UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____.
COMMISSION FILE NUMBER:
333-12929
WEIDER NUTRITION INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0563574
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2002 SOUTH 5070 WEST
SALT LAKE CITY, UTAH 84104-4726
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(801) 975-5000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
The number of shares outstanding of the Registrant's common stock is 24,948,381
(as of March 22, 1999.)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 28, May 31,
ASSETS 1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 2,278 $ 684
Receivables .................................................... 62,313 55,204
Inventories .................................................... 74,172 60,523
Prepaid expenses and other ..................................... 5,125 3,193
Deferred taxes ................................................. 4,160 3,896
--------- ---------
Total current assets ................................. 148,048 123,500
--------- ---------
Property and equipment, net ...................................... 48,988 41,962
--------- ---------
Other assets:
Intangible assets, net ......................................... 52,042 24,392
Deposits and other assets ...................................... 14,825 14,668
Securities available for sale .................................. 2,692 --
Notes receivable from officers related to
stock performance units ...................................... 3,977 3,987
Deferred taxes ................................................. -- 1,231
--------- ---------
Total other assets ................................... 73,536 44,278
--------- ---------
Total assets ............................. $ 270,572 $ 209,740
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 30,689 $ 26,359
Accrued expenses ............................................... 17,863 6,432
Current portion of long-term debt(Note 2) ...................... 114,918 1,554
Income taxes payable ........................................... -- 3,467
--------- ---------
Total current liabilities ............................ 163,470 37,812
--------- ---------
Long-term debt ................................................... 5,365 68,792
--------- ---------
Deferred taxes ................................................... 2,544 --
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; shares
authorized-10,000,000; no shares issued and outstanding ...... -- --
Class A common stock, par value $.01 per share; shares
authorized-50,000,000; shares issued and
outstanding-9,260,949 and 9,048,349 .......................... 92 91
Class B common stock, par value $.01 per share; shares
Authorized-25,000,000; shares issued and
outstanding-15,687,432 ....................................... 157 157
Additional paid-in capital ..................................... 82,408 79,671
Other accumulated comprehensive loss ........................... (727) (165)
Retained earnings .............................................. 17,263 23,382
--------- ---------
Total stockholders' equity ........................... 99,193 103,136
--------- ---------
Total liabilities and stockholders' equity $ 270,572 $ 209,740
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended
FEBRUARY 28,
------------------------------
1999 1998
------------ ------------
Net sales .................................. $ 89,030 $ 62,368
Cost of goods sold ......................... 55,680 39,366
------------ ------------
Gross profit ............................... 33,350 23,002
------------ ------------
Operating expenses:
Selling and marketing .................... 17,953 9,819
General and administrative ............... 6,568 3,771
Research and development ................. 1,426 1,092
Amortization of intangible assets ........ 955 568
Plant consolidation and transition ....... 1,079 --
DSHEA related asset impairment costs ..... 1,863 --
------------ ------------
Total operating expenses ............. 29,844 15,250
------------ ------------
Income from operations ..................... 3,506 7,752
------------ ------------
Other income (expense):
Interest income .......................... 139 82
Interest expense ......................... (2,884) (1,181)
Other .................................... (47) (144)
------------ ------------
Total ................................ (2,792) (1,243)
------------ ------------
Income before income taxes ................. 714 6,509
Provision for income taxes ................. 307 2,538
------------ ------------
Net income ................................. $ 407 $ 3,971
============ ============
Weighted average shares outstanding:
Basic .................................... 24,948,381 24,699,238
============ ============
Diluted .................................. 25,075,267 24,943,548
============ ============
Net income per share:
Basic .................................... $ 0.02 $ 0.16
============ ============
Diluted .................................. $ 0.02 $ 0.16
============ ============
Comprehensive income (loss) ................ $ (618) $ 3,784
============ ============
See notes to condensed consolidated financial statements.
-3-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Nine Months Ended
FEBRUARY 28,
------------------------------
1999 1998
------------ ------------
Net sales .................................. $ 240,250 $ 176,694
Cost of goods sold ......................... 154,869 115,189
------------ ------------
Gross profit ............................... 85,381 61,505
------------ ------------
Operating expenses:
Selling and marketing .................... 49,571 28,625
General and administrative ............... 18,705 11,416
Research and development ................. 3,692 2,674
Amortization of intangible assets ........ 2,388 1,637
Plant consolidation and transition ....... 5,113 --
Severance charges ........................ 2,500 --
DSHEA related asset impairment costs ..... 1,863 --
------------ ------------
Total operating expenses ............. 83,832 44,352
------------ ------------
Income from operations ..................... 1,549 17,153
------------ ------------
Other income (expense):
Interest income .......................... 441 287
Interest expense ......................... (7,197) (3,466)
Other .................................... (436) (541)
------------ ------------
Total ................................ (7,192) (3,720)
------------ ------------
Income (loss) before income taxes .......... (5,643) 13,433
Provision for income taxes (benefit) ....... (2,317) 5,239
------------ ------------
Net income (loss) .......................... $ (3,326) $ 8,194
============ ============
Weighted average shares outstanding:
Basic .................................... 24,903,934 24,699,238
============ ============
Diluted .................................. 24,903,934 24,968,621
============ ============
Net income (loss) per share:
Basic .................................... $ (0.13) $ 0.33
============ ============
Diluted .................................. $ (0.13) $ 0.33
============ ============
Comprehensive income (loss) ................ $ (3,888) $ 8,159
============ ============
See notes to condensed consolidated financial statements.
-4-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
FEBRUARY 28,
--------------------
1999 1998
-------- --------
Cash flows from operating activities:
Net income (loss) .................................... $ (3,326) $ 8,194
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for bad debts .......................... 919 538
Deferred taxes ................................... 1,189 1,302
Depreciation, amortization and
asset impairment ................................ 10,568 5,722
Loss on disposition of equipment ................. 65 131
Changes in operating assets and liabilities-net of
assets acquired:
Receivables ...................................... 3,761 (1,476)
Inventories ...................................... (4,199) (17,579)
Prepaid expenses and other ....................... (278) (1,605)
Deposits and other assets ........................ 3,010 670
Accounts payable ................................. 1,475 1,410
Accrued expenses ................................. (4,388) (1,690)
-------- --------
Net cash provided by (used in)
operating activities ......................... 8,796 (4,383)
-------- --------
Cash flows from investing activities:
Issuance of common stock ............................. 139 --
Dividends paid ....................................... (2,794) (2,779)
Proceeds from long-term debt ......................... 35,630 20,081
Payments on long-term debt ........................... (1,350) (1,897)
-------- --------
Net cash provided by financing activities ...... 31,625 15,405
-------- --------
Cash flows from investing activities:
Acquisition, net of cash acquired .................... (24,668) --
Purchase of property and equipment ................... (9,159) (8,118)
Proceeds from disposition of equipment ............... 1,083 17
Change in officers' notes receivable ................. 10 (3,498)
Investment in securities available for sale .......... (4,998) --
-------- --------
Net cash used in investing activities .......... (37,732) (11,599)
-------- --------
Effect of exchange rate changes on cash ................ (1,095) (34)
-------- --------
Increase (decrease) in cash and cash equivalents ....... 1,594 (611)
Cash and cash equivalents, beginning of period ......... 684 1,259
-------- --------
Cash and cash equivalents, end of period ............... $ 2,278 $ 648
======== ========
See notes to condensed consolidated financial statements.
-5-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND OTHER MATTERS
The accompanying unaudited interim consolidated financial statements
("interim financial statements") do not include all disclosures provided in the
annual consolidated financial statements. These interim financial statements
should be read in conjunction with the consolidated financial statements and the
footnotes thereto contained in the Weider Nutrition International, Inc. (the
"Company") Annual Report on Form 10-K for the year ended May 31, 1998 as filed
with the Securities and Exchange Commission. The May 31, 1998 consolidated
balance sheet was derived from audited financial statements, but all disclosures
required by generally accepted accounting principles are not provided in the
accompanying footnotes. The Company is a majority-owned subsidiary of Weider
Health and Fitness ("WHF").
In the opinion of the Company, the accompanying interim financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the Company's financial position and
results of operations. Certain prior period amounts have been reclassified to
conform with the current interim period presentation.
2. CREDIT FACILITY
The Company's credit facility with General Electric Capital Corporation
("GECC") matures in February 2000. Therefore, the amounts outstanding under the
credit facility at February 28, 1999 ($99.2 million), are included in current
portion of long-term debt.
The Company is presently evaluating its financing requirements and
anticipates commencing discussions with its current lender and other banking
institutions regarding a new credit facility and other financing alternatives.
Although management believes that a new credit facility will be finalized prior
to the filing of the Company's Form 10-K for the fiscal year ending May 31,
1999, there can be no assurances that the new facility will be obtained by such
date. Management expects that amounts outstanding under a new credit facility to
be subsequently reclassified as a long-term obligation.
3. SIGNIFICANT TRANSACTIONS
In February 1999, the Company announced the hiring of David J. Gustin
as President and Chief Executive Officer.
In September 1998, the Company announced its intention to consolidate all
capsule and tablet manufacturing into the Company's Utah facility during the
second and third quarters of fiscal 1999. This consolidation and transition was
substantially completed in the second quarter and, accordingly, certain charges
associated with the consolidation, including asset impairment, severance, lease
buy-out and inventory related charges, totaling $4.0 million were recognized
during the second quarter ended November 30, 1998. Additional consolidation and
relocation related costs totaling approximately $1.1 million were recognized
during the third quarter of fiscal 1999.
-6-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
On July 24, 1998, the Company acquired 100% of the outstanding shares of
Haleko Hanseatisches Lebensmittle Kontor GmbH, a corporation organized under the
laws of Germany ("Haleko"). Haleko, the largest sports nutrition company in
Europe, had sales of approximately $65 million for the twelve months ending May
31, 1998. The purchase price was comprised of $25.2 million in cash, 200,000
shares of Class A common stock (@ $13.00 per share), and up to an $8 million
earnout contingent on future financial performance. In addition, $16 million in
long-term debt was assumed and $5 million in acquisition related capital costs
are expected, but not finalized, at February 28, 1999. Final determination of
these costs will occur by the end of the Company's May 31, 1999 fiscal year. The
cash portion of the purchase price was financed with funds available under the
Company's credit facility. The additional acquisition related capital costs will
also be financed with funds available under the credit facility.
The acquisition was accounted for as a purchase and recorded during the
Company's quarter ended August 31, 1998. The excess of the purchase price over
the estimated fair value of the acquired net assets (approximately $21.0
million) was recorded as goodwill.
The following unaudited pro forma results of operations of the Company
give effect to the acquisition of Haleko as though the transaction had occurred
on June 1, 1997.
Nine Months Ended
FEBRUARY 28,
1999 1998
--------- ---------
Net sales .................................. $ 252,710 $ 223,665
Operating income ........................... 2,242 18,215
Net income (loss) .......................... (3,309) 7,613
Diluted income (loss) per share ............ (0.13) 0.30
4 RECEIVABLES
Receivables consist of the following:
February 28, May 31,
1999 1998
--------- ---------
Trade accounts ............................. $ 57,070 $ 54,164
Income taxes ............................... 4,536 --
Other ...................................... 2,520 1,331
--------- ---------
64,126 55,495
Less allowance for doubtful accounts ....... (1,813) (291)
--------- ---------
Total .......................... $ 62,313 $ 55,204
========= =========
-7-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. INVENTORIES
Inventories consist of the following:
February 28, May 31,
1999 1998
------- -------
Raw materials ...................... $25,370 $23,226
Work in process .................... 3,081 3,613
Finished goods ..................... 45,721 33,684
------- -------
Total ........................ $74,172 $60,523
======= =======
Inventory totaling approximately $5.7 million, primarily consisting of two
raw materials, is included as a long-term asset in deposits and other assets in
the accompanying balance sheets.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
February 28, May 31,
1999 1998
-------- --------
Cost in excess of fair value
of net assets acquired (goodwill) ...... $ 52,723 $ 28,685
Patents and trademarks ................... 10,765 4,933
Noncompete agreements .................... 221 214
-------- --------
63,709 33,832
Less accumulated amortization ............ (11,667) (9,440)
-------- --------
Total .............................. $ 52,042 $ 24,392
======== ========
Certain pre-acquisition contingent costs associated with the acquisition
of Haleko have been estimated at February 28, 1999. As these costs become
finalized, amounts allocated to goodwill may be adjusted.
7. INVESTMENT IN SECURITIES AVAILABLE FOR SALE
During the nine months ended February 28, 1999, the Company invested in
certain "available-for-sale" equity securities. In accordance with SFAS No. 115,
these securities are recorded at fair value with the accompanying unrealized
holding losses, net of income tax benefits, included as a separate component of
stockholders' equity. The original cost of the investment amounted to $4,998 at
February 28, 1999.
-8-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. OPERATIONS BY GEOGRAPHIC AREA
As a result of the Company's recent acquisition of Haleko, the Company has
significantly expanded its operations outside the United States. The following
information has been summarized by primary geographic area of operations:
IDENTIFIABLE ASSETS
-------------------------
February 28, May 31,
1999 1998
--------- ---------
United States .................................. $ 243,202 $ 212,113
Germany ........................................ 63,766 --
Europe-other ................................... 9,203 7,698
Canada ......................................... 895 768
Intercompany eliminations ...................... (46,494) (10,839)
--------- ---------
$ 270,572 $ 209,740
========= =========
For the nine months ended February 28:
NET SALES OPERATING INCOME(LOSS)
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
United States ....... $ 187,465 $ 168,666 $ (226) $ 17,035
Germany ............. 45,715 -- 2,162 --
Europe-other ........ 7,795 7,124 (140) 414
Canada .............. 746 904 (247) (296)
Intercompany
eliminations ....... (1,471) -- -- --
--------- --------- --------- ---------
$ 240,250 $ 176,694 $ 1,549 $ 17,153
========= ========= ========= =========
9. SALES TO MAJOR CUSTOMERS
The Company's three largest customers accounted for approximately 43% and
39%, respectively, of net sales for the nine months ended February 28, 1999 and
February 28, 1998. At February 28, 1999 and May 31, 1998, amounts due from these
customers represented approximately 37% and 50%, respectively, of total trade
accounts receivable.
10. RELATED PARTY TRANSACTIONS
Effective June 1, 1998, as part of its marketing strategy, the Company
agreed to participate in the sponsorship of certain body builder contracts
with WHF at a cost of $50 per quarter.
-9-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
11. CONTINGENCIES
On April 24, 1997, the Company filed a lawsuit in the United States
District Court for the District of Utah (Central Division) for a declaratory
judgment that Pain Free, a joint care product, did not infringe two U.S. patents
held by Nutramax Laboratories, Inc. ("Nutramax") or, in the alternative,
declaring such patents invalid. On June 30, 1997, Nutramax filed a counterclaim
against the Company alleging that, through the manufacture and sale of a Company
product, the Company was willfully infringing on one or more U.S. patents of
Nutramax and also had contributorily and actively induced infringement on such
patents. The counterclaim seeks treble damages as a result of the claimed
willful and intentional nature of the alleged infringement. The litigation has
been transferred to the United States District Court for the District of
Maryland, where Nutramax had previously commenced litigation alleging that
twenty-two other entities had also infringed those patents, and is in discovery.
To the extent the Company does not prevail in the lawsuit, the Company could be
enjoined from the future manufacture and marketing of Pain Free, which has
become one of its best selling products, and could be required by the court to
pay damages to Nutramax, which under certain circumstances could be trebled.
Although the Company is vigorously opposing the counterclaim and believes that
there will be no material liability, the imposition by the court of any of the
foregoing could have a material adverse effect on the Company. On August 31,
1998, Nutramax filed a lawsuit in Maryland State Court against the Company and a
Company employee alleging breaches by the Company and the employee of claimed
confidentiality obligations the employee supposedly owed to Nutramax because
Nutramax claims the employee was a consultant to Nutramax prior to being
employed by the Company. The lawsuit was withdrawn without prejudice by
Nutramax, but was refiled in November 1998. The Company disputes the allegations
and will vigorously oppose the lawsuit.
The Company received an access letter from the Federal Trade Commission
("FTC") regarding the Company's advertising with respect to the Company's
PhenCal products. After discussions between the Company and the FTC concerning
the Company's scientific substantiation supporting the advertising claims, the
FTC forwarded a proposed consent order to the Company which provides for, among
other items, injunctive relief prohibiting the Company from making certain diet
and weight loss claims for its products without adequate scientific
substantiation. The proposed consent order is currently the subject of
negotiation between the FTC and the Company. The Company is unable to predict
whether it will be able to reach a negotiated settlement of this matter. No
assurance can be given that any imposition of injunctive relief in resolving
this matter would not have a material adverse effect on the Company.
-10-
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
In April 1998, Premier Direct, Inc. filed a lawsuit in the United States
District Court for the Southern District of Florida (Fort Lauderdale Division)
alleging that Pain Free, a joint care product of the Company, infringes upon
Premier Direct's alleged "Pain-Free HP" trademark, which Premier Direct uses
with respect to a topical analgesic product. The lawsuit seeks to prohibit the
Company from using the name Pain Free and seeks punitive damages. In June 1998,
the lawsuit was dismissed without prejudice with leave for Premier Direct to
file an amended complaint. Premier filed an amended complaint, including new
allegations that it had acquired certain additional rights in the Pain Free name
under a license agreement with Afassco, Inc. After certain motions by the
parties, the Court permitted the lawsuit to continue. In November 1998, Premier
filed a motion for preliminary injunction to prevent the Company from
advertising with respect to Pain Free. The parties are conducting discovery with
respect to the preliminary injunction motion. The Company will have 20 days
following completion of this portion of the discovery process to file its
opposition to Premier's motion for preliminary injunction. To the extent the
Company does not prevail in the lawsuit, the Company could be enjoined from the
future use of the name Pain Free and could be required by the court to pay
damages to Premier. Although the Company is vigorously opposing the allegations
by Premier, the imposition by the court of any of the foregoing could have a
material adverse effect on the Company.
The Company was named as one of several defendants in a suit filed in
December 1996 alleging unfair competition and false advertising under California
law. A settlement with regard to the suit was agreed to in July 1998. In August
1998, the plaintiff filed an application pursuant to the court order established
by the settlement contending that the product was not manufactured and labeled
in compliance with applicable law by virtue of the alleged inclusion of a
minimal amount of cholesterol, which application was opposed by the Company. The
parties resolved all matters with respect to such application in November 1998.
On March 24, 1999, the plaintiff's attorney in the California matter filed a
lawsuit on behalf of an alleged class in the Supreme Court of the State of New
York (New York County) alleging similar claims under New York law. The Company
intends to vigorously oppose these allegations.
In addition, the Company is involved in other claims, potential unasserted
claims and legal and administrative actions arising in the ordinary course of
business. In management's judgment, the outcome of these other matters will not
have a material adverse effect on the Company's financial position or results of
operations and cash flows.
-11-
<PAGE>
12. SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
In connection with the acquisition of Haleko, the Company assumed
liabilities as follows:
Fair value of assets acquired . $ 38,557
Cost in excess of fair value of
net assets acquired ......... 21,053
Issuance of common stock ...... (2,600)
Cash paid, net of cash acquired (24,668)
--------
Liabilities assumed ........... $ 32,342
========
13. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
effective June 1, 1998. For the nine months ended February 28, 1999 and 1998,
other comprehensive loss, net of tax, amounted to $562 and $35, respectively.
Other recent standards of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." These standards
are not expected to have a material impact on the Company's financial
statements.
-12-
<PAGE>
ITEM 2. 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 QUARTERLY REPORT ON FORM 10-Q. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS QUARTERLY REPORT
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, THAT ARE BASED ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS,
CURRENT EXPECTATIONS, ESTIMATES, AND PROJECTIONS. STATEMENTS THAT ARE NOT
HISTORICAL FACTS, INCLUDING WITHOUT LIMITATION STATEMENTS WHICH ARE PRECEDED BY,
FOLLOWED BY OR INCLUDE THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS,"
"MAY," "SHOULD" OR SIMILAR EXPRESSIONS ARE FORWARD-LOOKING STATEMENTS. MANY OF
THE FACTORS THAT WILL DETERMINE THE COMPANY'S FUTURE RESULTS ARE BEYOND THE
ABILITY OF THE COMPANY TO CONTROL OR PREDICT. THESE STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES AND, THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY.
THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
IMPORTANT FACTORS THAT MAY EFFECT FUTURE RESULTS INCLUDE, BUT ARE NOT
LIMITED TO: THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, PRODUCT DEVELOPMENT,
CHANGES IN LAWS AND REGULATIONS, CUSTOMER DEMAND, LITIGATION AND GOVERNMENT
REGULATORY ACTION, AVAILABILITY OF FUTURE FINANCING, UNCERTAINTY OF MARKET
ACCEPTANCE OF NEW PRODUCTS, CHANGES FROM THE COMPANY'S EVALUATION OF ITS
BUSINESS OPERATIONS AND STRATEGIES, DEPENDENCE ON INDIVIDUAL PRODUCTS, AND OTHER
RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S SEC REPORTS, COPIES OF WHICH
ARE AVAILABLE UPON REQUEST FROM THE COMPANY'S INVESTOR RELATIONS DEPARTMENT.
GENERAL
Weider Nutrition International, Inc. is a manufacturer of branded and
private label nutritional supplements. The Company manufactures a broad range of
capsules and tablets, powdered drink mixes, bottled beverages and nutrition
bars. The Company markets its branded products in four principal categories:
sports nutrition; vitamins, minerals and herbs; diet; and healthy snacks. The
Company manufactures and markets approximately 1,000 stock keeping units
("SKUs"). As a result of the Company's recent acquisition of Haleko, the Company
has significantly expanded its operations outside the United States.
In February 1999, the Company announced the hiring of Mr. David J. Gustin
as its President and Chief Executive Officer, effective March 1, 1999. Under Mr.
Gustin's direction, the Company is continuing to evaluate its business
operations and strategies. This evaluation includes further analysis and review
of the Company's primary distribution channels and brands, inventory and number
of SKUs, management systems, regulatory compliance considerations and similar
items. While the focus of this process is to improve profitability, no assurance
can be given that decisions made by the Company relating to this evaluation will
not adversely effect the Company's financial condition and results of
operations. The Company anticipates that the review process will be completed
prior to the filing of its Form 10-K for the fiscal year ending May 31, 1999.
The Company's principal executive offices are located at 2002 South 5070
West, Salt Lake City, Utah 84104 and its telephone number is (801) 975-5000. As
used herein, the "Company" means Weider Nutrition International, Inc. and its
subsidiaries, except where indicated otherwise.
-13-
<PAGE>
RESULTS OF OPERATIONS (UNAUDITED)
(THREE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1998)
The following table shows selected items expressed on an actual basis and
as a percentage of net sales for the respective interim periods:
THREE MONTHS ENDED FEBRUARY 28,
----------------------------------------
1999 1998
----------- ------------
(dollars in thousands)
Net sales ........................ $89,030 100.0% $62,368 100.0%
Cost of goods sold ............... 55,680 62.5 39,366 63.1
------- ----- ------- -----
Gross profit ..................... 33,350 37.5 23,002 36.9
------- ----- ------- -----
Operating expenses ............... 26,902 30.3 15,250 24.5
Plant consolidation and
transition ..................... 1,079 1.2 -- --
DSHEA related asset
impairment costs ............... 1,863 2.1 -- --
------- ----- ------- -----
Total operating expenses ......... 29,844 33.6 15,250 24.5
------- ----- ------- -----
Income from operations ........... 3,506 3.9 7,752 12.4
Other expense, net ............... 2,792 3.1 1,243 2.0
Income taxes ..................... 307 .3 2,538 4.0
------- ----- ------- -----
Net income ....................... $ 407 .5% $ 3,971 6.4%
======= ===== ======= =====
NET SALES. Net sales for the three months ended February 28, 1999
increased $26.7 million, or 42.7%, to $89.0 million from $62.4 million for the
three months ended February 28, 1998. Sales to mass volume retailers and
international markets increased during the three months ended February 28, 1999
compared to the three months ended February 28, 1998. Sales to health food
distributors and retailers, and private label sales decreased during the third
quarter of fiscal 1999 compared to the third quarter of fiscal 1998. Beverage
distributor sales remained constant for the third quarter of fiscal 1999
compared to the third quarter of fiscal 1998.
Third quarter fiscal 1999 sales to mass volume retailers increased
approximately 52.3% to $38.0 million from the third quarter fiscal 1998 of $25.0
million. The increase in sales to mass volume retailers was primarily the result
of increased sales to existing accounts from the introduction of new branded
products in fiscal 1998 and 1999. Sales of Pain Free amounted to $21.9 million
for the third quarter of fiscal 1999. Sales to health food distributors and
retailers decreased approximately 31.4% to $8.8 million for the fiscal 1999
third quarter compared to $12.8 million for the fiscal 1998 third quarter. Sales
to health food distributors and retailers decreased primarily as a result of the
Company's reallocation of resources to support mass volume growth and a decrease
in sales to one of its primary customers.
Sales to international markets increased 533.6% to $24.0 million for the
three months ended February 28, 1999 compared to $3.8 million for the three
months ended February 28, 1998. The increase in sales to international markets
resulted primarily from the Company's acquisition of Haleko in July 1998. The
Company's financial results for the third quarter of fiscal 1999 included
Haleko's operating results for three months, which consisted of $20.6 million in
sales.
-14-
<PAGE>
Sales to private label customers decreased approximately 17.6% to $10.8
million for the third quarter of fiscal 1999 compared to $13.1 million for the
third quarter of fiscal 1998. The decrease in private label sales is primarily
the result of the Company's decision to limit private label business to only
those customers who have, or may in the future have, other business
relationships with the Company.
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
respective interim periods indicated:
THREE MONTHS ENDED FEBRUARY 28,
-----------------------------------
1999 1998
--------- ----------
(dollars in thousands)
Mass volume retailers................... $ 38,028 42.7% $24,965 40.0%
Health food ............................ 8,762 9.8 12,770 20.5
Private label .......................... 10,781 12.1 13,084 21.0
Beverage distributors .................. 6,409 7.2 6,516 10.4
International markets .................. 24,013 27.0 3,790 6.1
Other .................................. 1,037 1.2 1,243 2.0
------- ----- ------- -----
Total............................ $ 89,030 100.0% $62,368 100.0%
======= ===== ======= =====
GROSS PROFIT. Gross profit increased approximately 45.0% to $33.4 million
for the quarter ended February 28, 1999 compared to the quarter ended February
28, 1998. Gross profit, as a percentage of net sales, was 37.5% for the quarter
ended February 28, 1999 compared to 36.9% for the quarter ended February 28,
1998. The gross profit percentage for the quarter ended February 28, 1999
increased to 37.5% primarily as a result of the significant increase in higher
margin international sales (resulting from inclusion of Haleko) and the change
in sales mix, offset somewhat by certain inventory related costs.
OPERATING EXPENSES. Operating expenses, including additional plant
consolidation and relocation expenses and Dietary Supplements Health and
Education Act ("DSHEA") related asset impairment costs, increased approximately
95.7% to $29.8 million for the fiscal 1999 third quarter from $15.3 million for
the fiscal 1998 third quarter. During the fiscal 1999 third quarter the Company
completed the consolidation of capsule and tablet manufacturing to its Utah
facility from its Irwindale, California facility. In conjunction with the
relocation of the Company's capsule and tablet facility, the Company recognized
approximately $1.1 million in additional net consolidation, relocation and other
related costs. In addition, the Company recognized approximately $1.9 million in
primarily asset impairment costs resulting from excess labels, packaging and
discontinuation of certain SKU's to comply with product labeling requirements
under DSHEA effective in March 1999.
Operating expenses, excluding the costs noted above, increased
approximately 76.4% to $26.9 million for the three months ended February 28,
1999 from $15.3 million for the three months ended February 28, 1998. Operating
expenses, as a percentage of net sales, were 30.3% for the quarter ended
February 28, 1999 compared to 24.5% for the quarter ended February 28, 1998. The
increase in operating expenses, as a percentage of net sales, was primarily a
result of incremental selling and marketing costs, including advertising and
promotional expenses, higher operating expenses associated with the increase in
international sales due to the acquisition of Haleko, and increased legal
expenses.
-15-
<PAGE>
Selling and marketing expenses, including sales, marketing, advertising,
freight and other costs, increased approximately 82.8% to $18.0 million for the
fiscal 1999 third quarter from $9.8 million for the fiscal 1998 third quarter.
The increase in selling and marketing expenses resulted primarily from the
acquisition of Haleko ($5.5 million), increased advertising and promotion costs
associated with new product introductions, and personnel costs required to
handle higher sales volumes.
General and administrative expenses increased approximately 74.2% to $6.6
million for the quarter ended February 28, 1999 compared to $3.8 million for the
quarter ended February 28, 1998. The increase in general and administrative
expenses for the third quarter of fiscal 1999 resulted primarily from the
acquisition of Haleko ($1.9 million), additional overhead costs associated with
higher sales volumes, and increased legal expenses.
Research and development expense increased $.3 million during the quarter
ended February 28, 1999 from the quarter ended February 28, 1998, primarily as a
result of incremental product testing related costs and the acquisition of
Haleko ($.2 million). The increase in amortization expense resulted primarily
from the acquisition of Haleko ($.3 million).
OTHER EXPENSE. Other expense, net, amounted to $2.8 million for the
quarter ended February 28, 1999 compared to $1.2 million for the quarter ended
February 28, 1998. The net increase of approximately $1.6 million resulted from
increased interest costs associated with additional indebtedness incurred in
connection with the acquisition of Haleko, purchases of property and equipment,
and investments in securities available for sale, together with an overall
higher effective borrowing rate.
PROVISION FOR INCOME TAXES. Provision for income taxes amounted to $.3
million for the quarter ended February 28, 1999 compared to $2.5 million for the
quarter ended February 28, 1998. The decrease resulted primarily from the
reduction in pre-tax earnings.
(NINE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO NINE MONTHS
ENDED FEBRUARY 28, 1998)
NET SALES. Net sales for the nine months ended February 28, 1999 increased
$63.6 million, or 36.0%, to $240.3 million from $176.7 million for the nine
months ended February 28, 1998. Sales to mass volume retailers, health food
distributors and retailers, and sales in international markets increased during
the nine months ended February 28, 1999 compared to the nine months ended
February 28, 1998. Sales to mass volume retailers increased approximately 33.8%
to $97.1 million in the first nine months of fiscal 1999 from $72.5 million for
the first nine months of fiscal 1998. The increase in sales to mass volume
retailers resulted primarily from sales of new products. Sales of Pain Free
amounted to approximately $50 million for the first nine months of fiscal 1999.
Sales to health food distributors and retailers increased approximately
5.2% to $30.3 million for the first nine months of fiscal 1999 compared to $28.8
million for the first nine months of fiscal 1998. The increase in sales resulted
primarily from increased "branded" product volumes with certain customers.
Company branded sales to GNC amounted to approximately $16.6 million and $11.3
million, respectively, for the nine month periods ended February 28, 1999 and
1998.
-16-
<PAGE>
Sales to international markets increased 361.5% to $57.2 million for the
nine months ended February 28, 1999 from $12.4 million for the nine months ended
February 28, 1998. The increase in sales to international markets resulted
primarily from the Company's acquisition of Haleko. Haleko's YTD sales for
fiscal 1999 (seven months) amount to approximately $45 million.
Sales to private label customers decreased approximately 16.9% to $34.1
million for the nine months ended February 28, 1999 from $41.0 million for the
nine months ended February 28, 1998. The decrease in private label sales
resulted from reduced volumes with certain customers. This reduction is
primarily the result of the Company's decision to limit private label business
to only those customers who have, or may in the future have, other business
relationships with the Company. Sales to beverage distributors remained
relatively constant for the nine month periods ending February 28, 1999 and
1998, respectively.
GROSS PROFIT. Gross profit increased approximately 38.8% to $85.4 million
for the nine months ended February 28, 1999 from $61.5 million for the nine
months ended February 28, 1998. Gross profit, as a percentage of net sales, was
35.5% for the nine months ended February 28, 1999 compared to 34.8% for the nine
months ended February 28, 1998. The increase in gross profit percentage resulted
primarily from a significant increase in higher margin international sales
(resulting from inclusion of Haleko), offset somewhat by certain unexpected
sales returns and inventory related costs.
OPERATING EXPENSES. Operating expenses increased approximately 89.0% to
$83.8 million during the nine months ended February 28, 1999 from $44.4 million
for the nine months ended February 28, 1998. During the second and third
quarters of fiscal 1999, the Company, as noted previously, recognized certain
costs for the consolidation of its capsule and tablet facilities, the
resignation and/or termination of personnel, and compliance with DSHEA product
labeling requirements (collectively, the specified costs). Excluding these
costs, operating expenses increased approximately $30.0 million, or 67.6%,
during the first nine months of fiscal 1999 compared to the first nine months of
fiscal 1998. Operating expenses (excluding the specified costs), as a percentage
of net sales, were 30.9% for the nine months ended February 28, 1999 compared to
25.1% for the nine months ended February 28, 1998. The increase in operating
expenses, as a percentage of net sales, resulted primarily from incremental
selling and marketing costs (primarily advertising and promotional costs), the
acquisition of Haleko, additional legal expenses, and the impact of unexpected
sales returns and credits recognized during the first nine months of fiscal
1999.
OTHER EXPENSE. Other expense, net, amounted to $7.2 million for the nine
months ended February 28, 1999 compared to $3.7 million for the nine months
ended February 28, 1998. The net increase of approximately $3.5 million resulted
primarily from increased interest costs associated with increased indebtedness
and a higher overall effective borrowing rate for fiscal 1999 in comparison to
fiscal 1998.
PROVISION FOR INCOME TAXES (BENEFIT). The Company recognized an income tax
benefit for the first nine months of fiscal 1999 as a result of its pretax loss.
The Company's overall effective tax rate is higher in fiscal 1999, in comparison
to fiscal 1998, primarily as a result of a greater effective tax rate associated
with Haleko's operating results.
-17-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. Concurrent with the Company's IPO,
effective May 1, 1997, the Company entered into an amended credit agreement (and
as subsequently amended, the "Credit Agreement") with GECC. The Credit Agreement
is a $130.0 million senior secured, long-term credit facility that contains
standard terms and conditions, including subject to permitted amounts, a
limitation on the ability of the Company to pay dividends on the common stock
and minimum net worth requirements. The obligations of the Company under the
Credit Agreement are secured by a first priority lien on all owned or acquired
tangible and intangible assets of the Company and a pledge to GECC of the
capital stock of the U.S. subsidiaries of the Company, including the subsidiary
that owns the Company's foreign subsidiaries. Borrowings available under the
Credit Agreement are used for general working capital, to support capital
expenditures, to effect acquisitions, if necessary, and for other investment
considerations. Borrowings under the Credit Agreement bear interest at floating
rates and mature in February 2000 (see Note No. 2). At February 28, 1999, the
Company had approximately $30.8 million of available credit under the Credit
Agreement.
Excluding amounts outstanding under the Credit Agreement($99.2 million),
the Company had working capital of approximately $83.7 million at February 28,
1999 compared to $85.7 million at May 31, 1998. The slight decrease resulted
primarily from the acquisition of Haleko. Current inventories increased $13.6
million to $74.2 million at February 28, 1999. Inventories increased primarily
as a result of the acquisition of Haleko (approximately $11.4 million), and the
net sales growth. The increase in other current assets, and in short-term
borrowings and other current liabilities, resulted primarily from the
acquisition of Haleko and net sales growth.
During the first nine months of fiscal 1999, the Company's aggregate
current and long-term debt increased approximately $49.9 million to $120.3
million at February 28, 1999 primarily as a result of the acquisition of Haleko,
including the assumption of $16 million in debt, purchases of property and
equipment, and the investment in securities available for sale.
The Company expects to fund its long-term capital requirements for the
next twelve months through the use of operating cash flow supplemented as
necessary by borrowings under the Credit Agreement (and/or alternative
financing; see Note No. 2)and, if necessary, through debt financing or the
issuance of additional equity. The Company may also enter into strategic
acquisitions as the nutritional supplements industry continues to consolidate.
The funding of any future acquisitions may also require borrowings under the
Credit Agreement and/or other debt financing or the issuance of additional
equity.
The Company paid a quarterly dividend of $0.0375 per share subsequent to
February 28, 1999. The dividend was declared to be payable on March 19, 1999 to
holders of all classes of common stock of record at the close of business on
March 5, 1999. 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 Credit Agreement contains 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.
-18-
<PAGE>
IMPACT OF INFLATION. The Company has historically been able to pass
inflationary increases for raw materials and other costs through to its
customers 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.
Furthermore, as a result of changes in product sales mix and other
factors, as discussed above, the Company experiences fluctuations in gross
profit and operating margins on a quarter-to-quarter basis.
YEAR 2000. In fiscal 1998 the Company initiated a year 2000 compliance
project (the "Year 2000 Project"). The Company identified the Year 2000 Project
as a priority and has allocated resources to it in an effort to minimize the
impact of Year 2000 date related problems. The Company has assigned a senior
level manager to oversee the Year 2000 Project and has retained the services of
an outside year 2000 consulting firm. The scope of the Year 2000 Project
encompasses the Company's traditional mainframe based application software, its
midrange and personal computing platforms, and its embedded microprocessor
systems. Furthermore, the Company is conducting a year 2000 compliance
assessment of those of its suppliers, distributors and customers, whose
relationship, in the Company's business judgment, is material. Although the
Company's assessment of its year 2000 issues is not complete, the Company has
made a preliminary determination of its critical and non-critical items.
The Company's critical items include its JD Edwards accounting and
manufacturing support software and its IBM AS/400 operating system. Each of
these items has been certified by the vendor as year 2000 compliant. The Company
is conducting tests to support these claims.
Approximately $350,000 has been spent on the Year 2000 Project as of
February 28, 1999. Additional expenditures of approximately $150,000 are
estimated to complete the Year 2000 Project, although no assurance can be given
that additional expenditures will not exceed such amounts. The Company is also
in the process of evaluating year 2000 compliance by its major business
partners, and is in the process of evaluating and formulating its contingency
plans. Included in these contingency plans are backup power supply systems for
computers, facilities and manufacturing. The Company continues to formulate
these contingency plans for critical issues involving business partners,
information processing and its manufacturing process. Although the Company is
undertaking the Year 2000 Project, no assurance can be given that such a program
will be able to solve the year 2000 issues applicable to the Company or that
failure to solve will not have a material adverse effect on the Company.
-19-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information set forth in Note 11 to Condensed Consolidated
Financial Statements in Item 1 of this Quarterly Report on Form 10-Q is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
-20-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
5.1 Stock Purchase Agreement, dated July 9, 1998, by and among Weider
Nutrition Group, Inc. and Wolfgang Brandt and Eberhardt Schlhter. (2)
5.2 Amendment Deed to Stock Purchase Agreement, dated July 24, 1998. (2)
5.3 Share Transfer Deed, dated July 24, 1998. (2)
3.1 Amended and Restated Certificate of Incorporation of Weider Nutrition
International, Inc. (1)
3.2 Amended and Restated Bylaws of Weider Nutrition International, Inc. (1)
4.1 Amended and Restated Credit Agreement dated as of May 6, 1997 among Weider
Nutrition International, Inc., certain subsidiaries, certain lenders and
General Electric Capital Corporation. (3)
4.2 First Amendment to Amended and Restated Credit Agreement dated as of
August 27, 1997 among Weider Nutrition International, Inc. and certain of
its affiliates and General Electric Capital Corporation and certain other
lenders. (3)
4.3 Second Amendment to Amended and Restated Credit Agreement dated as of
February 1998 among Weider Nutrition International, Inc. and certain of
its affiliates and General Electric Capital Corporation and certain other
lenders. (3)
4.4 Third Amendment to Amended and Restated Credit Agreement dated as of July
28, 1998 among Weider Nutrition International, Inc. and certain of its
affiliates and General Electric Capital Corporation and certain other
lenders. (4)
4.5 Fourth Amendment to Amended and Restated Credit Agreement dated as of
December 2, 1998 among Weider Nutrition International, Inc. and certain of
its affiliates and General Electric Capital Corporation and certain other
lenders. (4)
4.6 Fifth Amendment to Amended and Restated Credit Agreement dated as of
December 15, 1998 among Weider Nutrition International, Inc. and certain
of its affiliates and General Electric Capital Corporation and certain
other lenders. (4)
4.7 Sixth Amendment to Amended and Restated Credit Agreement dated as of March
4, 1999 among Weider Nutrition International, Inc. and certain of its
affiliates and General Electric Capital Corporation and certain other
lenders. (5)
10.1 Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI
Development Services Incorporated and Weider Nutrition Group, Inc. (1)
10.2 Agreement by and between Joseph Weider and Weider Health and Fitness. (1)
10.3 1997 Equity Participation Plan of Weider Nutrition International, Inc. (1)
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. (1)
10.5 Form of employment Agreement between Weider Nutrition International, Inc.
and Richard B. Bizzaro. (1)
10.6 Form of Employment Agreement between Weider Nutrition International, Inc.
and Robert K. Reynolds, as amended. (5)
10.7 Form of Senior Executive Employment Agreement between Weider Nutrition
International, Inc. and certain senior executives of the Company. (1)
10.8 Advertising Agreement between Weider Nutrition International, Inc. and
Weider Publications, Inc. (1)
10.9 Amended and Restated Shareholders Agreement between Weider Health and
Fitness and Hornchurch Investments Limited (1)
10.10 Amended and Restated Shareholders Agreement between Weider Health and
Fitness, Bayonne Settlement and Ronald Corey. (1)
10.11 Indemnification Agreement between Weider Nutrition Group, Inc. and Showa
Denko America. (1)
10.12 License Agreement between Mariz Gestao E Investmentos Limitada and Weider
Nutrition Group Limited. (1)
10.13 Form of Employment Agreement between Weider Nutrition International, Inc.
and David J. Gustin. (5)
-21-
<PAGE>
21 Subsidiaries of Weider Nutrition International, Inc. (1)
27.1 FINANCIAL DATA SCHEDULE SUMMARY (3)
(1) Filed as an Exhibit to the Company's Registration Statement on From S-1
(File No. 333-12929) and incorporated herein by reference.
(2) Previously filed in the Company's Current Report on Form 8-K dated as of
July 24, 1998 and incorporated herein by reference.
(3) Previously filed in the Company's Current Report on Form 10-Q dated as of
October 14, 1998 and incorporated herein by reference.
(4) Previously filed in the Company's Current Report on Form 10-Q dated as of
January 14, 1999 and incorporated herein by reference.
(5) FILED HEREWITH.
(b) Reports on Form 8-K
None
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEIDER NUTRITION INTERNATIONAL, INC.
Date: April 5, 1999 BY: /s/ ROBERT K. REYNOLDS
---------------------------
Robert K. Reynolds, Chief
Operating Officer, Executive
Vice President and Director
Date: April 5, 1999 BY: /s/ STEPHEN D. YOUNG
-------------------------
Stephen D. Young, Chief
Financial Officer, and
Executive Vice President
-23-
EXHIBIT 1.7
SIXTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated
as of March 2, 1999 (this "AMENDMENT") is made among WEIDER NUTRITION
INTERNATIONAL, INC., a Delaware corporation ("Holdings"), WEIDER NUTRITION
GROUP, INC., a Utah corporation ("NUTRITION"), WNG HOLDINGS (INTERNATIONAL)
LTD., a Nevada corporation ("INTERNATIONAL"; Holdings, Nutrition and
International, individually, each an "OBLIGOR" and, collectively, "OBLIGORS"),
in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, for
itself, as Lender, and as Agent for Lenders (in such capacity, "AGENT"), and the
other Lenders signatory to the hereinafter defined Credit Agreement.
RECITALS
A. Agent, Lenders and Obligors are party to that certain Third Amended and
Restated Credit Agreement dated as of May 6, 1997 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT").
B. On and subject to the terms and conditions hereof, Obligors have
requested, and Agent and Lenders are willing to grant, certain amendments,
consents and waivers under the Credit Agreement.
C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment; capitalized terms used herein
without definition are so used as defined in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. WAIVER AND CONSENT. Subject to the conditions and effectiveness of this
Amendment, Agent and Lenders hereby (a) consent to the Foreign Fiscal Year
Change and waive the Event of Default arising solely by virtue thereof and (b)
waive the Event of Default arising solely by virtue of the non-occurrence of the
Restructuring by December 31, 1998.
2. AMENDMENT. Subject to the conditions and effectiveness of this
Amendment, the Credit Agreement is hereby amended as follows:
(a) The following Section 5.13 is inserted into the
Credit Agreement immediately
after Section 5.12 contained therein:
" 5.13 RESTRUCTURING. Obligors shall have consummated the
Restructuring on or prior to March 15, 1999 (the "Consummation
Date") and no Default or Event of Default shall have occurred and
be continuing as of the Consummation Date or result after giving
effect to the consummation of
<PAGE>
the Restructuring. Obligors shall have provided to Agent (a)
reasonably prior to the Consummation Date, all material documents
relating to the Restructuring ("Material Documents"), in final or
substantially final form, as applicable, (b) on or prior to the
Consummation Date, all documents requested by Agent in connection
with the Restructuring to be executed and delivered pursuant to
the Loan Documents, (c) within five days after the Consummation
Date, all Material Documents in final executed form (all of
which, unless otherwise consented to by Agent, shall be in
substantially the form previously delivered to Agent), certified
by Holdings' Secretary as being true, accurate and complete and
constituting all Material Documents, and (d) upon receipt by
Obligors, copies of all documents filed with governmental
authorities in connection with the Restructuring."
(b) The text "or Subsidiary thereof" is deleted from clause (ii) of
Section 6.6 of the Credit Agreement and the text "incurred for the benefit
of any Obligor" is inserted into clause (iv) of Section 6.6 of the Credit
Agreement immediately after the reference to "Guaranteed Indebtedness"
contained therein.
(c) The following text is inserted into clause (ii) of Section 6.7
of the Credit
Agreement as the final text thereof:
"and Liens on property or assets of Haleko securing Indebtedness of
Haleko permitted under clause (ix) of Section 6.3"
(d) The text ", SECTION 5.13" is inserted into Section 8.1(c) of the
Credit Agreement immediately after the reference to " SECTION
1.7"contained therein.
(e) The following defined terms are inserted into Annex A of the
Credit Agreement in alphabetical order among the defined terms
contained therein:
" "FOREIGN FISCAL YEAR CHANGE" shall mean the change, effective as
of the sixth Fiscal Month of Fiscal Year 1999, in the fiscal year of
each foreign Subsidiary of any Obligor from (a) a period of twelve
(12) consecutive months ending on May 31 of any calendar year to (b)
a period of twelve (12) consecutive months ending on April 30 of any
calendar year.
"RESTRUCTURING" shall mean (a) the (i) dissolution of
Weider Nutrition Group Limited, a corporation organized under the
laws of the United Kingdom ("WNGL"), or (ii) merger of WNGL into a
wholly-owned Subsidiary of International ("A-SUB") with such
Subsidiary remaining as the survivor of such merger, (b) the
formation by Weider Nutrition (WNI) Limited, a corporation organized
under the laws of the United Kingdom ("WNL"), of a direct
wholly-owned Subsidiary organized under the laws of
- 2 -
<PAGE>
the Netherlands ("B-SUB") and (c) the transfer to B-Sub of all of
the issued and outstanding Stock of each direct Subsidiary of WNGL
(or A-Sub, as the case may be) and WNL."
(f) The text "(at all times during which Revolving Credit Advances
may be made)" is inserted into clause (a) of Annex B of the Credit
Agreement immediately after the reference to "utilized" contained therein.
(g) The text "(whether or not Revolving Credit Advances are then
permitted to be made)" is inserted into clause (b) of Annex B of the
Credit Agreement immediately after the reference to "Revolving Credit
Advance " contained
therein.
(h) The following paragraph (j) is inserted into Annex E of the
Credit Agreement
as the final paragraph thereof:
" (j) Notwithstanding the foregoing (i) monthly Financial Statements
delivered pursuant to this ANNEX E for the sixth Fiscal Month of
Fiscal Year 1999 shall not include financial information for any
foreign Subsidiary of any Obligor, (ii) commencing with the seventh
Fiscal Month of Fiscal Year 1999, each set of monthly Financial
Statement delivered pursuant to this ANNEX E shall include, for each
foreign Subsidiary of any Obligor, financial information for such
Subsidiary relating to the immediately preceding Fiscal Month, (iii)
quarterly Financial Statements delivered pursuant to this ANNEX E
for the second Fiscal Quarter of Fiscal Year 1999 shall not include,
for any foreign Subsidiary of any Obligor, financial information
relating to the third Fiscal Month of such Fiscal Quarter, (iv)
commencing with the third Fiscal Quarter of Fiscal Year 1999, each
set of quarterly Financial Statement delivered pursuant to this
ANNEX E shall include, for each foreign Subsidiary of any Obligor,
financial information for such Subsidiary relating to the three
Fiscal Month period commencing with the Fiscal Month immediately
preceding the first Fiscal Month to which such quarterly Financial
Statements relate, (v) annual Financial Statements delivered
pursuant to this ANNEX E for Fiscal Year 1999 shall not include, for
any foreign Subsidiary of any Obligor, financial information
relating to the last Fiscal Month of Fiscal Year 1999 and (vi)
commencing with Fiscal Year 2000, each set of annual Financial
Statement delivered pursuant to this ANNEX E shall include, for each
foreign Subsidiary of any Obligor, financial information for such
Subsidiary relating to the twelve Fiscal Month period commencing
with the Fiscal Month immediately preceding the first Fiscal Month
to which such annual Financial Statements relate, all of the
foregoing to the extent arising solely by virtue of the Foreign
Fiscal Year Change and only to the extent expressly permitted in
accordance with GAAP."
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES. As of the "Effective Date" (as
hereinafter defined), Obligors hereby jointly and severally represent and
warrant to Agent and Lenders as follows:
(a) After giving effect to this Amendment and the transactions
contemplated hereby (i) no Default or Event of Default shall have occurred
or be continuing and (ii) the representations and warranties of Obligors
contained in the Loan Documents shall be true, accurate and complete in
all respects on and as of the Effective Date to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date.
(b) The execution, delivery and performance, as the case may be, by
each Obligor of this Amendment and the other documents and transactions
contemplated hereby are within each Obligor's corporate powers, have been
duly authorized by all necessary corporate action (including, without
limitation, all necessary shareholder approval) of each Obligor, have
received all necessary governmental approvals, and do not and will not
contravene or conflict with any provision of law applicable to any
Obligor, the certificate or articles of incorporation or bylaws of any
Obligor, or any order, judgment or decree of any court or other agency of
government or any contractual obligation binding upon any Obligor.
(c) This Amendment, the Credit Agreement and each other Loan
Document is the legal, valid and binding obligation of each Obligor
enforceable against each Obligor in accordance with its respective terms.
4. CONDITIONS PRECEDENT. This Amendment shall become effective on the date
first set forth above (the "EFFECTIVE DATE"), PROVIDED that as of the Effective
Date each of the following items shall have been received by Agent or satisfied,
as the case may be, all in form and substance satisfactory to Agent:
(a) AMENDMENT. This Amendment, duly executed by
each Obligor, Agent and
Requisite Lenders.
(b) NO DEFAULT. After giving effect to this Amendment and the
transactions contemplated hereby, no Default or Event of Default shall
have occurred and be continuing.
(c) WARRANTIES AND REPRESENTATIONS. After giving effect to this
Amendment and the transactions contemplated hereby, the warranties and
representations of each Obligor contained in this Amendment shall be true
and correct in all respects.
5. EFFECT ON LOAN DOCUMENTS. This Amendment is limited to the specific
purpose for which it is granted and, except as specifically set forth above (a)
shall not be construed as a consent, waiver or other modification with respect
to any term, condition or other provision of any Loan Document and (b) each of
the Loan Documents shall remain in full force and effect and are each hereby
ratified and confirmed.
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<PAGE>
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding on and shall
inure to the benefit of Obligors, Agent, Lenders and their respective successors
and assigns; PROVIDED that no Obligor may assign its rights, obligations, duties
or other interests hereunder without the prior written consent of Agent and
Lenders. The terms and provisions of this Amendment are for the purpose of
defining the relative rights and obligations of Obligors, Agent and Lenders with
respect to the transactions contemplated hereby and there shall be no third
party beneficiaries of any of the terms and provisions of this Amendment.
7. ENTIRE AGREEMENT. This Amendment, including all documents attached
hereto, incorporated by reference herein or delivered in connection herewith,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other understandings, oral or written, with
respect to the subject matter hereof.
8. FEES AND EXPENSES. Obligors shall pay to Agent on demand all fees,
costs and expenses owing by Obligors pursuant to Section 11.3 of the Credit
Agreement, including those incurred by Agent in connection with the preparation,
execution and delivery of this Amendment.
9. INCORPORATION OF CREDIT AGREEMENT. The provisions contained in Sections
11.9 and 11.14 of the Credit Agreement are incorporated herein by reference to
the same extent as if reproduced herein in their entirety with respect to this
Amendment.
10. ACKNOWLEDGMENT. Each Obligor hereby represents and warrants that there
are no liabilities, claims, suits, debts, liens, losses, causes of action,
demands, rights, damages or costs, or expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent (collectively, the "CLAIMS"),
which any Obligor may have or claim to have against Agent or any Lender, or any
of their respective affiliates, agents, employees, officers, directors,
representatives, attorneys, successors and assigns (collectively, the "LENDER
RELEASED PARTIES"), which might arise out of or be connected with any act of
commission or omission of the Lender Released Parties existing or occurring on
or prior to the date of this Amendment, including, without limitation, any
Claims arising with respect to the Obligations or any Loan Documents. In
furtherance of the foregoing, each Obligor hereby releases, acquits and forever
discharges the Lender Released Parties from any and all Claims that any Obligor
may have or claim to have, relating to or arising out of or in connection with
the Obligations or any Loan Documents or any other agreement or transaction
contemplated thereby or any action taken in connection therewith from the
beginning of time up to and including the date of the execution and delivery of
this Amendment. Each Obligor further agrees forever to refrain from commencing,
instituting or prosecuting any lawsuit, action or other proceeding against any
Lender Released Parties with respect to any and all Claims which might arise out
of or be connected with any act of commission or omission of the Lender Released
Parties existing or occurring on or prior to the date of this Amendment,
including, without limitation, any Claims arising with respect to the
Obligations or any Loan Documents.
11. CAPTIONS. Section captions used in this Amendment are for convenience
only, and shall not affect the construction of this Amendment.
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<PAGE>
12. SEVERABILITY. Whenever possible each provision of this Amendment shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
13. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument. Delivery of an
executed counterpart of a signature page to this Amendment by telecopy shall be
effective as delivery of a manually executed counterpart of this Amendment.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, this Sixth Amendment to Third Amended and Restated
Credit Agreement has been duly executed and delivered as of the day and year
first above written.
WEIDER NUTRITION INTERNATIONAL, INC.
WEIDER NUTRITION GROUP, INC.
WNG HOLDINGS (INTERNATIONAL) LTD.
For each of the foregoing:
By: _______________________________
Title: ______________________________
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By: _______________________________
Title: Duly Authorized Signatory
FIRST UNION NATIONAL BANK, successor by merger to
Corestates Bank, N.A.
By: _______________________________
Title:______________________________
LASALLE NATIONAL BANK
By: _______________________________
Title:______________________________
THE BANK OF NOVA SCOTIA
By: _______________________________
Title:______________________________
<PAGE>
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC.
By: _______________________________
Title:______________________________
By: _______________________________
Title:______________________________
DRESDNER BANK AG, NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By: _______________________________
Title:______________________________
By: _______________________________
Title:______________________________
ZIONS FIRST NATIONAL BANK
By: _______________________________
Title:______________________________
EMPLOYMENT AGREEMENT
ROBERT REYNOLDS
PARTIES
This Employment Agreement (this "Agreement") effective as of January
1, 1997, but dated as of January 29, 1999, is entered into by and between Weider
Nutrition Group, Inc., a Utah corporation with offices at 2002 South 5070 West,
Salt Lake City, Utah 84104-4836 (the "Company") and Robert Reynolds residing at
546 E. 800 S., Centerville, Utah, 84014 ("Executive").
TERMS OF AGREEMENT
In consideration of the mutual covenants in this Agreement, the
parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the terms
listed below shall be defined as indicated.
AFFILIATE: A domestic or foreign business entity
controlled by, controlling, under common control with, or in joint venture
with, the Company.
ANNUAL BONUS: See Section 3.2.
BASE SALARY: See Section 3.1.
BOARD: The Board of Directors of the Company.
CONFIDENTIAL INFORMATION: All secret proprietary information
of the Company and its Affiliates, not otherwise publicly disclosed, whether or
not discovered or developed by Executive, known by Executive as a consequence of
Executive's employment with the Company at any time (including prior to the
commencement of this Agreement) as an employee or agent. Without limiting the
generality of the foregoing, such proprietary information shall include (a)
customer lists; (b) acquisition, expansion, marketing, financial and other
business information and plans; (c) research and development; (d) computer
programs; (e) sources of supply; (f) identity of specialized consultants and
contractors and confidential information developed by them for the Company and
its Affiliates; (g) purchasing, operating and other cost data; (h) special
customer needs, cost and pricing data; (i) manufacturing methods; (j) quality
control information; (k) inventory techniques; (l) employee information; any of
which information is not generally known in the industries in which the Company
and its Affiliates are conducting business or shall at any time during
Executive's Employment conduct business including (without limitation) the
nutraceutical industry. Confidential Information also includes
<PAGE>
the overall business, financial, expansion and acquisition plans of the Company
and its Affiliates, and includes information contained in manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
computer programs and records, whether or not legended or otherwise identified
by the Company and its Affiliates as Confidential Information, as well as
information which is the subject of meetings and discussions and not so
recorded.
CLOSING PRICE: The closing price, as reported in the Wall
Street Journal, of a share of Common Stock (or any successor Company's
equivalent shares) on the principal exchange on which such shares are traded
(currently the New York Stock Exchange), subject to equitable adjustment for
stock splits, recapitalizations or similar transactions including stock received
or exchanged on any merger, consolidation or similar event.
COMMON STOCK: Class A common stock of Company.
DEVELOPMENTS: Those discoveries, inventions, improvements,
advances, methods, practices and techniques, concepts and ideas, whether or not
patentable, relating to or arising out of Executive's employment activities with
the Company and/or the Products.
EMPLOYMENT PERIOD: The period from the date of this Agreement
through May 31, 2000, except as terminated earlier or extended as provided in
this Agreement.
FINAL TERMINATION: The later of termination of Executive's
services as employee or consultant, or termination of any post-employment
payments provided in this Agreement.
INVENTIONS: Those discoveries, developments, concepts and
ideas, whether or not patentable, relating to the present, future and
prospective activities and Products and Services of the Company and its
Affiliates, which such activities and Products and Services are known to
Executive by virtue of Executive's employment with the Company and its
Affiliates.
PRODUCTS AND SERVICES: All products or services sold, rented,
leased, rendered or otherwise made available to its customers by the Company and
its Affiliates, or otherwise the subject of the business of the Company and its
Affiliates.
2. EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Executive hereby accepts employment initially as the Chief Operating
Officer and Executive Vice President of the Company and agrees to perform to the
best of Executive's ability, experience and talent those acts and duties and to
furnish those services to the Company and its Affiliates in connection with and
related to such position as the Company's Board of Directors shall from time to
time direct, provided such acts and directives are consistent with the duties of
an executive officer. Executive shall use Executive's best and most diligent
efforts to promote the interests of the Company and its Affiliates.
During the Employment Period, Executive's principal place of
employment shall be located at the Company's principal place of business or
principal executive office, wherever located as designated from time-to-time by
the Board so long as such location is within the Salt
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Lake, Utah metropolitan area. Executive shall be provided with secretarial
services, an office and similar support services and facilitates as appropriate
to Executive's position and responsibilities and of at least substantially the
same quality as provided to Executive on the effective date of this Agreement.
3. COMPENSATION AND BENEFITS; DISABILITY.
3.1. SALARY. During the Employment Period, the Company shall
pay Executive a Base Salary specified below payable in equal installments
pursuant to the Company's customary payroll policies in force at the time of
payment (but in no event less frequently than monthly), less required payroll
deductions:
1/1/97 to 5/31/97 $ 95,834
6/1/97 to 5/31/98 $250,000
6/1/98 to 5/31/99 $275,000
6/1/99 to 5/31/00 $300,000
The rate of annual Base Salary for the one year period beginning
each subsequent June 1 shall be $25,000 higher than for the immediately
preceding period (E.G. the annual Base Salary rate for the one year period
commencing June 1, 2000 shall be $325,000).
3.2. ANNUAL BONUS. In addition to Executive's Base Salary,
during the Employment Period Executive shall be eligible to participate in a
Bonus Plan established by the Board or the Board's Compensation Committee for
senior executives. The Bonus Plan will correspond to the Company's fiscal year
and payments under the Bonus Plan shall be paid to Executive within 120 days
after the end of the Company's fiscal year.
3.3. MAXIMUM BONUS. The Bonus for any fiscal year shall
be limited to 150% of Executive's Base Salary for that year.
3.4. STOCK OPTIONS. Executive has been granted the
options to purchase shares of Common Stock specified on Schedule 3.4.
3.5. OTHER BENEFITS. Executive shall be entitled, during the
Employment Period, to participate, in any pension, life insurance, health
insurance or hospital plans or other fringe benefits or benefit plans presently
in effect and hereafter maintained by the Company for senior executives.
3.6. VACATION. Executive may take vacation during each year as
shall be consonant with Executive's responsibilities (in the Company's judgment)
and with the Company's vacation schedule and policies for senior executives.
Executive shall be entitled to such amount of vacation time as is the current
Company policy for senior executives.
3.7. EXPENSES. Pursuant to the Company's customary policies in
force at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers
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<PAGE>
or receipts therefor, for all authorized expenses properly incurred by Executive
on the Company's behalf in the performance of Executive's duties hereunder.
3.8. DISALLOWANCES. Any payments made to Executive such as
interest or entertainment expenses incurred by Executive, which shall be
disallowed in whole or in part as a deductible expense by the Internal Revenue
Service, shall be reimbursed by Executive to the Company to the full extent of
such disallowance. In lieu of payment by Executive, subject to the determination
of the Board, proportionate amounts may be withheld from Executive's future
compensation payments until the amount owed to the Company has been recovered.
3.9. LOAN.
(a) Pursuant to a Note dated June 5, 1997 (the "Loan Date"),
as of November 30, 1998 Executive was indebted to Company in the principal
amount of $1,362,419 (the "Loan"). As of November 30, 1998 interest in the
amount of $137,282.93 had accrued on the Loan. The Loan was made to facilitate
payment of Executive's federal income taxes arising from distribution to
Executive of vested performance units earned as incentive compensation. The Loan
provides for interest at 8% per annum, is payable five years from the Loan Date
and is secured by Common Stock owned by Executive. Executive has delivered to
Company 330,530 shares of Common Stock to secure the Loan in accordance with the
Loan provisions.
(b) The Company agrees and covenants that if during the period
from the date of termination of Executive's employment hereunder for any reason
(including, without limitation, death or disability) through the later of (i)
May 31, 2002 and (ii) the maturity date of the Loan (the "Measuring Period")
there is no period of 20 consecutive trading days on each of which days the
Closing Price equals or exceed $8.00 per share (and, during such period there is
no completed tender offer, sale or other transaction pursuant to which Executive
may realize an amount equaling or exceeding $8.00 per share), then, on the last
day of the Measuring Period the Company shall pay to Executive an amount equal
to one-half of the Loan's then outstanding balance of principal and interest.
The Company's obligation to make such payment shall terminate on the last day of
the first period satisfying the condition of the previous sentence.
4. EMPLOYMENT PERIOD.
4.1. TERMINATION OF EMPLOYMENT PERIOD. Subject to 4.2, the
Employment Period shall continue through May 31, 2000 unless terminated prior to
such date by the earliest of (a) Executive's discharge for cause pursuant to
Section 5.1, (b) Executive's discharge without cause pursuant to Section 5.3,
(c) Executive's death or (d) Executive's termination because of disability,
pursuant to Section 5.4(b) or (e) termination of this Agreement by Executive
pursuant to Section 5.2. In all events, the post employment provisions of
Section 7 shall survive termination of the Employment Period.
4.2. EXTENSION OF EMPLOYMENT PERIOD.
(a) The Employment Period and this Agreement shall be
automatically
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<PAGE>
extended for successive additional one year terms following the expiration of
the Employment Period, unless either the Company or Executive notifies the other
in writing at least 30 days before such expiration that the Employment Period
and this Agreement shall not be so extended.
(b) If the Company elects not to extend Executive's Employment
Period, such non-renewal shall constitute a termination by the Company without
cause under Section 5.3.
5. TERMINATION OF EMPLOYMENT.
5.1. BY COMPANY FOR CAUSE. The Company may discharge Executive
and terminate this Agreement for cause. As used in this Section, "cause" shall
mean any one or more than one of the following:
(a) Gross or willful misconduct of Executive during (i)
the Employment Period or (ii) at any time during
Executive's employment by the Company prior to the date
of this Agreement if not disclosed prior to that date;
(b) Executive's conviction of a fraud or felony during
the Employment Period; (c) Failure to follow substantive
instructions of the Board; (d) drug or alcohol abuse; or
(e) any breach of any of the terms of this Agreement
Upon discharge of Executive for cause, the Company shall be relieved and
discharged of all obligations to make payments to Executive which would
otherwise be due under this Agreement, except as to Base Salary earned for
actual services rendered prior to the date of discharge.
5.2. BY EXECUTIVE FOR CAUSE. Executive may terminate this
Agreement for cause. As used in this Section 5.2, "cause" shall mean the
Company's breach of any of the terms of this Agreement .
5.3. BY COMPANY WITHOUT CAUSE. The Company may, on 30 days
written notice to Executive, terminate this Agreement without cause at any time
during the Employment Period.
5.4. TERMINATION ON EXECUTIVE'S DEATH OR DISABILITY.
(a) This Agreement and the Employment Period shall terminate,
and the Company shall be relieved and discharged of all obligations to make
further payment to Executive after the date of the death of Executive, except as
to salary earned for actual services rendered prior to the date of the death of
Executive.
(b) If, during the Employment Period, Executive shall become
ill, disabled, or otherwise incapacitated so as to be unable regularly to
perform Executive's usual duties for a period in excess of 180 total days during
any consecutive 12 months, then the
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<PAGE>
Company shall have the right to terminate this Agreement on 10 days' notice to
Executive. In the event of the termination of the employment of Executive as a
result thereof, notwithstanding the termination of the Employment Period,
Executive's Base Salary and medical benefits for Executive and his spouse shall
be paid for one (1) year after such termination, provided, however, that such
payments shall be reduced to the extent, if any, that Executive receives
disability payments pursuant to an insurance policy maintained by and at the
expense of the Company. In the event of disability, Executive reserves all
rights of election under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA").
5.5. BY EXECUTIVE WITHOUT CAUSE. Executive may terminate his
employment without cause hereunder during the 60 day period following the first
anniversary of the Company's filling of the current vacancy in the position of
Chief Executive Officer.
6. PAYMENTS ON CERTAIN TERMINATIONS.
6.1. SEVERANCE PAYMENTS.
(a) Upon a termination of Executive's employment pursuant to
Sections 5.2 or 5.3 on or prior to May 31, 2001, the Company shall make payments
to Executive, as liquidated damages in lieu of all other claims, of an amount
equal to the greater of (i) $750,000 and (ii) two times Executive's Base Salary
and Annual Bonus for the prior year. Such amount shall be paid in 24 equal
monthly installments. The Company shall have no obligation to make such payments
in the event of a breach by Executive of Executive's covenants in Section 7.
(b) Upon a termination of Executive's employment pursuant to
Sections 5.2 or 5.3 after May 31, 2001, the Company shall make payments to
Executive, as liquidated damages in lieu of all other claims, of an amount equal
to the greater of (i) $375,000 and (ii) Executive's Base Salary and Annual Bonus
for the prior year. Such amount shall be paid in twelve equal monthly
installments. The Company shall have no obligation to make such payments in the
event of a breach by Executive of Executive's covenants in Section 7.
(c) Upon a termination of Executive's employment pursuant to
Section 5.5, and so long as Sections 5.1 and 5.2 do not apply, the Company shall
make payments to Executive, as liquidated damages in lieu of all other claims,
of an amount equal to the greater of (i) $375,000 and (ii) Executive's Base
Salary and Annual Bonus for the prior year. Such amount shall be paid in twelve
equal monthly installments. The Company shall have no obligation to make such
payments in the event of a breach by Executive of Executive's covenants in
Section 7.
6.2. PUT RIGHT. So long as the principal balance on the Loan
is at least $100,000, then at any time through the last day of the Measuring
Period set forth in Section 3.9(b), Executive (or his estate) shall have the
right to give the Company notice (the "Put Notice") that will require the
Company to purchase, on a date (the "Put Date") designated by Executive (or his
estate) which falls no later than 30 days following the date of the Put Notice,
some or all of the shares of Company Stock held by Executive (or his estate) on
the Put Date at
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the closing price prevailing on the Put Date on the principal exchange on which
such shares are traded (currently the New York Stock Exchange). Company shall
pay for such Common Stock within 30 days following the date specified in the Put
Notice.
6.3. RETIREMENT AGREEMENT. Executive's retirement agreement
with Weider Health and Fitness shall be modified to provide that in the event of
the termination of his employment Executive shall be fully vested in the benefit
thereunder.
7. INVENTIONS, CONFIDENTIAL INFORMATION AND RELATED MATTERS.
7.1. ASSIGNMENT OF INVENTIONS. All Inventions which are at any
time made by Executive, acting alone or in conjunction with others, including
those made (a) during Executive's employment under this Agreement, or (b) any
extensions or modifications hereof, or (c) if based on or related to any
Confidential Information, made by Executive within one year after the
termination of such employment or retention, whichever shall occur later, shall
be the property of the Company and its Affiliates. Executive agrees that
Executive shall, at the cost and expense of the Company and its Affiliates,
execute formal application for U.S. and other patents, and also do all other
acts and things (including, among others, the execution and delivery of
instruments of further assurance or confirmation) deemed by the Company and its
Affiliates to be necessary or desirable at any time to perfect the full
assignment to the Company and its Affiliates of Executive's right and title (if
any) to such Inventions.
7.2. Restrictions on Use and Disclosure. Except as required by
Executive's duties hereunder, Executive shall never, directly or indirectly,
use, publish, disseminate or otherwise disclose any Confidential Information or
Inventions without the prior written consent of the Board. Nothing in this
Section shall prevent disclosure of information which has been completely
disclosed in a published patent or other integrated publication of general
circulation, nor shall this Section govern the right to use Inventions for which
a patent may have issued.
7.3. RETURN OF DOCUMENTS AND MATERIALS. Upon termination of
Executive's employment, Executive shall forthwith deliver to the Company all
procedural manuals, guides, specifications, formulas, plans, drawings, designs
and similar materials, records, notebooks and similar repositories of or
containing Confidential Information and Inventions, including all copies, then
in Executive's possession or control, whether prepared by Executive or others,
as well as all other Company property in Executive's possession or control.
7.4. COMPETITIVE ACTIVITIES. From the date hereof and (a)
during the term of this Agreement and (b) thereafter until "Final Termination."
Executive shall not, without the prior written approval of the Board, directly
or indirectly, within the territorial United States, become an employee or
consultant or otherwise render services to, lend funds to, serve on the board
of, invest in (other than as a 1% or less shareholder of a publicly-traded
corporation) or guarantee the debts of, any business organization that competes
with the Company in the nutraceutical business. The Company may in its sole
discretion give Executive written approval to engage in such activities or
render such services after termination of this Agreement if Executive and such
prospective firm or business organization gives the Company written
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assurances, satisfactory to the Board in its sole discretion, that the integrity
of the Confidential Information, the Inventions and the good will of the Company
and its majority owned Affiliates will not be jeopardized by such employment.
Executive shall, for a period of 12 months after Final Termination notify the
Company of any change in address and identify each subsequent employment or
business activity in which Executive shall engage during such 12 months, stating
the name and address of the employer or business organization and the nature of
Executive's position.
7.5. SOLICITATION OF EXECUTIVES. From the date hereof until 24
months after Final Termination, Executive shall not, without the prior written
approval of the Board of the Company, directly or indirectly, solicit, raid,
entice or induce any person who presently is or at any time during the term
hereof shall be an employee of the Company or its majority owned Affiliates and
who was or is eligible for a grant under the Company's 1997 Equity Participation
Plan or any successor plan, to become employed by any other person, firm or
corporation in any business in competition with the Company.
8. NO OTHER CONTRACTS. Executive represents and warrants that
neither the execution and delivery of this Agreement by Executive nor the
performance by Executive of Executive's obligations hereunder, shall constitute
a default under or a breach of the terms of any other agreement, indenture or
contract to which Executive is a party or by which Executive is bound, nor shall
the execution and delivery of this Agreement by Executive or the performance of
Executive's duties and obligations hereunder give rise to any claim or charge
against either Executive or the Company based upon any other contract, indenture
or agreement to which Executive is a party or by which Executive is bound.
9. NOTICES. Any notices or communication given by any party hereto
to the other party shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid. Notices
shall be addressed to the parties at the addresses set forth above. Mailed
notices shall be deemed given when received. Any person entitled to receive
notice may designate in writing, by notice to the others, such other address to
which notices to such party shall thereafter be sent.
10. MISCELLANEOUS.
10.1. ENTIRE AGREEMENT. Except for the Company's Stock Option
Plans pursuant to which Executive has been granted options and the Company's
Executive Retirement Plan with Weider Health and Fitness, this Agreement
contains the entire understanding of the parties in respect of its subject
matter and supersedes all prior oral and written agreements and understandings
between the parties with respect to such subject matter.
10.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, canceled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any preceding or succeeding breach of this Agreement.
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10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations
of this Agreement shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation, or any
assignee of all or substantially all of the Company's business and properties;
Executive's rights or obligations under this Agreement may not be assigned by
Executive.
10.4. HEADINGS. The headings contained in this Agreement
(except those in Section 1) are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
10.5. Governing LAW; INTERPRETATION. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy of the State of Utah applicable to contracts executed and to be
wholly performed within such State. Service of process in any dispute shall be
effective (a) upon the Company, if served on any senior officer of the Company;
(b) upon Executive, if served at Executive's residence last known to the
Company. Executive acknowledges that breach of Sections 7.1 through 7.5 would
entail irreparable injury and that, in addition to the Company's other express
and implied remedies, the Company shall be entitled to injunctive and other
equitable relief to prevent any actual, intended or likely such breach.
10.6. FURTHER ASSURANCES. Each party agrees at any time, and
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts, deeds
assignments, transfers, conveyances, powers of attorney and/or assurances as may
be necessary, and/or proper to carry out the provisions and/or intent of this
Agreement.
10.7. GENDER; SINGULAR/PLURAL. In this Agreement, the use of
one gender (e.g., "he", "she" and "it") shall mean each other gender; and the
singular shall mean the plural, and vice versa, all as the context may require.
10.8. SEVERABILITY. The parties acknowledge that the terms of
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is fair and reasonable, the parties stipulate as follows: if
any one or more of the terms, provisions, covenants and restrictions of this
Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; further, if any
one or more of the provisions contained in this Agreement shall for any reason
be determined by a court of competent jurisdiction to be excessively broad as to
duration, geographical scope, activity or subject, it shall be construed, by
limiting or reducing it, so as to be enforceable to the extent compatible with
then applicable law.
10.9. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original.
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10.10. INDEMNIFICATION. The Company indemnifies
Executive to the full extent available under the Company's Articles of
Incorporation and Bylaws.
EXECUTION
The parties, intending to be legally bound, executed this Agreement
as of the date first above written, whereupon it became effective in accordance
with its terms.
Attest:
- -------------------------------------
Witness By:___________________________________
- ------------------------------------- --------------------------------------
10
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
DAVID J. GUSTIN
PARTIES
This Employment Agreement (this "Agreement") effective as of
February 10, 1999, (the "Effective Date") is entered into by and between Weider
Nutrition Group, Inc., a Utah corporation with offices at 2002 South 5070 West,
Salt Lake City, Utah 84104-4836 (the "Company") and David J. Gustin residing at
9 Chester, Irvine, CA 92612 ("Executive").
TERMS OF AGREEMENT
In consideration of the mutual covenants in this Agreement, the
parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the terms
listed below shall be defined as indicated.
AFFILIATE: A domestic or foreign business entity
controlled by, controlling, under common control with, or in joint venture
with, the applicable person or entity.
ANNUAL BONUS: See Sectionn 3.2.
BASE SALARY: The salary described in Section 3.1 for a 12
month period.
BOARD: The Board of Directors of the Company.
CHANGE IN CONTROL: The occurrence of both (a) and (b) below.
(a) CHANGE IN THE BOARD. There is a change in the composition
of the Board over a period of twelve consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number) ceases 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; and
(b) One of:
(i) SALE OF ASSETS. The sale of all or
substantially all of the assets and business of the Company in
substantially a single transaction;
(ii) MERGER. The merger or consolidation of the Company
with
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and into another corporation if, following such merger or consolidation,
persons who were not direct or indirect shareholders of the Company
immediately prior to such event (other than persons in which such original
shareholders themselves have an interest) ("New Shareholders"), will
collectively own stock in the surviving corporation representing both (A)
more than 30% of the surviving corporation's total equity value and (B)
more than that percentage of the surviving corporation's total equity
value owned by the Weider Group, PROVIDED, HOWEVER, that such merger or
consolidation shall not be covered by this paragraph (ii) if the Weider
Group owns 30% or more of the surviving corporation's total equity value
and no New Shareholders who constitute a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934 own more than that
percentage of the surviving corporation's total equity value owned by the
Weider Group; or
(iii) SALE OF STOCK. Acquisition of 50% or more of the
fair market value of the outstanding capital stock of the Company by one
or more other persons if, following such acquisition, persons who were not
direct or indirect shareholders of the Company immediately prior to such
event (other than persons in which such original shareholders themselves
have an interest), will collectively own stock of the Company representing
more than 50% of the Company's total equity value.
COMPETITION DATE: See Section 7.4.
CONFIDENTIAL INFORMATION: All secret proprietary information
of the Company and its Affiliates, not otherwise publicly disclosed, whether or
not discovered or developed by Executive, known by Executive as a consequence of
Executive's employment with the Company at any time as an employee or agent.
Without limiting the generality of the foregoing, such proprietary information
shall include (a) customer lists; (b) acquisition, expansion, marketing,
financial and other business information and plans; (c) research and
development; (d) computer programs; (e) sources of supply; (f) identity of
specialized consultants and contractors and confidential information developed
by them for the Company and its Affiliates; (g) purchasing, operating and other
cost data; (h) special customer needs, cost and pricing data; (i) manufacturing
methods; (j) quality control information; (k) inventory techniques; (l) employee
information; any of which information is not generally known in the industries
in which the Company and its Affiliates are conducting business or shall at any
time during Executive's employment conduct business including (without
limitation) the Nutraceutical Industry. Confidential Information also includes
the overall business, financial, expansion and acquisition plans of the Company
and its Affiliates, and includes information contained in manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
computer programs and records, whether or not legended or otherwise identified
by the Company and its Affiliates as Confidential Information, as well as
information which is the subject of meetings and discussions and not so
recorded. Notwithstanding the foregoing, Confidential Information shall not
include (i) information, from a source other than the Company, which is in
Executive's possession on the date hereof or subsequently becomes available to
Executive so long as such information was lawfully obtained and is not, to the
knowledge of Executive, subject to another confidentiality agreement or
obligation of secrecy to
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the Company or another person, or (ii) information which becomes generally
available to the public other than directly or indirectly as a result of
disclosure by Executive.
CLOSING PRICE: The closing price, as reported in the Wall
Street Journal, of a share of Common Stock (or any successor Company's
equivalent shares) on the principal exchange on which such shares are traded
(currently the New York Stock Exchange), subject to equitable adjustment for
stock splits, recapitalizations or similar transactions including stock received
or exchanged on any merger, consolidation or similar event.
COMMON STOCK: Class A common stock of Company.
DEVELOPMENTS: Those discoveries, inventions, improvements,
advances, methods, practices and techniques, concepts and ideas, whether or not
patentable, relating to or arising out of Executive's employment activities with
the Company and/or the Products.
EFFECTIVE DATE: See preamble.
EMPLOYMENT PERIOD: The period from March 1, 1999 through the
Expiration Date, except as terminated earlier or extended as provided in this
Agreement.
EXPIRATION DATE: May 31, 2002.
INVENTIONS: Those discoveries, developments, concepts and
ideas, whether or not patentable, relating to the present, future and
prospective activities and Products and Services of the Company and its
Affiliates, which such activities and Products and Services are known to
Executive by virtue of Executive's employment with the Company and its
Affiliates.
OPTION PLAN: The Company's 1997 Equity Plan.
OPTIONS: See Section 3.3.
NUTRACEUTICAL INDUSTRY: The manufacture and sale of
nutritional products whether in the form of drinks, bars, herbs, minerals,
supplements, powders, vitamins or pills or otherwise but not the food and
beverage industry generally.
PRODUCTS AND SERVICES: All products or services sold, rented,
leased, rendered or otherwise made available to its customers by the Company and
its Affiliates, or otherwise the subject of the business of the Company and its
Affiliates.
WEIDER GROUP: Weider Health and Fitness (or its
successor) and its Affiliates.
2. EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Executive hereby accepts employment as the Chief Executive Officer of
the Company reporting to the Board and agrees to perform to the best of
Executive's ability, experience and talent those acts and duties and to furnish
those services to the Company and its Affiliates in connection with and related
to such position as the Board shall from time to time direct, provided such acts
and
3
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directives are consistent with the duties of a chief executive officer.
Executive shall use Executive's best and most diligent efforts to promote the
interests of the Company and its Affiliates. Executive shall devote his full
business time to his duties to the Company, except that he shall be permitted to
engage in the activities ("Permitted Activities") set forth on Exhibit A with
respect to the entities there described. In the event of any conflict between
his duties to the Company and the Permitted Activities, his duties to the
Company shall prevail. Executive shall be provided with secretarial services, an
office and similar support services and facilitates as appropriate to
Executive's position and responsibilities. The Board shall also nominate
Executive for a seat on the Board
During the first six months of the Employment Period, Executive's
principal place of employment shall be located at the Company's principal place
of business or principal executive office within the Salt Lake City, Utah
metropolitan area. Thereafter, at the Executive's request, the Company shall
re-locate the Company's principal executive office to the Orange County,
California metropolitan area and for the balance of the Employment Period
following any such relocation Executive's principal business office shall
continue to be in the Orange County, California metropolitan area.
3. Compensation and Benefits; Disability.
3.1. SALARY. During the Employment Period, the Company shall
pay Executive a Base Salary at an annual rate of $400,000, payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but in no event less frequently than monthly), less
required payroll deductions. Executive's Base Salary shall be subject to review
and increase in the sole discretion of the Compensation Committee of the Board.
3.2. ANNUAL BONUS. In addition to Executive's Base Salary,
during the Employment Period Executive shall be eligible to participate in a
Bonus Plan established by the Board or the Board's Compensation Committee for
senior executives. The Bonus Plan will correspond to the Company's fiscal year
and payments under the Bonus Plan shall be paid to Executive within 120 days
after the end of the Company's fiscal year. Executive's target bonus under the
Bonus Plan shall be not less than 150% of his Base Salary actually paid for the
applicable period. For the periods ending on the last days of the Company's
fiscal years ending in 1999 and 2000, Executive's actual Annual Bonus shall not
be less than 100% of his Base Salary actually paid in such fiscal years,
respectively. If, for any future Company fiscal year, the Company achieves the
targets of its financial plan approved by the Board, Executive's Annual Bonus
shall not be less than 100% of his Base Salary actually paid for such fiscal
year. Subject to the foregoing, 80% of the amount of Executive's Annual Bonus
under the Bonus Plan shall be determined on the basis of reasonable quantitative
factors and 20% of the amount of Executive's Annual Bonus under the Bonus Plan
shall be determined on the basis of reasonable qualitative factors.
3.3. STOCK OPTIONS. As of the Effective Date Executive shall
be granted options to purchase shares of Common Stock (the "Options") subject to
the following conditions:
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(a) (i) 500,000 Options shall become exercisable in
equal installments on the first three anniversaries of the date of grant
and all shall become exercisable upon a Change in Control;
(ii) 250,000 Options shall become exercisable
in equal installments on the first three anniversaries of the date of
grant, and all shall become exercisable upon the happening of any Change
in Control which is consummated on or after the first anniversary of the
date of grant.
(b) The Options shall be exercisable at the Closing
Price on the Effective Date.
(c) The Options shall be subject to the terms and
conditions of the Option Plan and the Company's form of Option Agreement
pursuant thereto.
3.4. STUB PERIOD COMPENSATION. As of the March 1, 1999 the
Company shall pay the Executive the amount of $20,000 as compensation for the
stub period from the Effective Date through February 28, 1999.
3.5. FRINGE BENEFITS. Executive shall be entitled to
(a) An automobile allowance in the amount of $15,000 per
year; and
(b) Reimbursement of up to $3,000 of the fees incurred by
Executive for financial counseling in each 12 month period commencing on the
beginning of the Employment Period and each anniversary date thereof.
3.6. OTHER BENEFITS. Executive shall be entitled, during the
Employment Period, to participate, in any life insurance (with coverage at not
less than two times his Base Salary), disability insurance (covering Executive
for the after-tax equivalent of 100% of his Base Salary after a waiting period
of no more than six months with such benefit to continue until the earlier of
the cessation of Executive's disability or attainment of age 65, health
insurance or hospital plans or other fringe benefits or benefit plans presently
in effect and hereafter maintained by the Company for executives generally.
3.7. VACATION. Executive shall be entitled to such amount of
vacation time as is the current Company policy for senior executives, but in no
event less than four weeks per year.
3.8. EXPENSES. Pursuant to the Company's customary policies in
force at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly incurred by Executive on the Company's behalf in the performance of
Executive's duties hereunder.
3.9. DISALLOWANCES. Any payments made to Executive such as
interest or entertainment expenses incurred by Executive, which shall be
disallowed in whole or in part
5
<PAGE>
as a deductible expense by the Internal Revenue Service, shall be reimbursed by
Executive to the Company to the full extent of such disallowance. In lieu of
payment by Executive, subject to the determination of the Board, proportionate
amounts may be withheld from Executive's future compensation payments until the
amount owed to the Company has been recovered.
4. EMPLOYMENT PERIOD.
4.1. TERMINATION OF EMPLOYMENT PERIOD. The Employment Period
shall continue through the Expiration Date unless terminated prior to such date
by the earliest of (a) Executive's discharge for cause pursuant to Section 5.1,
(b) Executive's discharge without cause pursuant to Section 5.3, (c) Executive's
death, (d) Executive's termination because of disability, pursuant to Section
5.4(b) or (e) termination of this Agreement by Executive pursuant to Section
5.2. In all events, the post employment provisions of Section 7 shall survive
termination of the Employment Period.
5. TERMINATION OF EMPLOYMENT.
5.1. BY COMPANY FOR CAUSE. The Company may discharge Executive
and terminate this Agreement for cause. As used in this Section, "cause" shall
mean any one or more than one of the following:
(a) Gross or willful misconduct of Executive during (i)
the Employment Period or (ii) any prior period of
employment of Executive in an executive capacity by any
person or entity if not disclosed to the Company prior
to the execution hereof; (b) Executive's conviction of a
fraud or felony during the Employment Period; (c)
Failure to follow substantive written directions or
resolutions of the Board; (d) drug or alcohol abuse; or
(e) any material breach of any of the terms of this
Agreement which is not corrected after notice and a
reasonable cure period not to exceed 15 days.
Upon discharge of Executive for cause, the Company shall be relieved and
discharged of all obligations to make payments to Executive which would
otherwise be due under this Agreement, except as to Base Salary earned for
actual services rendered prior to the date of discharge.
5.2. BY EXECUTIVE. Executive may terminate this Agreement for
cause. As used in this Section 5.2, "cause" shall mean the Company's material
breach of any of the terms of this Agreement. It shall also constitute "cause"
hereunder if a business entity not affiliated with the Weider Group acquires 50%
or more of the fair market value of the outstanding capital stock of the Company
and Executive does not become the chief executive officer of the principal
operating business of such entity.
5.3. BY COMPANY WITHOUT CAUSE. The Company may, on 30 days
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written notice to Executive, terminate this Agreement without cause at any time
during the Employment Period.
5.4. TERMINATION ON EXECUTIVE'S DEATH OR DISABILITY.
(a) This Agreement and the Employment Period shall terminate,
and the Company shall be relieved and discharged of all obligations to make
further payment to Executive after the date of the death of Executive, except as
described in subsection (c).
(b) If, during the Employment Period, Executive shall become
ill, disabled, or otherwise incapacitated so as to be unable regularly to
perform Executive's usual duties for a period in excess of 180 total days during
any consecutive 12 months, then the Company shall have the right to terminate
this Agreement on 10 days' notice to Executive.
(c) In case of terminations of employment described in
subsections (a) and (b), the Company shall pay to Executive, or his estate, all
salary earned for actual services rendered prior to the date of termination and,
in addition, a pro-rated bonus at the level of 100% of his Base Salary
(calculated as the product of his then rate of Annual Base Salary and the
fraction of the fiscal year elapsed through the date of termination of
Executive's employment).
6. PAYMENTS ON CERTAIN TERMINATIONS.
6.1. SEVERANCE PAYMENTS. Upon a termination of
Executive's employment pursuant to Sections 5.2 or 5.3,
(a) the Company shall make payments to Executive, as
liquidated damages in lieu of all other claims, of an amount equal to the sum of
(i) Executive's Base Salary and (ii) the greater of Executive's Annual Bonus for
the prior year or Executive's Base Salary. Such amount shall be paid in 12 equal
monthly installments. The Company shall have no obligation to make such payments
in the event of a breach by Executive of Executive's covenants in Section 7, and
(b) (i) all Options that would have become exercisable on the
next following anniversary of the date of grant shall thereupon become
exercisable and,
(ii) all otherwise exercisable Options shall remain
exercisable until at least the 90th day following such termination of
employment.
6.2. TREATMENT OF STOCK OPTIONS UPON DEATH OR DISABILITY. Upon
a termination of Executive's employment pursuant to Sections 5.4(a) or (b), all
Options that would have become exercisable on the next following anniversary of
the date of grant shall thereupon become exercisable.
7. INVENTIONS, CONFIDENTIAL INFORMATION AND RELATED MATTERS.
7.1. ASSIGNMENT OF INVENTIONS. All Inventions which are at any
time made by Executive, acting alone or in conjunction with others, including
those made (a) during
7
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Executive's employment under this Agreement, or (b) any extensions or
modifications hereof, or (c) if based on or related to any Confidential
Information, made by Executive within one year after the termination of such
employment or retention, whichever shall occur later, shall be the property of
the Company and its Affiliates. Executive agrees that Executive shall, at the
cost and expense of the Company and its Affiliates, execute formal application
for U.S. and other patents, and also do all other acts and things (including,
among others, the execution and delivery of instruments of further assurance or
confirmation) deemed by the Company and its Affiliates to be necessary or
desirable at any time to perfect the full assignment to the Company and its
Affiliates of Executive's right and title (if any) to such Inventions.
7.2. RESTRICTIONS ON USE AND DISCLOSURE. Except as required by
Executive's duties hereunder, Executive shall never, directly or indirectly,
use, publish, disseminate or otherwise disclose any Confidential Information or
Inventions without the prior written consent of the Board. Nothing in this
Section shall prevent disclosure of information which has been completely
disclosed in a published patent or other integrated publication of general
circulation, nor shall this Section govern the right to use Inventions for which
a patent may have issued.
7.3. RETURN OF DOCUMENTS AND MATERIALS. Upon termination of
Executive's employment, Executive shall forthwith deliver to the Company all
Confidential Information and Inventions embodied in any form, including all
copies, then in Executive's possession or control, whether prepared by Executive
or others, as well as all other Company property in Executive's possession or
control.
7.4. COMPETITIVE ACTIVITIES. From the date hereof and (a)
during the term of this Agreement and (b) thereafter until the "Competition
Date" which shall be
(i) in the case of terminations of Executive's
employment pursuant to Sections 5.2 or 5.3, the six month anniversary of
the date of such termination, or
(ii) in the case of any other termination of Executive's
employment, the twelve month anniversary of the date of such termination,
Executive shall not, directly or indirectly, within the territorial United
States, become an employee or consultant or otherwise render services to, lend
funds to, serve on the board of, invest in (other than as a 1% or less
shareholder of a publicly-traded corporation) or guarantee the debts of, any of:
TwinLabs, Rexall Sundown, Leiner Health Products, Perrigo, Nature's Bounty,
General Nutrition Corporation, the Solgar division of American Home Products,
NuSkin, Balance Bar and Warner Lambert-Quanterra, or any newly created,
successor or acquired businesses of same which competes with the Company in the
Nutraceutical Industry or any business newly created by Executive following
termination of employment which competes with the Company in the Nutraceutical
Industry. The Board may in its sole discretion give Executive written approval
to engage in such activities or render such services after termination of this
Agreement if Executive and such prospective firm or business organization gives
the Company written assurances, satisfactory to the Board in its sole
discretion, that the integrity of the Confidential Information, the Inventions
and the good will of the Company and its majority
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owned Affiliates will not be jeopardized by such employment. Executive shall,
for a period of 12 months after the Competition Date notify the Company of any
change in address and identify each subsequent employment or business activity
in which Executive shall engage during such 12 months, stating the name and
address of the employer or business organization and the nature of Executive's
position.
7.5. SOLICITATION OF EXECUTIVES. From the date hereof until 24
months after the termination of Executive's employment with the Company,
Executive shall not, without the prior written approval of the Board of the
Company, directly or indirectly, solicit, raid, entice or induce any person who
presently is or at any time during the term hereof shall be an employee of the
Company or its majority owned Affiliates and who was or is eligible for a grant
under the Option Plan or any successor plan, to become employed by any other
person, firm or corporation in any business in competition with the Company.
8. NO OTHER CONTRACTS. Executive represents and warrants that
neither the execution and delivery of this Agreement by Executive nor the
performance by Executive of Executive's obligations hereunder, shall constitute
a default under or a breach of the terms of any other agreement, indenture or
contract to which Executive is a party or by which Executive is bound, nor shall
the execution and delivery of this Agreement by Executive or the performance of
Executive's duties and obligations hereunder give rise to any claim or charge
against either Executive or the Company based upon any other contract, indenture
or agreement to which Executive is a party or by which Executive is bound.
9. NOTICES. Any notices or communication given by any party hereto
to the other party shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid. Notices
shall be addressed to the parties at the addresses set forth above. Mailed
notices shall be deemed given when received. Any person entitled to receive
notice may designate in writing, by notice to the others, such other address to
which notices to such party shall thereafter be sent.
10. MISCELLANEOUS.
10.1. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties in respect of its subject matter and supersedes all
prior oral and written agreements and understandings between the parties with
respect to such subject matter.
10.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, canceled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any preceding or succeeding breach of this Agreement.
10.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations
of this Agreement shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation, or any
assignee of all or substantially all of the Company's business and properties;
Executive's rights or obligations under this Agreement may
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not be assigned by Executive. The Company acknowledges that the provisions of
the last paragraph of Section 2 were a material inducement to Executive in
entering into this Agreement.
10.4. HEADINGS. The headings contained in this Agreement
(except those in Section 1) are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
10.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy of the State of Utah applicable to contracts executed and to be
wholly performed within such State. Service of process in any dispute shall be
effective (a) upon the Company, if served on any senior officer of the Company;
(b) upon Executive, if served at Executive's residence last known to the
Company. Executive acknowledges that breach of Sections 7.1 through 7.5 would
entail irreparable injury and that, in addition to the Company's other express
and implied remedies, the Company shall be entitled to injunctive and other
equitable relief to prevent any actual, intended or likely such breach.
10.6. FURTHER ASSURANCES. Each party agrees at any time, and
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts, deeds
assignments, transfers, conveyances, powers of attorney and/or assurances as may
be necessary, and/or proper to carry out the provisions and/or intent of this
Agreement.
10.7. GENDER; SINGULAR/PLURAL. In this Agreement, the use of
one gender (e.g., "he", "she" and "it") shall mean each other gender; and the
singular shall mean the plural, and vice versa, all as the context may require.
10.8. SEVERABILITY. The parties acknowledge that the terms of
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is fair and reasonable, the parties stipulate as follows: if
any one or more of the terms, provisions, covenants and restrictions of this
Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; further, if any
one or more of the provisions contained in this Agreement shall for any reason
be determined by a court of competent jurisdiction to be excessively broad as to
duration, geographical scope, activity or subject, it shall be construed, by
limiting or reducing it, so as to be enforceable to the extent compatible with
then applicable law.
10.9. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original.
10.10. INDEMNIFICATION. The Company indemnifies
Executive to the full extent available under the Company's Articles of
Incorporation and Bylaws.
10.11. ATTORNEY'S FEES. The Company shall reimburse the
Executive for
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up to $7,500 in attorney's fees incurred in connection with this Agreement.
10.12. ARBITRATION. Except as described below, any dispute or
controversy arising under or related to this Agreement shall be settled
exclusively by arbitration, conducted before a panel of three arbitrators. The
venue of the arbitration shall be a location in Orange County, California,
selected by the panel. The arbitration shall be conducted in accordance with the
rules, but not under the auspices of, JAMS/Endispute. Each of Executive and the
Company shall select one arbitrator and such arbitrators shall agree among
themselves on a third arbitrator who shall be the chair of the panel.
Depositions and other discovery shall be permitted in the 90 days prior to
hearing as scheduled by the panel. Judgment may be entered on the panel's award
in any court having jurisdiction. The fees and expense of the arbitrator
selected by each party shall be borne by that party and the expenses of the
third arbitrator and other administrative expenses of the arbitration (not
including fees and expenses of attorneys and experts) shall be borne equally by
the parties. Notwithstanding the foregoing, the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 7.1 -
7.5 and the Executive hereby consents that such restraining order or injunction
may be granted without the necessity of the Company posting any bond.
EXECUTION
The parties, intending to be legally bound, executed this Agreement
as of the date first above written, whereupon it became effective in accordance
with its terms.
Attest:
By:______________________________________
- -------------------------------------
Witness
- ------------------------------------- --------------------------------------
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AS OF,
AND FOR THE NINE MONTHS ENDING FEBRUARY 28, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 2,278
<SECURITIES> 2,692
<RECEIVABLES> 64,126
<ALLOWANCES> 1,813
<INVENTORY> 74,172
<CURRENT-ASSETS> 148,048
<PP&E> 64,722
<DEPRECIATION> 15,734
<TOTAL-ASSETS> 270,572
<CURRENT-LIABILITIES> 163,470
<BONDS> 0
0
0
<COMMON> 249
<OTHER-SE> 98,944
<TOTAL-LIABILITY-AND-EQUITY> 270,572
<SALES> 240,250
<TOTAL-REVENUES> 240,250
<CGS> 154,869
<TOTAL-COSTS> 154,869
<OTHER-EXPENSES> 83,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,197
<INCOME-PRETAX> (5,643)
<INCOME-TAX> (2,317)
<INCOME-CONTINUING> (3,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,326)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,466
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,990
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,235
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 171,532
<ALLOWANCE> 1,944
<TOTAL-ASSETS> 284,282
<DEPOSITS> 252,718
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 1,446
<LONG-TERM> 0
0
0
<COMMON> 2,091
<OTHER-SE> 25,173
<TOTAL-LIABILITIES-AND-EQUITY> 284,282
<INTEREST-LOAN> 14,948
<INTEREST-INVEST> 4,114
<INTEREST-OTHER> 609
<INTEREST-TOTAL> 19,671
<INTEREST-DEPOSIT> 7,332
<INTEREST-EXPENSE> 7,405
<INTEREST-INCOME-NET> 12,266
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 11,842
<INCOME-PRETAX> 4,061
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,656
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 8.07
<LOANS-NON> 13
<LOANS-PAST> 197
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 186
<ALLOWANCE-OPEN> 1,999
<CHARGE-OFFS> 695
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 1,944
<ALLOWANCE-DOMESTIC> 1,944
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,399
</TABLE>
