goodwill and rights of the Corporation. However, the
Employee agrees that the restrictions contained in Paragraphs 5, 6, and 7 of
this Agreement will not, in all likelihood, constitute a serious hardship in
securing future employment.
9. Amendment and Modification; Extension. Notwithstanding any other
provision of this Agreement, this Agreement may be amended or modified at any
time by the Corporation and the Employee upon the mutual written agreement of
the Corporation and the Employee.
10. Miscellaneous. In addition to the foregoing, the parties to this
Agreement agree as follows:
(a) This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and amends and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties in relation to the Employee's employment. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all parties. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver.
(b) This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) This Agreement shall be binding on, and shall inure to the
benefit of the parties to it and their respective heirs, legal representatives,
successors and assigns. Notwithstanding the preceding sentence, the Employee may
not assign this Agreement or his rights under this Agreement, voluntarily,
involuntarily, by operation of law or otherwise, without the prior written
consent of the Corporation.
(d) In the event that any provision of this Agreement shall be
held invalid and unenforceable, such provision shall be severable from, and such
invalidity or unenforceability shall not be construed to have any effect on, the
remaining provisions of this Agreement.
(e) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly delivered if
delivered by facsimile, in person, by nationally recognized overnight courier
service, or if sent by first class mail, postage prepaid:
(i) If to the Employee, to the Employee at such address as
the Employee may designate, in writing and from time to time, to the
Corporation.
8
<PAGE> 10
(ii) If to the Corporation, to:
(iii) With a copy to:
If personally delivered, notices and other communications under this
Agreement shall be deemed to have been given and received and shall be effective
when personally delivered. If sent by mail in the form specified herein, notices
and other communications under this Agreement shall be deemed to have been given
and received and shall be effective two (2) business days after being deposited
in the United States mail or upon actual receipt, whichever first occurs. If
sent by a nationally-recognized, overnight courier service in the form specified
in this Agreement, notices and other communications under this Agreement shall
be deemed to have been given and received and shall be effective one (1)
business day after deposited with such overnight courier or upon actual receipt,
whichever first occurs. Either party to this Agreement may change the address to
which notices and other communications under this Agreement are to be directed
by giving written notice of such change to the other party in the manner
provided in this Agreement.
(f) Each party agrees to execute and deliver all documents and to
perform all further acts as may be reasonably necessary to carry out the
provisions of this Agreement. The parties hereto agree to use reasonable
diligence and to exercise their best efforts to fulfill their respective
obligations under the Agreement at all times that this Agreement is in effect.
Each party shall be responsible for his or its respective attorneys' fees, costs
and expenses incurred in connection with the preparation and consummation, as
well as those incurred in connection with any dispute arising from this
Agreement.
(g) This Agreement shall be governed by, and construed in accordance
with, the of the State of Utah. Any litigation arising from this Agreement shall
be instituted in Salt Lake County, in the courts of the State of Utah or the
United States District Court for the State of Utah, and the parties submit to
the jurisdiction of each such court and waive and agree not to assert, by way of
motion or otherwise, that any such litigation is brought in an inconvenient
forum or otherwise is improper.
(h) If any controversy or claim shall arise with regard to the
performance or interpretation of any of the terms of this Agreement, the parties
shall use their best efforts to settle any such dispute. If the dispute cannot
be resolved by the parties, then, upon ten (10) days prior written notice from
the Corporation to the Employee or the Employee to the
9
<PAGE> 11
Corporation setting forth the issues in dispute and any additional issues
to be resolved, the dispute shall be submitted to and administered by the
American Arbitration Association's Center for Mediation in Salt Lake City,
to be mediated by a member of the Judicial Panel. All costs incurred for
the mediator shall be shared equally by the parties, excluding attorneys'
fees of the Corporation or the Employee, as the case may be. The decision
of the mediator shall be binding.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
CORPORATION:
______________________________________________________________
DATED this day of
____ ________________________________
EMPLOYEE:
______________________________________________________________
DATED this day of
____ ________________________________
=============
10
<PAGE> 12
-----------
EXHIBIT A
-----------
(Annual Goal of Corporation)
<PAGE> 1
EXHIBIT 10.8
ADVERTISING AGREEMENT
Dated December 1, 1996
by and between
WEIDER PUBLICATIONS, INC.
WEIDER NUTRITION INTERNATIONAL, INC.
<PAGE> 2
ADVERTISING AGREEMENT
This Advertising Agreement (the "Agreement") is made and entered into as of
December 1, 1996, by and between Weider Publications, Inc., a Delaware
corporation ("WPI") and Weider Nutrition International, Inc., a Delaware
corporation ("Weider Nutrition").
In consideration of the mutual covenants and promises contained herein and
for other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
ADVERTISING
1.1 Advertising Pages. WPI will furnish to Weider Nutrition as many
advertising pages (or, ad pages) each month as ordered for Weider Nutrition in
each of WPI's publications.
(a) Weider Nutrition shall present an annual advertising plan for
each publication by March 31 for the year commencing the following June 1.
(b) Weider Nutrition shall order, at a minimum, the number of ad
pages for each publication as shown on Exhibit I.
(c) Weider Nutrition shall place insertion orders for ad pages in
each issue within the time prescribed by WPI. An insertion order shall be
defined as written ad lists supplied by Weider Nutrition and verbal orders
placed by officers or directors of Weider Nutrition.
(d) WPI shall have the option to insert an ad page ordered for Weider
Nutrition up to the date the issue goes to press.
(e) For each issue of each publication, WPI shall have the right to
(i) rotate positions of each ad page of Weider Nutrition, (ii) pull Weider
Nutrition ad pages if WPI believes the ratio of Weider Nutrition ad pages to
total ad pages exceeds an acceptable level, and (iii) pull a Weider Nutrition ad
page if the ad page conflicts with editorial policy. Notwithstanding the
foregoing, WPI will use reasonable efforts to comply with the requests of Weider
Nutrition for placement and rotation of its ads in each publication.
<PAGE> 3
(f) Weider Nutrition may elect to pay rate card for selected ad pages
in an issue to nullify (e) above, except for clause (iii).
(g) Weider Nutrition may not resell an ad page to any other party.
1.2 Ad Page Rate. For each Weider Nutrition ad page ordered and published
in a WPI publication pursuant to Section 1.1 above, Weider Nutrition shall pay
to WPI the Ad Page Rate in effect for the fiscal year.
(a) The Ad Page Rate shall be, for each publication, the amount
(rounded upward to the nearest $100) derived by dividing (i) its budgeted Direct
Production Costs, by (ii) its budgeted Average Book Size. The Ad Page Rate
represents the direct cost per page for each publication.
(b) Direct Production Costs shall be based on the accounting methods
employed by WPI. Direct Production Costs shall be, for each publication, all
costs related directly to the production and distribution of the publication,
including, but not limited to, film prep and proofs, paper, printing and
binding, freight, subs postage and display costs. Costs incurred for buyouts of
articles and photos shall be specifically excluded from Direct Production Costs.
(c) The Average Book Size shall be, for each publication, the amount
(rounded to two decimal positions) derived by dividing (i) the sum total of the
number of pages (including cover) published in a single copy of each issue for
the fiscal year, by (ii) the number of issues published in the fiscal year.
(d) The Ad Page Rate for each publication is set forth on Exhibit II.
Such rate shall be updated annually by April 15 for the year commencing the
following June 1, except in the event of an increase of more than 3% in the
actual ad page rate during a fiscal year. In such event, the Ad Page Rate shall
be adjusted upward during that fiscal year for the effect of such increase in
excess of 3%.
(e) Notwithstanding the foregoing, the following shall apply in each
of years 6 through 10 of the term of this Agreement: In year 6 Weider Nutrition
shall pay Ad Page Rate plus 5%, in year 7 Ad Page Rate plus 10%, in year 8 Ad
Page Rate plus 15% in year 9 Ad Page Rate plus 20%, and in year 10 Ad Page Rate
plus 25%.
(f) Furthermore, notwithstanding anything to the contrary set forth
herein, the Ad Page Rates provided for herein shall not apply to any company or
business acquired by Weider Nutrition after January 1, 1997. Such companies or
businesses shall pay for advertising in any of WPI's publications 2 times the ad
page rate as defined in Schedule II or by calculation of 1.2(a) applicable
publication's rate card then in effect.
1.3 Billing and Payment. Weider Nutrition ad pages shall be, for each
publication, billed and paid in the same manner as all other advertisers.
<PAGE> 4
(a) WPI shall bill Weider Nutrition for each ad page at the Ad Page
Rate on the bill date for each publication.
(b) Weider Nutrition shall pay WPI each billing within 15 days of
invoice date.
(c) Late payments shall be subject to a 1/2% fee for each month, or
portion thereof, the billing remains unpaid.
1.4 New Publications. In the event WPI acquires or launches a new
publication during the term of this Agreement, Weider Nutrition shall have the
right, but not the obligation, to purchase ad pages in such publication on the
terms set forth in Section 1.1, 1.2 and 1.3 above.
ARTICLE II
TERM AND TERMINATION
2.1 Term. Unless terminated by the parties pursuant to Section 2.2 below,
this Agreement shall continue in effect for a term of ten (10) years.
2.2 Termination, This Agreement may be terminated:
(a) by mutual consent of the parties hereto;
(b) by Weider Nutrition for a material breach of this Agreement by
the Company or WPI which continues for 30 days after written notice thereof from
Weider Nutrition to the Company and WPI;
(c) by the Company or WPI for a material breach of this Agreement by
Weider Nutrition which continues for 30 days after written notice thereof from
the Company or WPI to Weider Nutrition;
(d) by WPI with 180 days written notice to Weider Nutrition in the
event of a public offering of stock by WPI or a business combination in which
WPI is not the surviving and/or controlling entity; or
(e) by WPI with 30 days written notice to Weider Nutrition at such
time that the Company no longer controls more than 50% of the voting control or
ownership of Weider Nutrition.
<PAGE> 5
ARTICLE III
MISCELLANEOUS
3.1 Certification. The Chief Financial Officer or President/CEO of WPI
shall sign a compliance certificate at the beginning and end of each fiscal year
certifying that the Ad Page Rates were determined in accordance with this
Agreement.
3.2 Force Majeure. If any party shall be prevented by an event of force
majeure from the timely performance of any of its obligations under this
Agreement, save and except the making of payments as provided in this Agreement,
the obligation of performance shall be excused and shall not be a ground for
cancellation or termination or default. The party suffering the event of force
majeure shall use reasonable diligence to remedy such, but shall not be required
to contest the validity of any authority, or to prevent or settle any strike or
labor dispute. As used in this Agreement, the term "force majeure" shall mean
any cause beyond a party's reasonable control, including without limitation, any
of the following: Law or regulation, action or inaction of civil or military
authority; inability to obtain any license, permit, or other authorization that
may be required, unusually severe weather, casualty; unavoidable shutdown; fire,
explosion, or flood; insurrection; riot; labor dispute; delay in transportation;
and act of God.
3.3 Amendment. This Agreement may be amended, or any provision of this
Agreement may be waived; provided, however, that any such amendment or waiver
shall be binding only on a party hereto if such amendment or waiver is set forth
in writing executed by such party.
3.4 Captions. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and shall not be
deemed to limit, characterize, or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
3.5 Counterparts. This Agreement may be executed in one or more
counterparts all of which taken together shall constitute one and the same
instrument.
3.6 Governing Law. All questions concerning the construction, validity,
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the law of the State of
California but without reference to choice of law or conflict of laws provisions
thereof.
3.7 No Third Party Contract Rights. This Agreement is intended solely for
the benefit of the parties hereto. Nothing herein shall be construed or deemed
to create any rights or benefits to any third parties or third party
beneficiaries.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Weider Publications, Inc.
MICHAEL T. CARR
------------------------------------
Michael T. Carr
Chief Executive Officer and President
Weider Nutrition International, Inc.
RICHARD B. BIZZARO
------------------------------------
Richard B. Bizzaro
Chief Executive Officer and President
<PAGE> 7
EXHIBIT II
<TABLE>
<CAPTION>
AD PAGE RATES
BEGINNING DECEMBER 1, 1996 AND
ENDING MAY 31,1997
Publication Ad Page Rate
----------- ------------
<S> <C>
Muscle and Fitness $6,000
Flex $2,000
Men's Fitness $3,000
Prime Fitness $2,000
Shape $7,500
Living Fit $3,500
Fit Pregnancy $2,500
Shape Cook's $2,500
Jump $3,500
Senior Golfer $3,200
</TABLE>
<PAGE> 1
EXHIBIT 10.9
================================================================================
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
Dated December 31, 1996
between
WEIDER HEALTH AND FITNESS
HORNCHURCH INVESTMENTS LIMITED
================================================================================
<PAGE> 2
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
Reference is made to the Shareholders Agreement No. 2,
effective June 1, 1994 (the "Shareholders Agreement No. 2"), by and between
WEIDER HEALTH AND FITNESS, a Nevada corporation ("WHF"), and HORNCHURCH
INVESTMENTS LIMITED ("Hornchurch"), which is hereby amended and restated in its
entirety by this Amended and Restated Shareholders Agreement, dated December 31,
1996 (the "Agreement"), by and between WHF and Hornchurch.
WHEREAS, pursuant to the Shareholders Agreement No. 2 and in
consideration of receipt of 21,000,000 shares of Hornchurch junior preferred
shares, par value $1.00 (the "Preferred Shares"), WHF transferred to Hornchurch
10% of its common share interest in each of Weslo, Inc. ("Weslo") and Proform
Fitness Products Inc. ("Proform") and caused each of Weider Publications, Inc.
("Publications"), Weider Nutrition Group, Inc. ("Nutrition"), Weider Sporting
Goods Inc. ("Sporting Goods") and 3002993 Canada Inc. ("CANCO") to issue to
Hornchurch such number of common shares as resulted in Hornchurch holding an
additional common share interest in such entities equal to 10% of the common
share interest held by WHF.
WHEREAS, pursuant to the Shareholders Agreement No. 2, all of
the shares transferred or issued to Hornchurch were in a class distinct from
those held by the controlling shareholder of the subsidiaries concerned to
allow for discriminatory distributions.
WHEREAS, pursuant to the Shareholders Agreement No. 2, the
Preferred Shares transferred as consideration were allocated as follows: 40%
(8,400,000) to Weider Inc.; 40% (8,400,000) to Nutrition; 20% (4,200,000) to
Publications; and a nominal number to Sporting Goods and CANCO.
WHEREAS, pursuant to the Preferred Stock Redemption Agreement,
dated as of July ___, 1996, by and between Hornchurch and WHF (the "Redemption
Agreement"), WHF transferred to Hornchurch, 21,000,000 Preferred Shares in
consideration for 29.88 shares of Class B common stock of Nutrition and 89.63
shares of Class B common stock of Publications.
WHEREAS, it is the intention of the parties hereto to amend
and restate in their entirety the Shareholders Agreement No. 2.
NOW THEREFORE, in consideration of the mutual covenants
contained herein, WHF and Hornchurch hereby agree as follows:
1. DEFINITIONS
1.1 For all purposes of this Agreement, the "subsidiaries
concerned" means Publications, Nutrition, Sporting Goods and
Weider Nutrition International, Inc., all $ or dollars are in
lawful currency of the United States of America. and "private
placement" refers to a sale to a third party.
2. TRANSFER OF ASSETS
2.1 Should WHF decide in the future to transfer one or more assets
it owns at June 1, 1994 to one or more of its subsidiaries
(whether referred to herein or not), with the exception of
Weider Nutrition International, Inc., for purposes of
developing and exploiting same, Hornchurch shall have the
option to acquire for the sum of $1.00 such number of shares
of common stock in such subsidiary(ies) equivalent to 10% of
WHF's common share
<PAGE> 3
interest therein. This option in favor of Hornchurch shall
lapse upon Hornchurch disposing of all of the Common Shares
(as defined herein) issued or transferred to it pursuant to
the provisions of this Agreement. In the event Hornchurch
exercises the above-mentioned option, the shares issued or
transferred to it pursuant thereto shall, in all respects, be
subject to the provisions of this Agreement as well as to
those of any ancillary agreement between the parties hereto
pertaining to the Common Shares (as defined herein), with the
changes required by the context.
3. SHAREHOLDER RIGHTS AND RESTRICTIONS.
3.1 NO ALIENATION
3.1.1 Except as set out in this Agreement, the shares held
by Hornchurch pursuant to this Agreement (the "Common
Shares") shall not be transferable by Hornchurch in
any circumstances, except to WHF (see below "Option
to Sell"), or to an assignees of WHF.
3.1.2 After an initial public offering of a subsidiary
concerned, (or of subsidiary of a subsidiary
concerned as the case may be), the shares of such
subsidiary (or of such subsidiary of a subsidiary
concerned as the case may be) may be transferred
without restriction except for a first refusal right
(30 day written notice) in favor of WHF.
3.2 OPTION TO SELL ("Put")
3.2.1 Hornchurch may, at any time on or after May 31, 1996
oblige WHF to purchase all (but not less than all) of
the Common Shares that it then holds for their fair
market value as determined by Bear Stearns (the
"Formula Price") (such fair market value to be
determined without any minority discount in order
that the Hornchurch interest be valued as a pro rata
share of the evaluation to be accorded to a 100%
ownership interest in the subsidiaries concerned) by
following the procedure hereinafter set forth:
a) Hornchurch shall send a notice to WHF
informing WHF that it wishes to exercise its
option to sell (the "Notice");
b) WHF shall instruct Bear Stearns to calculate
the Formula Price within 60 days from the date
of the Notice;
c) the Formula Price shall be determined as at
the date of the Notice, which date shall also
be the effective date of the purchase (the
"Notice Date");
d) the closing of such purchase shall be on a
date fixed by the agreement of Hornchurch and
WHF, which shall be no later than thirty (30)
days from the date on which Bear Stearns
issue their calculation of the Formula Price
pursuant to Section 3.2.4 below (the "Closing
Date");
e) Bear Sterns' calculation of the Formula Price
shall be final and binding between the
parties.
2
<PAGE> 4
3.2.2 The Formula Price of the Common Shares shall be paid
as follows:
a) the lesser of the Formula Price and the value
on the Closing Date of the Preferred Shares
allocated to the subsidiary(ies) concerned;
b) the excess, if any, of the Formula Price over
the amount determined in the immediately
preceding subparagraph (a) in four (4) equal
annual installments of principal plus
interest on the reducing balance at the rate
of 9% per year; the four (4) annual
installments shall be paid on the first
through fourth anniversaries of the Closing
Date.
3.2.3 The amount payable in Section 3.2.2(b) shall be
represented by a promissory note of WHF.
3.2.4 Upon calculation of the Formula Price, Bear Stearns
shall issue a letter setting out the calculation of
the Formula Price (the "Bear Stearns Letter").
3.2.5 This Section 3.2 does not apply to any Common Shares
held by Hornchurch where the common stock of the
subsidiary concerned is publicly traded on a
recognized stock exchange or securities market.
3.3 SUBSEQUENT SHARE ISSUES
3.3.1 Subject to any public offering of its shares, the
subsidiaries concerned shall, before issuing further
shares, offer such additional shares to Hornchurch on
a pro-rata basis at the same price per share to be
paid for the further shares. Hornchurch shall accept
or refuse said offer in whole or in part within
thirty (30) days from the date of the offer.
3.3.2 In the event that a subsidiary concerned conducts one
or more public offerings of its stock, or offers to
issue or transfer 10% or more of its shares in the
course of a private placement, Hornchurch shall be
entitled to include as part of such offering(s) that
percentage of Common Shares of such subsidiary
concerned equal to the percentage of shares held
directly or indirectly by WHF which is included in
the public offering by WHF, or included in such
private placement.
3.3.3 To the extent that any subsidiary of a subsidiary
concerned conducts a public offering of its stock, or
offers to issue or transfer 10% or more of its shares
in the course of a private placement, Hornchurch
shall have the right to exchange a proportionate
number of its Common Shares for shares in the public
company in the same ratio and on the same basis that
WHF, or any successor(s), converts its shares into
shares of that public company, or in the same
proportions and on the same basis as that of the
controlling shareholder(s) or any successor(s) in the
course of a private placement. All shares received
by Hornchurch pursuant to such an exchange shall be
subject to the provisions of this Agreement
concerning the Common Shares, with the changes
required by the context.
3.3.4 The foregoing sections do not apply to the issue or
transfer of up to 1% of the common shares of the
subsidiaries concerned to Bayonne Settlement and 1/3%
3
<PAGE> 5
of the common shares of the subsidiaries concerned to
Ronald Corey although such issues or transfers will
be non- dilutive of Hornchurch. In addition, the
foregoing sections do not apply to the initial public
offering of shares of common stock or contemporary
transactions effected in connection therewith of
Weider Nutrition International, Inc. or any of its
subsidiaries including Nutrition. It is recognized,
moreover, that any public offering will be dilutive
of Hornchurch and will not be subject to Section
3.3.2.
3.3.5 In addition, the foregoing sections shall not apply
to the issue or transfer of up to 10% of the Common
Shares of the subsidiaries concerned to other
management of WHF nor to any Common Shares held by
Hornchurch where the common stock of the subsidiary
concerned is, or contemporaneously with the initial
public offering of any subsidiary concerned will be,
publicly traded on a recognized stock exchange or
securities market.
3.4 OPTION TO PURCHASE ("Call")
3.4.1 WHF has an option to purchase from Hornchurch the
Common Shares at the Formula Price on the same terms
and conditions set out in Section 3.2 (subject to
paragraph (a) immediately following), but only in the
following circumstance:
a) any time on or after May 31, 1996 provided
WHF pays the Formula Price in full upon the
purchase.
3.4.2 In addition to its rights under Section 3.4.1, WHF
may, if it wishes to accept an offer from a third
party for 10% or more of its shares in a subsidiary
concerned either:
a) include in such sale that percent of Common
Shares held by Hornchurch in such subsidiary
equal to the percentage of shares held
directly or indirectly by WHF which is
included in such sale (and Hornchurch shall
so sell) at the same price per share and on
the same terms as those offered to WHF; or
b) purchase such percentage of Common Shares
from Hornchurch (and Hornchurch shall sell)
at such price and on such terms
provided in either case that such sale is in fact
concluded within a reasonable time.
3.4.3 This Section 3.4 does not apply to any Common Shares
held by Hornchurch where the common stock of the
subsidiary concerned is publicly traded on a
recognized stock exchange or securities market.
4
<PAGE> 6
3.5 CLASS B COMMON STOCK
3.5.1 Hornchurch does not have a right to acquire, now or
in the future, shares of Class B common stock of
Weider Nutrition International, Inc. and nothing in
this Agreement should be construed to give Hornchurch
any right to acquire such shares.
3.6 COSTS AND EXPENSES
Each party covenants and agrees that it shall be responsible
for and bear its respective costs and expenses of legal
counsel, accountants, brokers and other representatives
incurred in connection with the transactions contemplated
herein, save that the fees and expenses of Bear Stearns
incurred in determining the Formula Price hereunder shall be
borne by the party who first sends out the NOTICE to exercise
the option to purchase or the option to sell.
4. VOTES
4.1 Hornchurch shall exercise its votes on all Common Shares as
directed by WHF.
5. RETRACTION RIGHTS OF HORNCHURCH'S JUNIOR PREFERRED SHARES
5.1 The parties herein covenant and agree that the retraction
rights pertaining to the Preferred Shares shall be exercisable
by WHF and/or the subsidiaries concerned only after June 15,
1999.
5.2 Hornchurch undertakes and warrants that until all Preferred
Shares have been redeemed and their redemption price paid, it
shall not incur any obligations of any nature whatsoever,
which could result in Hornchurch not having sufficient funds
to redeem the Preferred Shares.
6. APPLICABLE LAW
6.1 Nevada law shall govern this Agreement.
7 NO ASSIGNMENT AND NO ALIENATION
7.1 Hornchurch shall not be entitled to assign, in whole or in
part, this Agreement to any other person.
7.2 Except as set out in this Agreement, the Preferred Shares
shall not be transferable by WHF and/or any of the
subsidiaries concerned.
8. SECURITIES LAW FORMALITIES
8.2 The share issue and this Agreement may be subject to
compliance with United States securities law including, but
not limited to Blue Sky legislation, etc.
9. NOTICE
5
<PAGE> 7
9.1 All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in
writing and either delivered by hand or sent by telefax, or by
prepaid registered mail, and shall be presumed given and
received when so delivered by hand or by telefax, or four (4)
business days following the sending thereof by prepaid
registered mail, and when addressed as follows:
a) If to HORNCHURCH, to:
c/o HORNCHURCH INVESTMENTS LIMITED
Atlantic House
4-8 Circular Road
Douglas, Isle of Man
FAX: 011-44-624-612624
b) If to WHF, to:
c/o WEIDER HEALTH AND FITNESS
21100 Erwin Street
Woodland Hills, Calif.
91367 USA
ATTN.: MR. BERNARD CARTOON, SECRETARY AND
GENERAL COUNSEL
FAX: 818-999-6598
or to such other person or address as any party shall
designate by notice in writing to the others in
accordance herewith.
In the event of postal strike or other mail service
interruption, existing or threatened, all notices and
other communications shall be hand-delivered or sent
by telefax.
10. ENTIRE AGREEMENT
10.1 This Agreement embodies the entire agreement between the
parties hereto concerning the subject matters mentioned herein
and supersedes all previous discussions, correspondence,
understandings or agreements, whether written or oral, with
respect to such matters, including any discussions,
correspondence, understandings or agreements between the
parties hereto since April 1993 concerning options, transfers
and/or issuance of shares.
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Shareholders Agreement to be executed on the day and year
first above written.
WEIDER HEALTH AND FITNESS
By: /s/ BERNARD CARTOON
---------------------------------
Name: Bernard Cartoon
Title: Secretary
HORNCHURCH INVESTMENTS LIMITED
By:_____________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.10
================================================================================
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
Dated December 31, 1996
among
WEIDER HEALTH AND FITNESS
BAYONNE SETTLEMENT
RONALD COREY
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<PAGE> 2
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
Reference is made to the Shareholders Agreement, effective
June 1, 1994 (the "Bayonne Shareholders Agreement"), by and between WEIDER
HEALTH AND FITNESS, a Nevada corporation ("WHF"), and BAYONNE SETTLEMENT
("Bayonne"), and to the Shareholders Agreement, effective June 1, 1994 (the
"Corey Shareholders Agreement" and, together with the Bayonne Shareholders
Agreement, the "Shareholders Agreements"), by and between WHF and RONALD COREY
("Corey"), both of which are hereby combined, amended and restated in their
entirety by this Amended and Restated Shareholders Agreement, dated December 31,
1996 (the "Agreement"), by and between WHF, Bayonne and Corey.
WHEREAS, pursuant to the Bayonne Shareholders Agreement and in
consideration of receipt of the sum of $873,330, WHF transferred to Bayonne 1%
of its interest in Weslo, Inc. ("Weslo") and Proform Fitness Products Inc.
("Proform") and caused each of Weider Publications, Inc. ("Publications"),
Weider Nutrition Group, Inc. ("Nutrition"), Weider Sporting Goods Inc.
("Sporting Goods") and 3002993 Canada Inc. ("CANCO") to issue 1% of their
respective common stock to Bayonne.
WHEREAS, pursuant to the Bayonne Shareholders Agreement,
payment of the consideration was entirely in the form of the transfer of the
Weider Europe B.V. indebtedness in the amount of $873,330 in favor of
Northbrock Capital Inc.
WHEREAS, pursuant to the Bayonne Shareholders Agreement, the
price was allocated as follows: 40% ($349,332) to Weider Inc. shares; 40%
($349,332) to Nutrition shares; 20% ($174,666) to Publications shares; and
$1.00 to Sporting Goods and CANCO shares.
WHEREAS, pursuant to the Bayonne Shareholders Agreement, the
basis of the price was calculated on the unaudited quarterly internal financial
statements of WHF which showed a book value of $86,168,654 as of February 28,
1994.
WHEREAS, pursuant to the Corey Shareholders Agreement and in
consideration of receipt of the sum of $291,110, WHF transferred to Corey 1/3
of 1% of its interest in Weslo and Proform and caused Publications, Nutrition,
Sporting Goods and CANCO to issue 1/3 of 1% of their respective common stock to
Corey.
WHEREAS, pursuant to the Corey Shareholders Agreement, payment
of the consideration was partly in the form of the transfer without liability
to Corey of the Weider Europe B.V. indebtedness in the amount of $126,670 in
favor of Northbrock Capital Inc. and the balance of $164,440 was in cash.
WHEREAS, pursuant to the Corey Shareholders Agreement, the
price was allocated: 40% ($116,444.) to Weider Inc. shares; 40% ($116,444.) to
Nutrition shares; 20% ($58,222.) to Publications shares; and $1.00 to Sporting
Goods and CANCO shares.
WHEREAS, pursuant to the Corey Shareholders Agreement, the
basis of the price was calculated on the unaudited quarterly internal financial
statements of WHF, which showed a book value of $86,168,654 as of February 28,
1994.
WHEREAS, it is the intention of the parties hereto to combine,
amend and restate in their entirety the Shareholders Agreements.
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NOW THEREFORE, in consideration of the mutual covenants
contained herein, WHF, Bayonne and Corey hereby agree as follows:
1. DEFINITIONS
1.1 For all purposes of this Agreement, the "subsidiaries
concerned" means Publications, Nutrition, Sporting Goods and
Weider Nutrition International, Inc. and all $ or dollars are
in lawful currency of the United States of America.
2. SHAREHOLDER RIGHTS AND RESTRICTIONS
2.1 NO ALIENATION
2.1.1 The shares to be held by Bayonne and/or Corey (the
"Common Shares") shall not be transferable by Bayonne
or Corey in any circumstances, except to WHF (see
below "Option to Sell"), or to an assignee of WHF.
2.1.2 Pledging of the shares is permitted to secure the
financing of the acquisition of such shares but such
pledge is subject to this Agreement and the right of
WHF to pay with subrogation. The text of any such
pledge is subject to prior approval by WHF.
2.1.3 After an initial public offering of a subsidiary
concerned, the shares of such subsidiary may be
transferred without restriction except for a first
refusal right (30 days written notice) in favor of
WHF.
2.2 OPTION TO SELL ("Put")
2.2.1 Bayonne and/or Corey may, at any time, oblige WHF to
purchase all (but not less than all) of the Common
Shares for the Formula Price defined below by
following the procedure hereinafter set forth:
a) Bayonne and/or Corey, as applicable,
shall send a notice to WHF informing
WHF that it wishes to exercise its
option to sell (the "Notice");
b) WHF shall instruct its then current
independent auditors (the
"Auditors") to calculate the Formula
Price according to the formula
hereinafter set out, within 60 days
from the date of the Notice;
c) the Formula Price shall be
determined as at the date of the
Notice, which date shall also be the
effective date of the purchase (the
"Notice Date");
d) the closing of such purchase shall
be on a date fixed by the agreement
of Bayonne and/or Corey, as
applicable, and WHF, which shall be
no later than thirty (30) days from
the date on
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which the Auditors issue their
calculation of the Formula Price
pursuant to Section 2.2.8 below (the
"Closing Date");
e) the Auditors' calculation of the
Formula Price shall be final and
binding between the parties.
2.2.2 The Formula Price for the Common Shares equals the
book value of the Common Shares of each subsidiary
concerned divided by the total number of common
shares and multiplied by the number held by Bayonne
or Corey, as applicable.
2.2.3 Book value is the sum of:
A) the consolidated Shareholders'
Equity as stated in the most recent
audited annual financial statements
for the most recently completed
financial year as examined by the
Auditors of WHF and prepared in
accordance with U.S. Generally
Accepted Accounting Principles
("U.S. GAAP") on a basis consistent
with prior years. (the "Audited
Financial Statements"). For greater
certainty, this amount shall include
any amount recorded as stated
capital; and
B) the increase, if any, in the
consolidated Shareholders' Equity as
stated in the internally
preparedconsolidated financial
statements for the latest fiscal
quarter ended prior to the Notice
Date (the "Interim Financial
Statements") as reviewed by the
Auditors in accordance with
procedures normally followed by them
in conducting a review of Interim
Financial Statements; and
C) the amount of any dividends or other
non-dividend shareholder
distributions made from the date
hereof, not shared (or less than
rateably shared), by Bayonne and/or
Corey, as applicable, as reported in
the Audited Financial Statements and
the latest Interim Financial
Statements; less
D) the amount of any dividends or other
non-dividend distributions paid to
Bayonne and/or Corey, as applicable,
since the later of the date in (A)
or the date in (B) and before the
Closing Date; less
E) the stated capital attributed to an
issue after June 1, 1994 of shares
which rank in priority to the Common
Shares; less
F) the decrease, if any, in the
consolidated Shareholders' Equity as
stated in the Interim Financial
Statements as reviewed by the
Auditors in accordance with
procedures normally followed by them
in conducting a review of Interim
Financial Statements.
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2.2.4 If a subsidiary concerned or any of its subsidiaries,
whether consolidated or unconsolidated, has any
shares listed on a recognized stock exchange or in
any organized securities market ("Listed Shares"),
the book value shall be adjusted as of the Notice
Date to reflect the Trading Value (defined below) and
the book value of the Listed Shares as reflected in
Sections 2.2.3 (A), as adjusted by (B) or (F).
2.2.4.1 "Traded Shares" shall be the number of shares
issued and outstanding of the Listed Shares,
whether or not registered, plus the number of
Equivalent Shares (defined below).
2.2.4.2 "Equivalent Shares" shall be the number of
shares of Listed Shares into which holders of
convertible debt or another class of
convertible equity shares and holders of
options and warrants may convert their debt,
equity shares, option and warrant holdings
determined in accordance with U.S. GAAP.
2.2.4.3 "Trading Price" shall be the weighted average
price of the Listed Shares for the thirty
(30) business days immediately preceding the
Notice Date.
2.2.4.4 "Trading Value" shall be the Trading Price
multiplied by the Traded Shares reduced, in
the case of a subsidiary's Traded Shares, by
the Trading Value associated with such Traded
Shares not held directly or indirectly by
WHF.
2.2.4.5 The Auditors shall clerically check the
calculations required by this Section 2.2.4.
For greater certainty, the Auditors shall
follow the principles applied in the same
calculations annexed as Schedule 1.
2.2.5 If a subsidiary concerned or any of its subsidiaries
has an initial public share issue within twenty-four
(24) months of the Notice Date, Section 2.2.4 shall
apply to adjust the Formula Price to reflect the
excess of such initial public share issue price over
the book value determined immediately prior to such
initial public share issue with payment of such
adjustment within thirty (30) days of the initial
public share issue. The Auditors shall clerically
check the calculation. This provision also applies
to a private placement of 20% or more of the equity
shares of a subsidiary concerned or any of its
subsidiaries.
2.2.6 The Formula Price of the Common Shares shall be paid
as follows:
a) the lesser of the Formula Price and
the amount invested by Bayonne or
Corey (as listed in the recitals to
this Agreement), as applicable, on
the Closing Date;
b) the excess, if any, of the Formula
Price over the amount determined in
the immediately preceding
subparagraph (a) in four (4) equal
annual installments of principal
plus interest on the
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reducing balance at the rate of
9% per year; the four (4) annual
installments shall be paid on the
first through fourth anniversaries
of the Closing Date.
2.2.7 The amount payable in Section 2.2.6(b) shall be
represented by a promissory note of WHF subordinate
in payment and priority to the obligations of WHF to
non-shareholder creditors of WHF.
2.2.8 Upon calculation of the Formula Price, the Auditors
shall issue a letter setting out the calculation of
the Formula Price (the "Auditors' Letter").
2.3 SUBSEQUENT SHARE ISSUES
2.3.1 In the event that a subsidiary concerned conducts one
or more public offerings of its stock, or offers to
issue or transfer shares in the course of a private
placement, Bayonne and/or Corey shall be entitled to
include as part of such offering(s) that percentage
of Common Shares equal to the percentage of shares
held directly or indirectly by WHF which is included
in the public offering by the controlling shareholder
of WHF, or included in such private placement.
2.3.2 To the extent that any subsidiary of a subsidiary
concerned conducts a public offering of its stock, or
offers to issue or transfer shares in the course of a
private placement, Bayonne and/or Corey shall have
the right to exchange a proportionate number of its
or his, respectively, Common Shares for shares in the
public company in the same ratio and on the same
basis that the controlling shareholder of WHF, or any
successor(s), converts its shares into shares of that
public company, or in the same proportion and on the
same basis as that of the controlling shareholder(s)
or any successor(s) in the course of a private
placement.
2.3.3 The foregoing does not apply to the initial public
offering of shares of common stock or contemporary
transactions effected in connection therewith of
Weider Nutrition International, Inc. or any of its
subsidiaries including Nutrition.
2.4 OPTION TO PURCHASE ("Call")
2.4.1 WHF has an option, exercisable any time after two (2)
years from the date hereof, to purchase from Bayonne
and/or Corey the Common Shares at the Formula Price
on the same terms and conditions set out in Sections
2.2 and 2.3; provided WHF pays the Formula Price in
full upon the purchase, subject to an additional
later payment (if any) under Section 2.2.5.
2.4.2 In addition to its rights under Section 2.4.1, WHF
may, if it wishes to accept an offer from a third
party for substantially all of its shares in a
subsidiary concerned either:
a) include in such sale the Common
Shares held by Bayonne and/or Corey
in such subsidiary (and Bayonne
and/or Corey, as
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applicable, shall so sell) at the
same price and on the same terms as
those offered to WHF; or
b) purchase Common Shares from Bayonne
and/or Corey (and Bayonne and/or
Corey, as applicable, shall sell) at
such price and on such terms;
provided in either case that such sale is in
fact concluded within a reasonable time.
2.4.3 This Section 2.4 does not apply where the Common
Shares held by Bayonne and/or Corey are publicly
traded on a recognized stock exchange or securities
market.
2.5 CLASS B COMMON STOCK
2.5.1 Neither Bayonne nor Corey has a right to acquire, now
or in the future, shares of Class B common stock of
Weider Nutrition International, Inc. and nothing in
this Agreement should be construed to give Bayonne
and/or Corey any right to acquire such shares.
2.6 COSTS AND EXPENSES
Each party covenants and agrees that it shall be
responsible for and bear its respective costs and
expenses of legal counsel, accountants, brokers and
other representatives incurred in connection with any
transactions contemplated herein, provided that the
fees and expenses of the Auditors and any brokers
incurred in determining the Formula Price hereunder
shall be borne by the party who first sends out the
Notice to exercise the option to purchase or the
option to sell.
3. VOTES
3.1 Bayonne and Corey shall exercise their votes on all Common
Shares as directed by WHF.
4. APPLICABLE LAW
4.1 Nevada law shall govern this Agreement.
5. NO ASSIGNMENT
5.1 Bayonne and Corey shall not be entitled to assign, in whole or
part, this undertaking to any other person except to a
personal holding company controlled entirely by it or him,
respectively, which agrees to be bound by this Agreement.
6. SECURITIES LAW FORMALITIES
6.1 The share issue and Shareholders Agreement may be subject to
compliance with United States securities law including, but
not limited to Blue Sky legislation, etc.
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7. NOTICE
7.1 All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in
writing and either delivered by hand or sent by telefax, or by
prepaid registered mail, and shall be presumed given and
received when so delivered by hand or by telefax, or four (4)
business days following the sending thereof by prepaid
registered mail, and when addressed as follows:
a) If to BAYONNE, to:
24 Union Street
St. Helier, Jersey (U.K.)
b) If to COREY, to:
c/o MR. RONALD COREY
621 Lansdowne
Westmount, Quebec
H3Y 2V7
FAX: 514-932-8736
c) If to WHF, to:
c/o WEIDER HEALTH AND FITNESS
21100 Erwin Street
Woodland Hills, California 91367
ATTENTION: MR. BERNARD CARTOON, SECRETARY
& GENERAL COUNSEL
(FAX: 818-999-6598)
or to such other person or address as any party shall designate by notice in
writing to the others in accordance herewith. In the event of postal strike or
other mail service interruption, existing or threatened, all notices and other
communications shall be hand-delivered or sent by telefax.
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IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Shareholders Agreement to be executed on the day and year
first above written.
WEIDER HEALTH AND FITNESS
/s/ BERNARD CARTOON
----------------------------------
Name: Bernard Cartoon
Title: Secretary
BAYONNE SETTLEMENT
/s/
----------------------------------
Name:
Title:
RONALD COREY
/s/ RONALD COREY
----------------------------------
Name:
Title:
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EXHIBIT 10.12
LICENSE AGREEMENT
BETWEEN
MARIZ GESTAO E INVESTIMENTOS LIMITADA
AND
WEIDER NUTRITION GROUP LIMITED
Dated as of This 1st Day of December, 1996
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THIS AGREEMENT is dated as of the 1st day of December, 1996 and made between:
1. MARIZ GESTAO E INVESTIMENTOS LTDA, a Madeira corporation, whose
registered address is Ruas das Murgas, 68, 900 Funchal, Madeira,
Portugal ("Licensor"); and,
2. WEIDER NUTRITION GROUP LIMITED, a United Kingdom corporation,
whose registered address is Sceptre House 169/173 Regent Street,
London ("Licensee").
WHEREAS:
A. Licensor is the exclusive licensee for the territories ("Territories")
identified in Schedule 3 hereto with respect to the Trademarks
("Trademarks") identified in Schedule 1 attached hereto.
B. Licensee has requested a sublicense with respect to the Trademarks for
the purpose of exclusively advertising, marketing and distributing the
Products identified in Schedule 2 in the Territories.
C. Licensor has agreed to grant such a license to Licensee on the terms set
forth in this Agreement.
THIS AGREEMENT IS SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:
1. DEFINITIONS
In this Agreement the following terms shall have the following meanings:
"TRADEMARKS" shall mean the Trademarks as listed in Schedule 1.
"NET RECEIPTS" shall mean the actual amounts collected by Licensee (or
its affiliated or subsidiary companies) from sales of Products in the
Territories.
"PRODUCTS" shall mean the products identified in Schedule 2 carrying the
Trademarks and which are to be sold in the Territories.
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"ROYALTIES" shall mean the payments to be made in accordance with Clause
3.1(c).
"ROYALTY YEAR" shall mean each twelve (12) month period commencing June
1, 1999.
"SCHEDULES" shall mean the Schedules attached hereto which form part of
this Agreement.
"TERRITORIES" shall mean those countries together with all relevant
colonies dependencies and protected territories, if any, as set out in
Schedule 3.
"TRADE MARK IMAGE" shall mean the image as defined in Clause 6.7. "$"
shall mean United States Dollars.
2. GRANT
2.1 Subject to the following terms and in consideration of the
obligations undertaken by Licensee under this Agreement, Licensor
grants to Licensee an exclusive sublicense with respect to the
Trademarks which grant shall consist of the exclusive right to
distribute, advertise, promote and market the Products only in the
Territories.
2.2 Licensor warrants that, subject to clause 2.4 below, this
Agreement is the valid and binding obligation of Licensor
enforceable against it in accordance with its terms, that no other
person or entity has any rights to the Trademarks and that the
execution, delivery and performance of this Agreement does not
violate the rights of any person or entity.
2.3 Licensee shall not directly or indirectly market, distribute,
promote or advertise the Products in any country other than the
Territories, except that nothing contained herein shall prohibit
Licensee's affiliated entities from conducting their business
operations in Canada, the United States, Mexico, Spain and
Portugal and using trademarks identical to, or substantially the
same as, the Trademarks.
2.4 Licensee acknowledges that in some countries of the Territory
there are persons and entities conducting business activities
consisting of the sale and distribution of products which are
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the same as, or substantially similar to, Products and utilizing
trademarks (the "Unavailable Trademarks") which are the same as,
or substantially similar to, the Trademarks. Licensor covenants
and agrees to use its best efforts to terminate, at Licensor's
sole cost and expense, the rights of such persons or entities to
conduct business activities using the Unavailable Trademarks and,
where possible, but subject to the provisions of the final
sentence of this Clause 2.4, to acquire the Unavailable
Trademarks, whereupon, if Licensor is successful in such efforts,
each such acquired trademark shall become a "Trademark" subject to
this Agreement. Notwithstanding the foregoing, Licensor shall be
under no obligation to acquire any Unavailable Trademark unless:
(i) if Licensor is obligated to, and does, pay a price for such
acquisition, Licensee shall, for the five (5) year period from the
date of acquisition, pay Licensor, at the same times referred to
in Clause 3.4 i.e. on an annual basis, a minimum royalty equal to
one fifth (1/5th) of purchase price so paid by Licensor; and (ii)
if the purchase price for the acquisition of the Unavailable
Trademarks exceeds forty thousand U.S. dollars ($40,000.00), the
Licensee shall, at Licensor's request, advance funds to Licensor
equal to such excess, to enable Licensor to pay such price, said
advance to be repaid by Licensor to Licensee, without interest, in
five (5) annual installments by way of deductions from Royalties
otherwise payable by Licensee to Licensor pursuant to this
Agreement, provided that any purchase of Unavailable Trademarks
pursuant to this Clause 2.4 shall require the prior approval of
the Licensee.
3. ROYALTIES, PAYMENT AND AUDIT RIGHTS
3.1 In consideration of the rights granted by Licensor pursuant to
this Agreement and subject to Licensor using its best efforts to
comply with its obligations hereunder, Licensee shall pay Licensor
as follows:
(a) The sum of three hundred sixty thousand United States
dollars ($360,000) as a one time fee for the option
provided for in Clause 14.6, which shall be paid upon
signature of this Agreement.
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(b) For the period December 1, 1996 through November 30, 1998,
the sum of one United States dollar ($1.00).
(c) For the period December 1, 1998 through May 31, 1999
("Partial Royalty Year") and in each Royalty Year
commencing June 1, 1999, Royalties shall be paid as
follows:
(i) In connection with Net Receipts received by Licensee
(or its affiliated or subsidiary companies) from
sales of Products in the Territories aggregating not
more than $33 million, the Royalty owing by Licensee
to Licensor shall be four percent (4%) of Net
Receipts.
(ii) In connection with Net Receipts received by Licensee
(or its affiliated or subsidiary companies) from
sales of Products in the Territories aggregating
more than $33 million, but not more than $66 million
the Royalty shall be three and one-half percent
(3.5%) of Net Receipts.
(iii) In connection with Net Receipts received by Licensee
(or its affiliated or subsidiary companies) from
sales of Products in the Territories aggregating
more than $66 million but not more than $100 million
the Royalty shall be three percent (3%) of Net
Receipts.
(iv) In connection with Net Receipts received by Licensee
(or its affiliated or subsidiary companies) from
sales of Products in the Territories aggregating
more than $100 million, the Royalty shall be two and
one-half percent (2.5%) of Net Receipts.
3.2 The Royalties described in Sub-item c (and the sub-items thereof)
of Clause 3.1, shall, subject to the next sentence, apply in the
Partial Royalty Year and thereafter in each
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Royalty Year. The Partial Royalty Year shall be pro-rated with the
result that the Royalty Rate of 3.5% shall apply in the Partial
Royalty Year if Net Receipts are more than $16,500,000 which is
6/12ths of $33,000,000. The foregoing may be illustrated by the
following example: If in the Partial Royalty Year which commences
December 1, 1998 and continues through May 31, 1999, the Net
Receipts equaled $15,000,000.00, the Royalties owing by the
Licensee to the Licensor for that Partial Royalty Year would be
$600,000.00. However, if in the Royalty Year commencing June 1,
1999, the Net Receipts received by the Licensee from sales of
Products in the Territories were $32,000,000.00 (with the result
that in the Partial Royalty Year and first Royalty Year, the
aggregate Net Receipts were $47,000,000.00), the Royalty for that
first full Royalty Year in this example would still be four
percent (4%) of Net Receipts, or $1,280,000.00.
3.3 In connection with Royalties owing pursuant to Clause 3.1(c), the
Licensee shall, commencing December 1, 1998, pay the Licensor a
monthly Royalty on account of forty-thousand dollars ($40,000)
which shall be paid no later than the first day of each month from
and after December 1, 1998.
3.4 (a) Within ninety (90) days following the end of the Partial
Royalty Year and thereafter within ninety (90) days
following each Royalty Year commencing June 1, 1999, to the
extent that the amounts theretofore paid by Licensee to the
Licensor under Clause 3.3 is less than the Royalties
otherwise due and owing by the Licensee to the Licensor
(pursuant to Clause 3.1(c) above), the difference shall be
paid by the Licensee to the Licensor.
(b) If the amounts paid by the Licensee to the Licensor under
Clause 3.3 exceed the Royalties otherwise due and owing by
the Licensee to Licensor pursuant to Clause 3.1(c), for the
Partial Royalty Year or any Royalty Year, as the case may
be, the amount of the over payment shall be paid by the
Licensor to the Licensee within ninety (90) days following
the end of the Partial Royalty Year, or Royalty Year as the
case may be, in which the payments under Clause 3.3
exceeded the Royalties otherwise owing.
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3.5 Payments of Royalties pursuant to Clause 3.4 (a) shall be
accompanied by a Royalties Statement setting forth the
number of units of the Products sold for the period with
respect to which the Statement relates together with such
other information reasonably necessary to enable Licensor
to verify the accuracy of the payment.
3.6 Subject to reasonable notice and at a reasonable time
during the business day Licensee shall (not more often than
once in each Royalty Year) make available its books and
management accounts applicable to Net Receipts for
inspection by Licensor or its representatives to enable
Licensor to verify the accuracy of the Royalties
theretofore paid by Licensee. if the investigation reveals
an under payment of Royalties, the amount of the under
payment shall be paid by Licensee within thirty (30) days
following receipt of notification from Licensor, together
with interest at the annual rate of ten percent (10%) on
the shortfall from the date it was due to date of payment.
4. TERM
This Agreement shall continue until May 31, 2002. On June 1, 2002, this
Agreement shall automatically renew for successive one (1) year terms
unless earlier terminated as provided for in Clause 10, or unless this
Agreement terminates as provided for in Clause 14.6.
5. LICENSEE'S OBLIGATIONS AS TO QUALITY
5.1 Licensee, if and when reasonably requested to do so by Licensor,
shall promptly deliver to Licensor, or any entity designated by
Licensor ("Licensor's Representative" herein) free of charge
samples of the Products including their wrappings, packaging and
all advertising and promotional materials in connection therewith,
and shall not commence advertising, promotion or distribution of
the Products if Licensor's Representative disapproves any aspect
of these items, or the Products.
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6. USE AND PROTECTION OF TRADEMARKS
6.1 The Trademarks shall be used as follows:
6.1.1 The Products shall prominently display the applicable Trade
Mark.
6.1.2 No marks other than the applicable Trade Mark or product
brand name shall be affixed by Licensee to the Products.
6.2 Licensee shall not during the Term:
6.2.1 Register in the Territories any of the Trademarks in its
own or any third party's name as proprietor, unless it
exercises the option provided for in Clause 14.6.
6.2.2 Claim any right, title or interest in and to the Trademarks
in the Territories save as is granted by this Agreement,
unless it exercises the option provided for in Clause 14.6.
6.2.3 Assign or grant any sub-license to the benefit of this
Agreement to any non-affiliated person or entity without
the prior written approval of Licensor which shall not be
unreasonably withheld.
6.2.4 Use the Trademarks in any manner inconsistent with this
Agreement or on or in connection with any products or
services other than the Products.
6.3 Licensee shall promptly call to the attention of Licensor the use
of any part of the Trademarks by any third party or any activity
of any third party which might in the opinion of Licensee amount
to infringement or passing off.
6.4 Where requested by Licensor, Licensee shall use its best endeavors
to assist Licensor to effect any trade mark or other intellectual
property restoration in the Territories that is relevant to this
Agreement. Subject to the foregoing, it shall be the obligation of
the Licensor throughout the Term, at its sole cost and expense, to
maintain current the registrations applicable to the Trademarks
and to take all steps necessary to protect the Trademarks and
shall, where
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appropriate, take action against persons or entities who infringe
on the Trademarks anywhere in the Territories, in a manner
inconsistent with the rights granted by the Licensor to the
Licensee pursuant to this Agreement. It shall be the obligation of
the Licensee, however, to obtain appropriate health clearance and
other licenses and permits to sell Products in the Territories.
The Licensor makes no warranties or representations to the
Licensee that any of the Products may be sold in any of
Territories.
6.5 Intentionally Deleted.
6.6 Intentionally Deleted.
6.7 The Trade Mark Image is the worldwide popular perception of the
name "Weider" - the Parties accept that the popular perception is
one that will expect the Products to be of the highest standard of
quality and to be the state of the art with respect to each
relevant industry.
7. LICENSEE NOT TO USE LICENSOR'S NAME
Licensee shall not, except with the prior written consent of Licensor,
make use of the name of Licensor in any connection in the Territories
otherwise than is expressly permitted by this Agreement.
8. LICENSEE'S OBLIGATIONS AS TO MARKETING
8.1 It is agreed by Licensee that the Products will be sold to
recognized wholesale firms for resale or to retail firms for
resale to the public or direct to the public and Licensee shall
provide Licensor with a list of all such wholesale and retail
firms upon reasonable request and shall cease to do business with
any of them with respect to the Products if, for valid business
reasons, Licensor requests Licensee in writing to cease such
business relationships.
8.2 Licensee shall ensure so far as it is reasonably practicable that
the Products are not supplied to other manufacturers or to
hawkers, peddlers, street vendors and the like or to any
9
<PAGE> 10
person intending to distribute the Products gratuitously or for,
or in connection with, any immoral or illegal purposes.
8.3 Licensee shall at all times use its best endeavors to promote and
sell the Products in the Territories and to maximize the market
penetration by the Products in each of the Territories.
8.4 All marketing plans and advertising campaigns for the Products to
be undertaken by Licensee shall be submitted to Licensor by
Licensee only if Licensor requests the same, the Licensor acting
reasonably in this connection and thereafter the same shall be
subject to the prior reasonable written approval of Licensor's
Representative.
9. ACTION AGAINST THIRD PARTIES.
9.1 As a material term of this Agreement, if reasonably requested to
do so by the Licensee, the Licensor shall take all actions as
shall be necessary to protect the Trademarks against infringement
by unauthorized persons or entities in the Territories, such as
filing and prosecuting law suits against such infringers. The
Licensee shall, if requested to do so by the Licensor, cooperate
fully with the Licensor in the performance by the Licensor of its
obligations under this Clause 9.1. Notwithstanding the foregoing,
however, the Licensee's request shall not be considered
"reasonable" unless the infringement is taking place in a country
of the Territory which is material, in the reasonable and good
faith opinion of Licensee, to the ongoing business activities of
the Licensee in connection with the Trademarks and, from the
standpoint of good business judgment, there is a realistic
possibility of financial recovery from the infringer. All amounts
actually recovered in such suits, net of Licensor's legal expenses
incurred in prosecuting such suits, shall be shared equally
between the parties.
9.2 If the Licensor does not comply with its obligations set forth in
Section 9.1 (and elsewhere herein with respect to protection of
the Trademarks and actions against infringers of Trademarks, as
the case may be), the Licensee shall have the right to take such
action in its, Licensee's name, and the
10
<PAGE> 11
Licensee shall, in that event, be entitled to retain any and all
amounts recovered by the Licensee in any such infringement
actions. Provided, however, that if the Licensee takes such
actions against the infringers which it was the Licensor's
obligation to take, as set forth in Section 9.1, the Licensee
shall be entitled to deduct, from the next amounts otherwise
payable to the Licensor pursuant to this Agreement, the out of
pocket court costs, legal costs and other reasonable attorneys
fees incurred by the Licensee in taking such actions.
9.3 Licensee shall in no circumstances settle any claim or action
against third parties without the prior written consent of
Licensor which shall not be unreasonably withheld.
10. TERMINATION
10.1 Notwithstanding 4 above in the event of any of the following
breaches by Licensee, Licensor shall be entitled to terminate this
Agreement upon written notice and, immediately thereupon, this
Agreement shall cease to have effect, but without prejudice to the
rights and remedies of Licensor in respect of the breach or
antecedent breach by Licensee of any of its obligations under this
Agreement.
10.1.1 Failure on the part of Licensee to make any payment due to
Licensor under this Agreement for 21 days after such
payment shall have become due.
10.1.2 Breach by Licensee of any other provision of this Agreement
and Licensee's failure to cure the same within forty-five
(45) days of the receipt of written notice from Licensor
identifying the breach and calling upon Licensee to remedy
it.
10.1.3 The voluntary or compulsory liquidation of Licensee or the
appointment of a receiver of its assets.
10.2 Notwithstanding anything to the contrary set forth herein, this
Agreement shall forthwith terminate upon the exercise by the
Licensee of the option referred in Clause 14.6.
11
<PAGE> 12
11. CONSEQUENCES OF TERMINATION
11.1 Subject to Clauses 11.2 and 11.3 and subject further to Clause
10.2, immediately on termination of this Agreement, as provided
for in Clause 10.1 (but not 10.2), Licensee shall discontinue all
use of the Trademarks.
11.2 If Licensee shall have any remaining stocks (inventory) of the
Products at the time of termination they may be disposed of by
Licensee in compliance with the terms of this Agreement, but not
otherwise.
11.3 Any Products in the course of manufacture at the time of
termination may be completed within 120 days and disposed of in
compliance with the terms of this Agreement, but not otherwise.
12. INDEMNITY
12.1 Licensor's Right to Indemnity.
Licensee shall indemnify Licensor against all actions, claims, costs,
damages and expenses which it may suffer or sustain as a result of the
actions of Licensee or the breach by Licensee of any provision of this
Agreement.
12.2 Licensee's Right to Indemnity.
Licensor shall indemnify Licensee against all actions, claims, costs,
damages and expenses arising out of Licensee's use the Trademarks in
accordance with the terms of this Agreement or arising out of any breach
by Licensor of this Agreement.
13. INSPECTION
Licensee shall permit Licensor at all reasonable times to inspect
Licensee's premises in order to satisfy itself that Licensee is complying
with its obligations under this Agreement.
12
<PAGE> 13
14. MISCELLANEOUS
14.1 No Waiver.
No waiver by Licensor of any of Licensee's obligations under this
Agreement shall be deemed effective unless made by Licensor in writing
nor shall any waiver by Licensor in respect of any breach be deemed to
constitute a waiver of or consent to any subsequent breach by Licensee of
its obligations under this Agreement.
14.2 Severance
In the event that any provision of this Agreement is declared by any
judicial or other competent authority to be void, voidable illegal the
remaining provisions shall continue to apply unless Licensor, in
Licensor's discretion, decides that the effect is to defeat the original
intentions of the parties in which case it shall be entitled to terminate
this Agreement by 30 days' notice.
14.3 No Agency or Partnership
The parties are not partners or joint venturers nor is Licensee entitled
to act as Licensor's agent nor shall Licensor be liable in respect of any
representation act or omission of Licensee of whatever the nature.
14.4 Notice
Any notice to be served on either of the parties by the other shall be
sent by pre-paid recorded delivery or registered post or by telex or
facsimile to the address stated above and shall be deemed to have been
received by the addressee within 72 hours of posting or 24 hours if sent
by telex or facsimile transmission to the correct number (with correct
answerback) of the addressee.
14.5 Governing Law
This Agreement is made subject to the laws of England and all questions
including formation, interpretation and enforcement shall be referred to
Arbitration which shall take place in London
13
<PAGE> 14
England, according to the arbitration rules of the International Chamber
of Commerce. Each of the parties shall be entitled to select one
arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of the arbitration tribunal shall be by majority
decision and shall be final, binding and conclusive between the parties.
Any arbitration award issued by such arbitration tribunal shall include
an award of reasonable attorneys fees to the prevailing party in that
arbitration.
14.6 Irrevocable Option
Licensee is hereby granted an irrevocable option to purchase the
Trademarks subject to the following: (i) the option may not be exercised
prior to May 31, 2002; (ii) the purchase price shall be the greater of
$7,000,000 U.S. or 6.5 times the Royalties paid (or due, as the case may
be) for the Royalty Year immediately preceding the date of exercise of
the option; and (iii) the option shall be exercised by the Licensee by
providing written notice of the exercise thereof to the Licensor. Upon
receipt of the written notice of exercise by Licensor the following shall
apply: Within sixty (60) days following the notice of exercise, the
Licensee shall pay the purchase price to the Licensor. Thereafter, within
one hundred and twenty (120) days following such payment, the Licensee
shall pay the Licensor any and all Royalties which have accrued and not
been theretofore paid, as of the date on which the purchase price was
paid. If the purchase price is not paid by the Licensee to the Licensor
within the said sixty (60) day period referred to herein, the Licensee
shall pay to the Licensor, in addition to the purchase price, interest on
the unpaid amount calculated at the rate of fifteen percent (15%) per
annum from the date on which the amount should have been paid to the date
of payment. The Licensor shall obligated to take all steps necessary to
transfer title in and to the Trademarks to the Licensee following the
date of the said payment of the purchase price as provided for herein.
14.7 Withholding Taxes
Licensor and Licensee agree that the Licensee will not be liable for any
withholding tax, including any interest, penalties or other associated
costs (hereinafter referred to as "Withholding Costs"),
14
<PAGE> 15
relating to any withholding tax obligation imposed by the government or
taxing authority of any country, state, province, municipality or any
other government jurisdiction arising as a result of this Agreement.
Licensor further agrees to indemnify, reimburse and otherwise hold
harmless, the Licensee for any such costs imposed on the Licensee.
Licensee agrees to use its best efforts to lawfully structure its sales
of Products and payments hereunder in such a manner as to avoid the
necessity of paying a withholding tax to any authority, and agrees to
consult with Licensor in connection with such structures.
- -------------------------------------- ------------------------------------
For and on behalf of For and on behalf of
Mariz Gestao E. Investimentos Limitada Weider Nutrition Group, Ltd.
15
<PAGE> 16
SCHEDULE 1
The Trademarks
Trademarks and master brand names used in the United States and countries
comprising the "Territories" as defined in Schedule 3 on or prior to December 1,
1996, by companies affiliated with Weider Health and Fitness, a Nevada
Corporation, in the advertising, labeling, marketing and distribution of
"Products" as defined in Schedule 2.
16
<PAGE> 17
SCHEDULE 2
Products
Nutritional Supplement products such as drinks, powders, vitamins, tablets,
sports nutrition products, and the like
17
<PAGE> 18
SCHEDULE 3
Territories
All countries of the world except Canada, the United States (and its
possessions) Mexico, Spain and Portugal.
The parties acknowledge that, until such time as the license agreements
hereinafter referred to can be legally terminated, the following countries are
not part of this Territory as a result of pre-existing license agreements
involving Trademarks which are the same as, or substantially similar to, the
Trademarks: Japan, Australia, New Zealand and South Africa.
18
<PAGE> 1
EXHIBIT 11
WEIDER NUTRITION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MAY 31, 1996 FEBRUARY 28, 1999
------------ -----------------
<S> <C> <C>
Net income $14,964 $8,468
Addback after-tax interest expense reduction 1,980 2,190
---------- ----------
Net income as adjusted $16,944 $10,658
========== ==========
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 $0.45
===== =====
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 $0.45
===== =====
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors of
Weider Nutrition International, Inc.
Salt Lake City, Utah
We consent to the use in this Amendment No. 2 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 18, 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> 33,663 34,992
<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> 133,147 149,341
<CURRENT-LIABILITIES> 38,540 28,738
<BONDS> 55,275<F1> 79,907<F1>
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 39,331 40,695
<TOTAL-LIABILITY-AND-EQUITY> 133,147 149,341
<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 14,113
<INCOME-TAX> 10,207 5,645
<INCOME-CONTINUING> 14,964 8,468
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,964 8,468
<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>
