SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______.
COMMISSION FILE NUMBER:
1-14608
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
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $.01 per share
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding of the Registrant's common stock is
25,021,468 (as of August 2, 1999).
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is approximately $44,300,000 (as of August 2, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1999 Annual Meeting
of Shareholders, which will be filed with the SEC, are incorporated by reference
into Part III.
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PART I
NOTE ON FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-K UNDER THE
CAPTIONS "BUSINESS," "FACTORS AFFECTING FUTURE PERFORMANCE," "LEGAL
PROCEEDINGS," AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," AND ELSEWHERE HEREIN ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF 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," "ESTIMATES," "MAY,"
"SHOULD," OR SIMILAR EXPRESSIONS, ARE FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND
THE COMPANY'S CONTROL, AND THEREFORE ACTUAL RESULTS MAY DIFFER MATERIALLY.
IMPORTANT FACTORS WHICH MAY AFFECT FUTURE RESULTS INCLUDE, WITHOUT LIMITATION,
CHANGES IN GENERAL ECONOMIC AND BUSINESS CONDITIONS (INCLUDING IN THE
NUTRITIONAL SUPPLEMENT INDUSTRY), ACTIONS OF COMPETITORS, CHANGES IN THE
COMPANY'S BUSINESS STRATEGIES, THE COMPANY'S ABILITY TO IMPLEMENT MORE
SOPHISTICATED OPERATING SYSTEMS AND INVENTORY MANAGEMENT PROGRAMS, CHANGES IN
LAWS AND REGULATIONS, DEPENDENCE UPON INDIVIDUAL PRODUCTS, THE SUCCESS OF
PRODUCT DEVELOPMENT, NEW PRODUCT INTRODUCTION INTO THE MARKETPLACE, LITIGATION
AND OTHER REGULATORY ACTION AND OTHER FACTORS DISCUSSED UNDER "FACTORS AFFECTING
FUTURE PERFORMANCE" IN ITEM 1 OF THIS ANNUAL REPORT. THE COMPANY DISCLAIMS ANY
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
ITEM 1. BUSINESS
GENERAL
Weider Nutrition International, Inc. (the "Company") develops,
manufactures, markets, distributes and sells branded and private label vitamins,
nutritional supplements and sports nutrition products in the United States and
throughout the world. The Company offers a broad range of capsules and tablets,
powdered drink mixes, bottled beverages and nutrition bars consisting of
approximately 1,000 stock keeping units ("SKUs") domestically and
internationally. The Company has a portfolio of recognized brands, including
Schiff(R), Weider Sports Nutrition, MetaForm(R) and American Body Building(TM)
that are primarily marketed through mass market, health food store and/or health
club and gym distribution channels. The Company markets its branded products in
four principal categories: sports nutrition; vitamins, minerals and herbs;
weight management; and healthy snacks. As a result of the Company's July 1998
acquisition of Haleko Hanseatisches Lebensmittel Kontor GmbH ("Haleko"), the
Company has significantly expanded its operations outside the United States.
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.
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INDUSTRY OVERVIEW
According to PACKAGED FACTS, the principal domestic retail markets in
which the Company's products compete totaled approximately $7.8 billion in 1997
and grew at a compound annual growth rate of approximately 15% from 1992 through
1997. The Company believes several factors account for the steady growth of the
nutritional supplement market, including increased public awareness of the
health benefits of nutritional supplements and favorable demographic trends
toward older Americans who are more likely to consume nutritional supplements.
Over the past several years, public awareness of the positive effects of
nutritional supplements on health has been heightened by widely publicized
reports and medical research findings indicating a correlation between the
consumption of nutrients and the reduced incidence of certain diseases. Reports
have indicated that the United States government and universities generally have
increased sponsorship of research relating to nutritional supplements. In
addition, Congress has established the Office of Alternative Medicine within the
National Institutes of Health to foster research into alternative medical
treatment modalities, which may include natural remedies. Congress has also
recently established the Office of Dietary Supplements in the National
Institutes of Health to conduct and coordinate research into the role of dietary
supplements in maintaining health and preventing disease.
The Company believes that the aging of the United States population,
together with a corresponding increased focus on preventative health care
measures, will continue to result in increased demand for certain nutritional
supplement products. According to the United States Bureau of the Census, the
35-and-older age group of consumers, which represents a large majority of the
regular users of vitamin and mineral supplements, is projected to grow
significantly faster than the general United States population through 2010.
The Company believes these events and trends together with product
introductions have supplied the growth of the domestic nutritional supplement
market.
The international nutritional supplement market is more fragmented than
the domestic market. As a result, industry data is not readily available.
However, many of the demographic and other trends and events present in the
domestic market, are also present in the international market.
The primary distribution channels in the vitamin and nutritional
supplements industry consist of mass market retailers (including mass
merchandisers, drug stores, supermarkets and discount stores), health and
natural food stores and direct sales and mail order organizations. According to
PACKAGED FACTS, in 1998 the mass market channel accounted for approximately 49%
of the sales of vitamin, mineral and supplement products, health and natural
food stores accounted for approximately 39% of sales and direct selling, mail
order and the Internet accounted for approximately 12% of sales.
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SALES AND DISTRIBUTION
The Company believes that its continued growth and success in the
nutritional supplements industry, in part, is dependent on the consumers'
recognition of, satisfaction with and allegiance to the Company's branded
products. Accordingly, during fiscal 1999, the Company implemented a more
focused marketing initiative that provided incremental investment in support of
four of its most recognized brands: Schiff(R), Weider Sports Nutrition,
MetaForm(R) and American Body Building(TM). The Company believes that this
focused marketing strategy will be beneficial to nutritional supplement
consumers. The incremental investment in these brands enhances the Company's
ability to introduce innovative products that are of premium quality, better
tasting and more consumer application friendly, supported by current science and
technology.
The Company's products are currently sold domestically in over 48,000
retail outlets in all 50 states. The Company's mass market (mass volume)
customers include: mass merchandisers such as Wal-Mart, Target and Kmart; drug
stores such as Walgreens, CVS, Rite Aid and Eckerd; warehouse clubs such as
Costco, Sam's Club and BJ's; and supermarkets such as Albertson's, Giant,
Safeway and Fred Meyer. The Company services the health food market by
distributing its products to General Nutrition Center ("GNC") and leading health
food distributors. The Company also sells through other distribution channels,
including its own network of distributors to health clubs and gyms (such as
Bally's Health and Fitness and Gold's Gym), international markets, and private
label manufacturing for certain retail customers where the Company also
distributes its branded products. The Company pursues a multi-channel
distribution strategy in order to participate in the growth being experienced in
each of these channels.
Internationally, the Company sells or distributes its products to over 50
countries around the world, all of which are at different levels of development
and are affected by different factors. In Europe, where the Company has a
substantial majority of its international sales, nutritional supplement
distribution varies by country, but in general, product is mainly distributed
through gyms and fitness studios, health food and specialty stores and
pharmacies. Some product is distributed through the mass market channel, but
this channel is not as developed internationally as it is in the U.S.
Additionally, significant differences exist between the regulatory environment
in the U.S. and the regulatory environment in Europe. As a result, many
nutritional supplements sold in the U.S. are not able to be sold in Europe due
to regulatory restrictions.
BRANDS AND DISTRIBUTION CHANNELS. The Company has created a portfolio of
recognized brands designed for specific distribution channels. The positioning
of the Company's brand names is supported by significant advertising and
marketing expenditures as well as the Company's historical association with the
Weider name. As a result, the Company believes that it has many of the leading
brands in the nutritional supplement industry.
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The following table identifies the Company's leading domestic brands and
illustrates the Company's multi-brand, multi-channel strategy:
BRAND PRIMARY CHANNEL
----- ---------------
Schiff(R)................... Food, Drug, Mass volume retailers & health
food stores
Metaform(R)................. Health food stores
Weider Sports Nutrition..... Food, Drug, Mass volume retailers
American Body Building(TM).. Health clubs and gyms
The Company markets its branded products in four principal categories of
nutritional supplements: sports nutrition; vitamins, minerals and herbs; weight
management; and healthy snacks. The Company believes that offering its customers
a wide variety of products also provides the Company a competitive advantage in
capturing an increasing share of the growing nutritional supplement market. The
Company continues to expand its product innovation and branding opportunities
through the pursuit of innovative ingredients and proprietary formulas from
internal research, as well as outside scientists, experts, formulators and
inventors.
SPORTS NUTRITION. The Company's sports nutrition category includes a wide
variety of products designed to enhance athletic performance, support the
results derived from exercise programs and replenish the body's vital nutrients
used up during exercise and training. The Company's sports nutrition products
deliver nutritional supplements through a variety of forms, including powdered
drink mixes, tablets, capsules, nutrition bars and beverages. These products
target consumers for the Company's sports nutrition business. Customer focus
includes athletes, bodybuilders, fitness enthusiasts and other "on-the-go"
consumers. While each of the Company's products offers distinct benefits to the
consumer, the Company's sports nutrition products are intended to generally
enhance the consumer's ability to control weight, support muscle growth, lose
fat and increase energy levels and stamina.
The following table summarizes the major brands and representative
products of the Company's sports nutrition category:
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ------------ -----------------------
American Body Building(TM)............ Blue Thunder(TM) protein beverages,
Ripped Force(R) energy beverages and
powdered drink mixes, and Steel Bar(R)
nurtrition bars
Weider Sports Nutrition................ Creatine ATP(TM), Androstene, and
Ultra Ripped(TM) powdered drink mixes
Metaform(R)........................... Metaform(R), HyperDrive(TM) and Diet
Stack(TM) powdered drink mixes and
nutrition supplements
Science Foods(R)...................... White Lightning(TM) protein beverages
and nutrition bars, and Ripped to the
Max(TM) energizing beverages
Tiger's Milk(R)....................... Tiger's Milk(R) nutrition bars
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The American Body Building(TM) and Science Foods(R) brands, which are
intended to help the consumer increase energy levels and stamina, control weight
and lose fat, are primarily distributed to health clubs and gyms through the
Company's network of independent distributors. The Metaform(R) and Weider Sports
Nutrition brands, which are intended to support consumers' efforts to control
weight, support muscle mass and lose fat, are primarily distributed through
food, drug and mass volume retailers and health food stores such as GNC. The
Tiger's Milk(R) product line, which has been marketed for over 30 years,
includes several nutrition bars that supply significant amounts of protein,
vitamins and other essential nutrients with less fat than a traditional candy
bar.
VITAMINS, MINERALS AND HERBS. The Company markets a complete line of
vitamins and minerals, including multivitamins, multiminerals, antioxidants and
digestive enzymes through the Schiff(R) brand. These products are offered in
various forms (including liquids, tablets, capsules, softgels and powdered drink
mixes). According to IRI data, joint health products represent the fastest
growing subcategory within the vitamin, mineral and herb category. Schiff's Pain
Free(TM) product realized significant growth in fiscal 1999 and is currently the
number two joint health product in the mass market channel. In addition, herbs
and phytonutrients, which are a growing category in the nutritional supplement
industry, are alternatives or complements to over-the-counter pharmaceutical
products for consumers who seek a more natural and preventative approach to
their health care. The following table summarizes the major brands and
representative products of the Company's Schiff brand of vitamins, minerals and
herbs:
MAJOR BRANDS REPRESENTATIVE PRODUCTS
Schiff(R) joint products.................. Pain Free(TM), chondroitin sulfate
and glucosamine compounds
Schiff(R) vitamins........................ Multivitamins, multiminerals,
antioxidants and digestive enzymes
Schiff(R) herbs........................... St. John's wort, garlic and
echinacea
The Company markets certain joint products including Pain Free(TM) and
certain chondroitin sulfate and/or glucosamine compounds under two brands,
Schiff(R) and Metaform(R). The Schiff(R) brand is primarily distributed through
food, drug, mass and club retailers. The Metaform(R) brand is primarily
distributed through GNC.
The Company's Schiff(R) brand vitamin products are designed to provide
consumers with essential vitamins and minerals as supplements to their diet.
Schiff vitamins and minerals include multivitamins such as Single Day,
individual vitamins and minerals such as Vitamins C, E, and Calcium, specialty
formulae for women such as Menopause and soy, and other specialty formulae
including melatonin, DHEA, beta carotene and B-complex. Schiff(R) vitamins are
marketed through health food stores as well as supermarkets and drug stores
within the mass volume retail channel.
The Company markets various herbs (such as garlic and echinacea) under the
Schiff(R) brand to food, drug and mass volume retailers and health food stores.
Through its phytocharged supplement line distributed primarily to health food
stores, Schiff(R) is a leader in the development and introduction of
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phytonutrients. Phytonutrients are naturally-occurring compounds in plants that
are believed to promote health. These phytonutrients include lycopene (the beta
carotene relative that has been recently linked in the popular media to lowering
prostate cancer risk) and beta glucan (an extract from oats that is the soluble
fiber believed to be responsible for lowering blood cholesterol levels).
WEIGHT MANAGEMENT. The Company is one of the leading suppliers to food,
drug mass and club retailers of natural products that utilize vitamins, herbs
and other nutritional supplements designed to promote weight management. The
Company's products are intended to support consumers' efforts in a number of
weight management functions. The products are specifically formulated, packaged
and priced to appeal to a wide variety of consumers with different demographic
characteristics and physiological needs.
The following table summarizes the major brands and representative
products of the Company's weight management category:
MAJOR BRANDS REPRESENTATIVE PRODUCTS
- ------------ -----------------------
American Body Building(TM)........... Ripped Force(R) energy beverages
Science Foods(R)..................... Ripped to the Max(TM) and other energy
beverages
Weider Sports Nutrition............... Fat Burner, Ultra AC(TM) and Ultra
AP(TM) supplements
Metaform(R).......................... Metaform Heat(TM) and Diet Stack(TM)
powdered drink mixes
The American Body Building(TM) and Science Foods(R) brands, which are
intended to support consumers' efforts to reduce fat and provide a low calorie
source of energy, are primarily distributed through the Company's independent
distributors to health clubs and gyms. The Weider Sports Nutrition brand is
intended to aid in weight management and to support comsumers' efforts to reduce
fat. This brand is primarily distributed through food, drug, mass, club,
convenience and health food retailers. Metaform(R) brand products, which are
intended to enhance the consumers' efforts to manage weight, support muscle mass
and lose fat, are primarily distributed to health food stores such as GNC.
HEALTHY SNACKS. The Company's healthy snacks category includes its
Fi-Bar(R) and Tiger's Milk(R) product lines. The Fi-Bar(R) product line is
comprised of fat-free granola bars and fruit and nut bars coated with yogurt,
chocolate or carob made without hydrogenated fats. The Tiger's Milk(R) product
line, which has been marketed for over 30 years, includes several nutrition bars
that supply significant amounts of protein, vitamins and other essential
nutrients with less fat than a traditional candy bar.
The Tiger's Milk(R) and Fi-Bar(R) brands, which are intended to provide
consumers with a healthy alternative to traditional snack foods and candy bars,
are primarily distributed through mass volume retailers and health food stores.
INTERNATIONAL MARKETS. The Company believes significant opportunities
exist for nutritional supplement products in international markets. The Company
has positioned itself to take advantage of such opportunities through
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acquisitions of businesses in Europe and Canada. These acquisitions provide the
Company with the rights to manufacture and market, under the "Weider" name,
nutritional supplements worldwide, excluding Australia, New Zealand, Japan and
South Africa.
The July 1998 acquisition of Haleko provides the Company with several of
the premium nutritional supplement brands in Europe as well as significant
nutritional supplement manufacturing capabilities in Germany. Haleko's leading
sports nutrition brand is Multipower(R) which includes a wide variety of
products primarily marketed to health clubs and gyms. Haleko's weight management
brand is Multaben, which includes a variety of beverages, soups and other meal
replacement products, as well as nutrition bars, sold primarily to health food
stores. Haleko also markets a line of sportswear under the Venice Beach brand.
Sportswear is primarily sold to health clubs and gyms, as well as specialty
sportswear retail stores. Sales of sportswear represented approximately 34% of
Haleko's revenues for fiscal 1999.
The Company also markets nutritional supplements to South America, eastern
Europe, the Middle East and the Pacific Rim through distributors.
PRIVATE LABEL. Historically, the Company manufactured capsules, tablets,
beverages, nutrition bars and powdered drink mixes for other marketers of
nutritional supplements and certain retail customers. These independent
marketers, or contract manufacturing customers, market the Company's products
under their own brand name. During fiscal 1999, the Company made the decision to
limit contract manufacturing (private label) business to only those customers
who have, or may in the future have, other business relationships with the
Company.
MARKETING
The Company believes its promotional and advertising programs, in
combination with its sales force and customer service standards, have been
integral to the Company's growth. A key part of the Company's strategy is to
help educate consumers about innovative, safe and beneficial nutritional
supplement products. The Company's marketing and advertising expenditures were
approximately $35.9 million in fiscal 1999, $16.9 million in fiscal 1998, and
$16.8 million in fiscal 1997.
During fiscal 1999 the Company developed its first national broadcast for
Schiff(R) Pain Free(TM) joint health products. Television and radio commercials
featuring Pain Free(TM) appeared on syndicated radio and television programs,
cable television stations and broadcast television programs.
The Company promotes its products in various consumer magazines, such as
LADIES HOME JOURNAL, ARTHRITIS TODAY, MAXIM, ESPN MAGAZINE; target publications,
such as FITNESS RUNNER; and trade magazines, such as WHOLE FOODS, VITAMIN
RETAILER and MASS MARKET RETAILER. In addition to these publications, the
Company advertises in several magazines published by Weider Publications Inc.
("Weider Publications"), an affiliate of the Company, including MUSCLE AND
FITNESS, FLEX, SHAPE, MEN'S FITNESS, NATURAL HEALTH and JUMP. The Company is
also developing internet sites to provide additional information to consumers,
customers and investors.
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The Company participates in consumer education by sponsoring and attending
various sporting events, including leading professional body building
competitions such as The Mr. Olympia, The Arnold Schwarzenegger Classic and
numerous local National Physique Committee bodybuilding competitions. The
Company also promotes its products at numerous trade and consumer shows
representing all current distribution channels.
Market research will continue to play a vital role in securing retail
space for the Company's branded products in the mass market channel and other
relevant distribution channels. The Company is expanding its use of research
data, including Gallup, IRI InfoScan, Spectra Data and other information sources
to identify key consumer demographics, market trends and category potential to
maximize new and existing opportunities with current and potential retail
partners. The Company is also taking a more active role in professional trade
organizations and lobbying groups. The Company is a founding member of the
Corporate Alliance for Integrative Medicine, an industry-based research
organization that works with public and private universities to conduct
scientifically valid studies on natural health products.
COMPANY GROWTH STRATEGY
The Company intends to broaden its leadership position in the nutritional
supplements and sports nutrition categories. Specifically, the Company's
strategy is to: (i) leverage its portfolio of established brands to increase its
share of the nutritional supplement market; (ii) develop new brands and product
line extensions through its commitment to research and development; (iii)
continue the growth of its balanced distribution network; (iv) build its
execution skills through new operations processes and decision support systems;
(v) achieve cost superiority through formal productivity benchmarking and
continuous improvement programs; (vi) grow international profitability through
integration of European operations and through expanded export operations
outside Europe; and (vii) implementing a comprehensive e-commerce plan. The
Company believes that its multiple distribution channels, broad portfolio of
leading brands and state-of-the-art manufacturing and distribution capabilities
position it to be a long-term competitive leader in the nutritional supplements
industry.
PRODUCT RESEARCH AND DEVELOPMENT
The Company strives to be a leader in nutritional supplement product
development and intends to continue its commitment to research and development
to create new products and existing product line extensions. The nutritional
supplement industry is influenced by products that become popular due to
changing consumer interests in health, appearance and longevity along with media
attention to these same interests. The Company believes it is important to
develop new products in the nutritional supplement industry in order to
capitalize on new market opportunities, to strengthen relationships with
customers by meeting demand and to increase market share. In addition, the
Company believes that continually introducing new products is important to
preserving and enhancing gross margins due to the relatively short life cycle of
some products.
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As a result of the Company's product development history, the Company
believes that it has built a reputation in the nutritional supplement industry
for innovation in both branded and private label products. The Company has
pioneered a number of innovations in the nutritional supplement industry,
including: the development of the first domestic source of melatonin with
consistent quality, supply and cost; the introduction of garcinia cambogia, a
popular weight loss ingredient; through acquisition, the producer of the first
high-protein, low carbohydrate beverage; and the retail introduction of the
first carotenoid complex product from natural sources. The Company is in various
stages of development with respect to new product concepts that the Company
anticipates will augment both its existing domestic and international product
lines.
In order to support its commitment to research and development, the
Company hires requisite technical personnel and invests in formulation,
processing and packaging development and the testing of efficacy and shelf life
stability as well as market research with consumers. The Company's product
research and development expenditures were approximately $4.6 million in fiscal
1999, $4.0 million in fiscal 1998, and $2.3 million in fiscal 1997.
MANUFACTURING AND PRODUCT QUALITY
The Company has invested in manufacturing to meet the growing demand for
nutritional supplement products, to ensure continued operating efficiencies and
to maintain high product quality standards. The Company manufactures
approximately 90% of its domestic branded products and approximately 45% of its
international branded products. The Company has significant internal
manufacturing competencies in the distinct areas of: sterile liquid beverage
processing, bottling and packaging; powder blending, filling and packaging in
jug, canisters, bottles and pouches; processing, extrusion, coating and
packaging of nutritionally fortified energy bars; and capsule and tablet
manufacturing, filling and packaging. The Company has invested in production
line flexibility to accommodate various filling sizes, weight or count of
product and final shipped unit configuration as to fulfill customer and ultimate
consumer needs.
Consistent with the Company's commitment to capturing an increasing share
of the growing nutritional supplement market, in June 1997 the Company completed
construction of a state-of-the-art facility that more than tripled the Company's
previous capacity for manufacturing capsules and tablets. The facility, located
in Salt Lake City, Utah, includes the Company's main distribution center and
primary administrative offices. The distribution center features a high-rise
racked warehouse and a fully automated "order-pick" system using optical readers
that interpret bar coded labels on each shipping container.
The Company also currently manufactures its products in three other U.S.
facilities. The powders production facility is located in Salt Lake City, Utah
and beverage facilities are located in Walterboro, South Carolina and Las Vegas,
Nevada. The Company is continuously upgrading its facilities and enhancing its
manufacturing capabilities through new equipment purchases and technological
improvements. In order to improve overall capsule and tablet manufacturing
efficiencies, during fiscal 1999, the Company closed its NION manufacturing
facility in southern California and transitioned the operations to the Company's
Utah facility.
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The Company is committed to providing the highest quality products. The
Company's domestic manufacturing facilities are in the initial evaluation and
implementation phases of ISO 9002 certification. As part of this process,
generally all testing and inspection procedures performed by quality control
professionals are standardized and periodically evaluated for compliance. Each
of the Company's manufacturing sites is equipped with analytical tools for
in-process and finished product evaluation for compliance to specification. The
Company's products are also subject to shelf life stability testing through
which the Company determines the effects of aging on its products. The Company's
product retention program allows the Company the ability to maintain samples
from each product batch shipped and, when appropriate, to analyze such samples
to insure product quality. Certified outside laboratories are used routinely to
evaluate the Company's laboratory performance and to supplement its internal
testing procedures and capabilities.
During the past two years the Company has developed a Strategic Sourcing
department which has focused on maximizing buying power through volume leverage
with a smaller select supplier base. As a result of this effort, material
savings have been achieved. In addition, key supply relationships have been
established with raw material and packaging suppliers who bring significant
financial, technical, quality and service resources to the Company. The
Strategic Sourcing department expects to continue its efforts to identify and
realize further efficiencies.
Internationally, the Company has two primary manufacturing facilities. The
Company has a capsules, tablets and powders facility in Bleckede, Germany that
produces products distributed throughout Europe. This facility has received ISO
9002 certification. The Company also has a facility located in Madred, Spain
that primarily produces powders for distribution in Spain, France and Italy.
Each of these facilities are continuously upgraded with equipment purchases and
technological improvements.
COMPETITION
The market for the sale of nutritional supplements is highly competitive.
Competition is based principally upon price, quality of products, customer
service and marketing support. Numerous companies compete with the Company in
development, manufacture and marketing of nutritional supplements. In addition,
large pharmaceutical companies and packaged food and beverage companies are
increasingly competing with the Company in the nutritional supplement market.
The majority of competitors in the nutritional supplement industry are privately
held and the Company is unable to precisely assess the size of such competitors.
However, the Company believes that no competitor controls more than ten percent
of this market.
The Company believes that by reacting quickly to market changes,
scientific discoveries and competitive challenges, the Company will continue to
compete effectively in the nutritional supplement industry. As the nutritional
supplement industry grows and evolves, the Company believes retailers will rely
heavily on suppliers of nutritional supplements, such as the Company, that can
respond quickly to new opportunities, support retailers with production capacity
and flexibility, and provide innovative and high
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margin products. In addition, retailers have begun to align themselves with
suppliers, such as the Company, who are financially stable, market a broad
portfolio of products and offer superior customer service. The Company believes
that it competes favorably with other nutritional supplement companies and major
pharmaceutical companies because of its competitive pricing, marketing
strategies, sales support and the quality and breadth of its product line.
GOVERNMENT REGULATION
The formulation, manufacturing, packaging, labeling, advertising,
distribution and sale of the Company's products are subject to regulation by one
or more governmental agencies, including the Food and Drug Administration
("FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety
Commission, the United States Department of Agriculture and the Environmental
Protection Agency. The Company's activities are also regulated by various
agencies of the states, localities and foreign countries in which the Company
distributes and sells its products.
The FDA regulates dietary supplements under the Federal Food, Drug and
Cosmetic Act (the "FDCA") and the regulations promulgated thereunder. In October
1994, the FDCA was amended by the Dietary Supplement Health and Education Act of
1994 ("DSHEA"). DSHEA establishes a statutory class of dietary supplements,
including vitamins, minerals, herbs, amino acids and other dietary substances
for human use to supplement the diet, as well as concentrates, metabolites,
extracts or combinations of such dietary ingredients. DSHEA also provides a
regulatory framework that ensures consumer access to safe, quality dietary
supplements, recognizes the need for the dissemination of useful, balanced
information regarding dietary supplements, supports continuing scientific
research into the health effects of dietary supplements and permits the
establishment of good manufacturing practices to improve uniform quality of
dietary supplements. Under DSHEA statements of "nutritional support" may
describe how particular dietary ingredients, or the mechanism of action by which
dietary ingredients, affect the structure, function or general well-being of the
body. These statements of nutritional support are permitted in dietary
supplement labeling, provided that, among other requirements, the company has
scientific substantiation that the statements are truthful and not misleading,
discloses that the statements have not been reviewed by the FDA and notifies the
FDA within 30 days that the statements are being used in dietary supplement
labeling. Statements of nutritional support may not make claims that the dietary
supplement is intended to cure, prevent or mitigate a disease or illness, which
claims would cause the FDA to consider the dietary supplement as an unapproved
new drug. The Company labels its products in a manner that is intended to comply
with the provisions of DSHEA; however, no assurance can be given that the FDA
will not take the position that a statement of nutritional used by the Company
is considered by the FDA to be a disease or illness claim.
Certain of the Company's products are classified as foods, which are
subject to the Nutrition Labeling and Education Act of 1990 (the "NLEA"). The
NLEA prohibits the use of any health claim for foods unless the health claim is
supported by significant scientific agreement and is either pre-approved by the
FDA or the subject of substantial government scientific publications with
notification sent to the FDA. A substantial majority of the Company's products
are classified as dietary supplements under DSHEA.
12
<PAGE>
The Company anticipates that FDA will promulgate Good Manufacturing
Practices ("GMPs"), as authorized under DSHEA and specific to dietary
supplements. Preparation, packaging and compliance with these regulations may
demand quality control provisions similar to the drug industry. Such regulations
could, among other things, require the recall, reformulation or discontinuance
of certain products, additional record keeping, warnings, notification
procedures and expanded documentation of the properties and manufacturing
processes of certain products and scientific substantiation regarding
ingredients, product claims, safety or efficacy. Failure to comply with
applicable FDA requirements can result in sanctions being imposed on the Company
or the manufacturers of its products, including warning letter, fines, product
recalls and seizures.
The FTC exercises jurisdiction over the advertising of nutritional and
dietary supplements under the Federal Trade Commission Act. In November 1998,
the FTC published an advertising guideline for the dietary supplement industry
entitled "Dietary Supplements: An Advertising Guide for Industry." These
guidelines reiterate many of the policies regarding dietary supplements the FTC
has periodically announced over the years, particularly with respect to the
substantiation of claims made in advertising of dietary supplement products. In
the past several years, the FTC has instituted enforcement actions against
several dietary supplement companies alleging false and misleading advertising
of certain products. These enforcement actions have resulted in the agreement to
consent decrees and/or the payment of fines by certain of the companies
involved.
The FTC continues to monitor advertising with respect to dietary
supplements and, accordingly, the Company from time to time receives inquiries
from the FTC with respect to the Company's advertising. In September 1997, the
Company received an access letter from the FTC regarding the Company's
advertising with respect to the Company's PhenCal products. After discussions
and negotiations between the Company and the FTC, the Company accepted, without
admitting liability, a proposed consent decree in June 1999. The proposed
consent decree provides, among other things, that the Company will not make
certain diet and weight loss claims for its products without adequate scientific
substantiation, but does not include any provision for fees or penalties. The
proposed consent decree is currently before the FTC pending final review and
approval.
The Company is also a party to a consent order which was signed by Weider
Health and Fitness in 1985. Pursuant to the order, the Company is prohibited
from making certain advertising claims relating to the muscle building
capabilities of Anabolic Mega Paks(R) and Dynamic Life Essence and any other
product of substantially similar composition. In connection with the Company's
other food products, the Company is similarly prohibited from making these
claims unless the Company is able to substantiate such claims.
The Company's international operations are also subject to governmental
regulations in each of the countries in which the Company has operations or
sales or distributes products. These regulations may differ materially from
country to country and from those regulations of the United States, which may
result in additional costs and expenses to the Company due to the reformulation
or repackaging of certain products to meet different standards
13
<PAGE>
or regulations, the imposition of additional record keeping requirements and
expanded or different labeling and scientific substantiation regulations. In
addition, governmental regulations in foreign countries where the Company plans
to commence or expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation of certain of
the Company's products. The Company's distributors for those countries in which
the Company does not have direct operations generally control compliance with
such foreign governmental regulations. These distributors are independent
contractors over whom the Company has limited control.
As a result of the Company's efforts to comply with applicable statutes
and regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain aspects of its sales,
marketing and advertising programs. The Company may be subject to additional
laws or regulations administered by the federal, state or foreign regulatory
authorities, the repeal or amendment of laws or regulations which the Company
considers favorable, such as DSHEA, or more stringent interpretations of current
laws or regulations. The Company is unable to predict the nature of such future
laws, regulations, interpretations or applications, nor can it predict what
effect additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling and scientific
substantiation. Any or all such requirements could have a material adverse
effect on the Company's results of operations and financial condition.
PRODUCT LIABILITY INSURANCE
Because the Company manufactures products designed to be ingested, it
faces the risk that materials used for the final products may be contaminated
with substances that may cause sickness or other injury to persons who have used
the products. Although the Company maintains production and operating standards
designed to prevent such events, certain portions of the process of product
development, including the production, harvesting, storage and transportation of
raw materials, along with the handling, transportation and storage of finished
products delivered to consumers, are not within the control of the Company. See
"Manufacturing and Product Quality." Also, sickness or injury to persons may
occur if the Company's products are ingested in dosages which exceed the dosage
recommended on the product label. The Company cannot control misuse of its
products by consumers or the marketing, distribution and resale of its products
by its customers. With respect to product liability claims in the United States
and internationally, the Company has $2.0 million per occurrence domestically
($1.0 million internationally) and $2.0 million ($1.0 million internationally)
in aggregate liability insurance subject to self-insurance retention of $10,000.
In addition, if claims should exceed $2.0 million, the Company has excess
umbrella liability insurance of up to $90.0 million. However, there can be no
assurance that such insurance will continue to be available, or if available,
will be adequate to cover potential liabilities. The Company generally does not
obtain contractual indemnification from parties supplying raw materials or
marketing its products; however, any such indemnification is limited by its
terms and, as a practical matter, to the creditworthiness of the
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<PAGE>
indemnification party. The Company's product liability insurance does not cover
non-safety claims relating to the Company's products, such as noncompliance with
label claims or similar matters.
TRADEMARKS AND PATENTS
The Company owns trademarks registered with the United States Patent and
Trademark Office or similar regulatory agencies in certain other countries for
its Schiff(R), Metaform(R), American Body Building(TM), Science Foods(R) and
Tiger's Milk(R) brands of products. The Company also has obtained trademarks for
certain of its products, processes and slogans and has rights to use other names
material to its business. The Company vigorously protects its trademark and
other intellectual property right. The Company currently has two patents
pending.
The Company relies on common law trademark rights to protect its
unregistered trademarks. Common law trademark rights do not provide the Company
with the same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights are
limited to the geographic area in which the trademark is actually used. The
Company registers certain of its trademarks in certain foreign jurisdictions
where the Company's products are sold or distributed. However, the protection
available in such jurisdictions may not be as extensive as the protection
available to the Company in the United States.
EMPLOYEES
At August 1, 1999, the Company employed approximately 860 persons, of whom
approximately 475 were in management, sales, purchasing, logistics and
administration and approximately 385 were in manufacturing. Additionally, the
Company utilizes temporary employees in some of its manufacturing processes. The
Company is not party to any collective bargaining arrangements and believes that
its relationship with its employees is good.
EXECUTIVE OFFICERS
The following table set forth certain information concerning the executive
officers of the Company.
NAME AGE POSITION
---- --- --------
Bruce J.Wood 49 Chief Executive Officer,
President and Director
Jerome J. Bock 59 Executive Vice President -
Operations
Stephen D. Young 45 Executive Vice President -
International
Joseph W. Baty 42 Senior Vice President -
Finance
James P. Lacey 39 Senior Vice President - Sales
Daniel A. Thomson 34 Senior Vice President - Legal
Affairs, General Counsel and
Secretary
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<PAGE>
Mr. Wood has served as Chief Executive Officer, President and a Director
of the Company since June 1999. From January 1998 to December 1998, Mr. Wood was
the President and a founder of All Stick Label LLC. From 1973 to December 1997,
Mr. Wood held various management positions with divisions of Nabisco, Inc.,
including President and Chief Executive Officer of Nabisco, Ltd., President of
Planters Lifesavers Company, and Senior Vice President, Marketing of Nabisco
Biscuit Company and Del Monte USA.
Mr. Bock has served as Executive Vice President - Operations of the
Company since July 1999. Prior to joining the Company, Mr. Bock served as Vice
President of Operations for the Hunt-Wesson Division of ConAgra, Inc. from 1993
to February 1999. From 1990 to 1993, Mr. Bock was the President of the Rolling
Pin Business Unit of Shato Holdings, Inc. Prior to joining Shato Holdings, Mr.
Bock held various operations and management positions with The Pillsbury Company
from 1962 to 1989.
Mr. Young has served as an Executive Vice President of the Company since
January 1997. From January 1994 to July 1999, Mr. Young served as the Chief
Financial Officer of the Company. Prior to joining the Company in 1993, Mr.
Young served as Vice President Finance at First Health Strategies, which he
joined in 1983. Mr. Young is a certified public accountant.
Mr. Baty has served as Senior Vice President - Finance of the Company
since January 1997. Prior to joining the Company, Mr. Baty was a partner at KPMG
LLP, which he joined in 1984. Mr. Baty is a certified public accountant.
Mr. Lacey has served as Senior Vice President - Sales of the Company since
July 1999. From January 1998 to July 1999, Mr. Lacey served as Chief Operating
Officer of Everlast Nutritional Products. From July 1996 to December 1997, Mr.
Lacey was Vice President of Sales at Powerbar, Inc. Prior to joining Powerbar,
Mr. Lacey held various sales, marketing and management positions from 1982 to
1996 with Oral B Laboratories, Nestle Food Corporation, Carnation Company and
Smith Kline-Beecham.
Mr. Thomson has served as Senior Vice President - Legal Affairs and
General Counsel of the Company since July 1998 and Secretary since July 1999.
Prior to joining the Company, Mr. Thomson was in private law practice from 1993
to July 1998 in the corporate and securities departments of Latham & Watkins and
LeBoeuf, Lamb, Greene & MacRae. Mr. Thomson, a certified public
accountant, was an accountant and consultant with the firm of Price Waterhouse
LLP from 1988 to 1990.
FACTORS AFFECTING FUTURE PERFORMANCE
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's largest customers are
GNC, Wal-Mart and Costco. These three customers accounted for approximately 43%
and 41% respectively, of the Company's net sales for the fiscal years ended May
31, 1999 and 1998. The loss of either GNC, Wal-Mart or Costco as a customer, or
a significant reduction in purchase volume by GNC, Wal-Mart or Costco, could
have a material adverse effect on the Company's results of operations or
financial condition. The Company cannot assure you that GNC, Wal-Mart and/or
Costco will continue as major customers of the Company.
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<PAGE>
DEPENDENCE ON NEW AND INDIVIDUAL PRODUCTS. The Company believes its
ability to grow in its existing market is partially dependent upon its ability
to introduce new and innovative products into these markets. Although the
Company seeks to introduce additional products each year in its existing
markets, the success of new products is subject to a number of variables,
including developing products that will appeal to customers and obtaining
necessary regulatory approvals. The Company cannot assure you that its efforts
to develop and introduce innovative new products will be successful, that
customers will accept new products or that the Company will obtain required
regulatory approvals of such new products.
In addition, the Company cannot assure you that individual or groups of
similar products currently experiencing strong popularity and rapid growth will
maintain sales levels over time. During fiscal year 1999, net sales for the
Company's Pain Free(TM) product were approximately 21% of the Company's total
net sales.
ABILITY TO IMPLEMENT BUSINESS STRATEGY. The Company's business and
operations have experienced significant growth and increased complexity in
recent years. The Company has recently refined its growth and business
strategies, designed to focus on and support the Company's core brands, products
and customers. The Company's future success depends upon its ability to
successfully implement these growth and business strategies. The Company cannot
assure you that it will be able to successfully implement these strategies or,
if implemented, that the strategies will achieve the anticipated results. The
failure to successfully implement these strategies could have a material adverse
effect on the Company's results of operations and financial condition.
AVAILABILITY OF FUTURE FINANCING. The Company's current credit facility
matures in February 2000. The Company is evaluating its financing requirements
and is discussing a new credit facility and other financing alternatives with
its current lender and other financial institutions. Although the Company
believes that a new credit facility will be finalized prior to February 2000,
the Company cannot assure that it will be able to obtain a new facility by that
date or, if obtained, that the new facility or the failure to enter into a new
credit facility on terms favorable to the Company could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION. The nutritional supplement industry is highly competitive.
Numerous companies compete with the Company in the development, manufacture and
marketing of nutritional supplements. In addition, large pharmaceutical
companies and packaged food and beverage companies compete with the Company in
the nutritional supplement market. These companies have greater financial and
other resources available to them and possess extensive manufacturing,
distribution and marketing capabilities far greater than those the Company has
available or possess. Increased competition from such companies could have a
material adverse effect on the Company's financial results and business.
IMPACT OF GOVERNMENT REGULATION ON THE COMPANY'S OPERATIONS. The Company's
operations, properties and products are subject to regulation by various
foreign, federal, state and local government entities and agencies, particularly
the FDA and FTC. See "Government Regulation." Among other matters, such
regulation is concerned with statements and claims made in
17
<PAGE>
connection with the packaging, labeling, marketing and advertising of the
Company's products. The governmental agencies have a variety of processes and
remedies available to them, including initiating investigations, issuing warning
letters and cease and desist orders, requiring corrective labeling or
advertising, requiring consumer redress, seeking injunctive relief or product
seizure, imposing civil penalties and commencing criminal prosecution.
As a result of the Company's efforts to comply with applicable statutes
and regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain aspects of its sales,
marketing and advertising programs. The Company may be subject in the future to
additional laws or regulations administered by federal, state or foreign
regulatory authorities, the repeal or amendment of laws or regulations which the
Company considers favorable, such as DSHEA, or more stringent interpretations of
current laws or regulations. The Company is unable to predict the nature of such
future laws, regulations, interpretations or applications, nor can the Company
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on the Company's business in the
future. Such future laws and regulations could, however, require the
reformulation of certain products to meet new standards, the recall or
discontinuance of certain products that cannot be reformulated, the imposition
of additional recordkeeping requirements, expanded documentation of product
efficacy, and expanded or modified labeling and scientific substantiation. Any
or all of such requirements could have a material adverse effect on the
Company's results of operations and financial condition. See "Government
Regulation."
ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL. The Company's
operations have experienced significant growth in recent years. The Company's
ability to manage that growth and added business complexity and to implement its
business strategies is largely dependent upon the efforts, performance,
abilities and continued service of the Company's management personnel. The
competition for such personnel is intense, and the Company cannot assure you it
will be able to retain key management personnel or attract and retain additional
experienced management personnel. The Company's failure to attract and retain
such personnel could have a material adverse effect on the Company's results of
operations and financial condition.
EFFECT OF UNFAVORABLE PUBLICITY. The Company believes that the nutritional
supplement market is affected by national media attention regarding the
consumption of nutritional supplements. The Company cannot assure you that
future scientific research or publicity will not be unfavorable to the
nutritional supplement market or any particular product, or inconsistent with
previous favorable research or publicity. Future reports of research that are
perceived as less favorable or that question such earlier research could have a
material adverse effect on the Company's business or financial results. The
Company also depends upon consumer perceptions of the safety, quality and
efficacy of its products as well as similar products sold or distributed by
other companies (which may not adhere to the same quality standards as the
Company). Accordingly, negative publicity associated with illness or other
adverse effects resulting from the consumption of the Company's products or any
similar products distributed by other companies could have a material adverse
impact on the Company's business or financial results. Such adverse publicity
could arise even if the adverse effects associated with such products resulted
from consumers' failure to consume such products as directed.
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<PAGE>
YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in normal business activities. The Company has
implemented a year 2000 compliance plan; however, there can be no assurance
until the year 2000 that the Company's systems will be year 2000 compliant. In
addition, the ability of third parties with whom the Company transacts business
to address adequately their Year 2000 issues is outside of the Company's
control. Any Year 2000 compliance problem of either the Company or third parties
with whom the Company transacts business could result in a material adverse
effect on the Company's business or financial results.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. The Company's continued
growth is dependent in significant part upon its ability to expand its
operations into new markets, including international markets. The Company may
experience difficulty entering new international markets due to greater
regulatory barriers, the necessity of adapting to new regulatory systems and
problems related to entering new markets with different cultural bases and
political systems.
As a result of the Company's acquisition of Haleko in July 1998, the
Company's international sales have increased substantially over historical
levels. Approximately 27% of the Company's net sales for fiscal 1999 were
generated outside the United States. Operating in international markets exposes
the Company to certain risks, including, among other things, changes in or
interpretations of foreign regulations that may limit the Company's ability to
sell certain products or repatriate products to the United States, foreign
currency fluctuations, the potential imposition of trade or foreign exchange
restrictions or increased tariffs, and political instability. As the Company
continues to expand its international operations, these and other risks
associated with international operations are likely to increase.
AVAILABILITY OF RAW MATERIALS. The Company obtains all of its raw
materials for the manufacture of its products from third parties. The Company
cannot assure you that suppliers will provide the raw materials the Company
needs in the quantities requested, at a price the Company is willing to pay or
that meet the Company's quality standards. Any significant delay in or
disruption of the supply of raw materials could, among other things,
substantially increase the cost of such materials, require reformulation or
repackaging of products, require the qualification of new suppliers; or result
in the Company's inability to meet customer demands for certain products. The
occurrence of any of the foregoing could have a material adverse effect on the
Company's results of operations or financial condition.
INTELLECTUAL PROPERTY PROTECTION. The Company believes that trademarks and
other proprietary rights are important to its success and its competitive
position. The Company's policy is to pursue registrations for all of the
trademarks associated with its key products. The Company protects its legal
rights concerning its trademarks and the Company is currently enforcing various
trademarks against infringement, both in the United States and in
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<PAGE>
foreign countries. The Company relies on common law trademark rights to protect
its unregistered trademarks. Common law trademark rights do not provide the
Company with the same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights are
limited to the geographic area in which the trademark is actually used.
POTENTIAL SALES AND EARNINGS VOLATILITY. The Company's sales and earnings
continue to be subject to potential volatility based upon, among other things,
the Company's inability to implement its business strategies; changes in
regulations that may limit or restrict the sale of certain of the Company's
products, the expansion of the Company's operations into new markets, or the
introduction of the Company's products into new markets; the Company's failure,
or its distributors' failure (and allegations of the Company's or their
failure), to comply with applicable regulations; the Company's inability to
introduce new products; lack of market acceptance of the Company's new products;
the introduction of new products by the Company's competitors; consumer
perceptions of the Company's products and operations; and general conditions in
the nutritional supplement industry.
The Company's business is, to some extent, seasonal, with lower sales
typically realized during the first and second fiscal quarters and higher sales
typically realized during the third and fourth fiscal quarters. The Company
believes such fluctuations in sales are the result of greater marketing and
promotional activities toward the end of each fiscal year, customer buying
patterns and consumer spending patterns related primarily to consumers' interest
in achieving personal health and fitness goals after the beginning of each new
calendar year and before the summer fashion season.
CONTROL BY PRINCIPAL STOCKHOLDER. Weider Health and Fitness owns all of
the outstanding shares of Class B Common Stock representing approximately 94% of
the aggregate voting power of all outstanding shares of the Company's common
stock. Weider Health and Fitness is in a position to exercise control over the
Company and to determine the outcome of all matters required to be submitted to
stockholders for approval (except as otherwise provided by law or by the
Company's amended and restated certificate of incorporation or amended and
restated bylaws) and otherwise to direct and control the operations of the
Company. Accordingly, the Company cannot engage in any strategic transactions
without the approval of Weider Health and Fitness.
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<PAGE>
ITEM 2. PROPERTIES
At May 31, 1999, the Company owned or leased the following facilities:
<TABLE>
<CAPTION>
APPROXIMATE EXPIRATION
LOCATION FUNCTION SQUARE FEET LEASE/OWN DATE OF LEASE
- -------- -------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Salt Lake City, UT Company Headquarters, 418,000 Lease March 2013
Manufacturing & Pro-
duction, Warehouse &
Distribution
Salt Lake City, UT Manufacturing & Pro- 152,000 Own N/A
duction, Warehouse
Walterboro, S.C. Manufacturing & Pro- 55,000 Own N/A
duction
Las Vegas, NV Manufacturing & Pro- 27,500 Lease November 1999
duction
Montreal, Quebec Administrative Offices 24,600 Lease Month to month
& Warehouse
Madrid, Spain Administrative Offices, 20,000 Lease September 2006
Manufacturing & Pro-
duction
Hamburg, Germany Administrative Offices 25,400 Lease September 2003
Bleckede, Germany Manufacturing & Produc- 100,000 Own N/A
tion, Warehouse
Various, Germany(1) Sales & Administrative Various Leases Various
Offices
</TABLE>
(1) The Company has several small sales and administrative offices primarily
located in Germany.
ITEM 3. LEGAL PROCEEDINGS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS RELATE TO THE COMPANY'S LEGAL
PROCEEDINGS DESCRIBED BELOW. THE COMPANY IS INVOLVED IN VARIOUS LEGAL
PROCEEDINGS WHICH ARISE IN THE ORDINARY COURSE OF ITS BUSINESS. LITIGATION IS
INHERENTLY UNCERTAIN AND MAY RESULT IN ADVERSE RULINGS OR DECISIONS AND THE
COMPANY IS UNABLE TO PREDICT THE OUTCOME OF THESE PROCEEDINGS. ADDITIONALLY, THE
COMPANY MAY ENTER INTO SETTLEMENTS OR BE SUBJECT TO JUDGMENTS WHICH MAY,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S RESULTS OF OPERATIONS. ACCORDINGLY, ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
The Company and a former subsidiary, Schiff(R) Products, Inc. ("Schiff(R)
Products"), together with other distributors, manufacturers and retailers of
L-Tryptophan, are defendants in actions in federal and state courts seeking
compensatory and, in some cases, punitive damages for alleged personal injuries
resulting from the ingestion of products containing allegedly contaminated
L-Tryptophan. The Company acquired Schiff(R) Products pursuant to an asset
acquisition transaction in 1989. Schiff(R) Products was a distributor of
L-Tryptophan, but neither the Company nor Schiff(R) Products ever distributed
products that are the subject of the lawsuits. In each lawsuit, the L-Tryptophan
products were shipped by the entity from whom the Company purchased the
trademark Schiff(R) and other assets in 1989. The Company and Schiff(R) Products
have entered into an indemnification agreement (the "Indemnification Agreement")
with Showa Denko America ("SDA"), a U.S. subsidiary of a Japanese Corporation,
Showa Denko, K.K. ("SDK"). Under the
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<PAGE>
Indemnification Agreement, SDA agreed to assume the defense of all claims
arising out of the ingestion of L-Tryptophan products, pay all legal fees and
indemnify the Company and its affiliates against liability in any action if it
is determined that a proximate cause of the injury sustained by the plaintiff in
the action was a constituent of the raw material sold by SDA to Schiff(R)
Products, or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that action by the Company or Schiff(R)
Products proximately contributed to the injury, and except for certain claims
relating to punitive damages. SDK has posted a revolving irrevocable letter of
credit for the benefit of the indemnified group if SDA is unable or unwilling to
satisfy any claims or judgments. SDK has unconditionally guaranteed the payment
obligations of SDA under the Indemnification Agreement. In management's
judgment, the outcome of this matter will not have a material adverse effect on
the Company's financial position or results of operation.
In March 1999, the plaintiff's attorney involved in a previously settled
California matter regarding certain of the Company's bar products filed a
lawsuit on behalf of Michael Morelli and an alleged class in the Supreme Court
of the State of New York (New York County) alleging similar unfair competition
and false advertising claims under New York law. In May 1999, the plaintiff's
attorney also filed a lawsuit on behalf of Lisa Fasig and an alleged class in
the Circuit Court of Lee County, Florida alleging similar claims under Florida
law. The Company disputes the allegations and will vigorously oppose the
lawsuits.
In April 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(TM), 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. In June 1997, Nutramax filed a counterclaim against the
Company alleging that the Company was infringing on one or more of Nutramax's
patents. The litigation was transferred to the United States District Court for
the District of Maryland, where Nutramax had previously commenced litigation
alleging that over twenty other entities had also infringed those patents.
Nutramax also filed a lawsuit in Maryland State Court in August 1998 against the
Company and one of its employees alleging breaches of certain claimed
confidentiality obligations. In August 1999, the Company, Nutramax and the other
entities entered into a settlement agreement resolving the litigations. Pursuant
to the terms of the settlement agreement, the defendants made a one-time cash
payment to Nutramax and the defendants are authorized to sell all of the
allegedly infringing products.
As previously disclosed, the Company was named as a defendant in a lawsuit
in the United States District Court for the Southern District of Florida
alleging that the Company's Pain Free(TM) product infringed upon an alleged
"Pain-Free HP" trademark used by the plaintiff. In April 1999, the parties
entered into a settlement agreement resolving the matter. Pursuant to the terms
of the settlement agreement, the plaintiff and another party received a cash
payment in exchange for an assignment to the Company of all of their rights
relating to Pain Free(TM) and related trademarks.
The Company has been in discussions with the FTC regarding the Company's
advertising with the Company's PhenCal products. See "Government Regulation"
under Item 1. above for further information.
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<PAGE>
The Company is involved in other claims, legal actions and governmental
proceedings that arise from the Company business operations. Although ultimate
liability cannot be determined at the present time, the Company believes that
any liability resulting from these matters, if any, after taking into
consideration the Company's insurance coverage, will not have a material adverse
effect on the Company's financial position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In May 1997, the Company completed its initial public equity offering of
6,440,000 shares (includes over-allotment of 840,000 shares) of Class A common
stock, $.01 par value per share, which were issued at $11.00 per share (the
"IPO"). The Company's Class A common stock is traded on the New York Stock
Exchange under the symbol "WNI."
The high and low closing prices of the Company's Class A common stock for
each quarter of fiscal 1999 and 1998, respectively, are set forth below:
FISCAL YEAR ENDED MAY 31, 1999: HIGH LOW
------ ------
First Quarter............................ $17.38 $ 8.81
Second Quarter........................... 10.75 4.25
Third Quarter............................ 7.50 5.25
Fourth Quarter........................... 6.50 4.50
FISCAL YEAR ENDED MAY 31, 1998:
First Quarter............................ $19.75 $12.25
Second Quarter........................... 15.25 10.38
Third Quarter............................ 15.13 10.75
Fourth Quarter........................... 16.13 11.00
The high and low closing prices of the Company's common stock subsequent
to the IPO through May 31, 1997, were $12.75 and $11.13, respectively.
The Company paid a quarterly dividend of $0.0375 per share (annual
dividend of $0.15 per share) for fiscal 1999 and 1998, respectively. In
addition, the Company paid a quarterly dividend of $0.0375 per share subsequent
to year end. The dividend was declared to be payable on June 28, 1999 to holders
of all classes of common stock of record at the close of business on June 21,
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 Company's credit agreement with General Electric
Capital Corporation contains certain customary financial covenants that may
limit the Company's ability to pay dividends on its common stock (See Note 7 to
the Consolidated Financial Statements). Accordingly, there can be no assurance
that the Company will be able to sustain the payment of dividends in the future.
23
<PAGE>
The closing price of the Company's Class A common stock on August 2, 1999
was $4.75. The approximate number of stockholders of record on August 2, 1999
was 355.
On July 24, 1998, the Company acquired 100% of the outstanding shares of
Haleko, a corporation organized under the laws of Germany (see Note 2 to
Consolidated Financial Statements). The initial purchase price was comprised of
$25.6 million in cash, 200,000 shares of Class A common stock and up to an $8.4
million contingent earnout agreement tied to future financial performance for
the subsequent three-year period. The securities were not registered under the
Securities Act of 1933, as amended, in reliance under the exemption set forth
under Regulation S. The securities were sold to foreign persons and no offers or
sales were made within the United States.
24
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial data as of, and for the
fiscal years ended May 31, 1995 through May 31, 1999 have been derived from the
Company's consolidated financial statements, which have been audited by Deloitte
& Touche LLP, independent auditors. The financial data should be read in
conjunction with the consolidated financial statements and notes thereto,
included elsewhere in this Annual Report on Form 10-K. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
(Dollars in thousands) FISCAL YEAR ENDED MAY 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ......................... $ 90,927 $ 186,405 $ 218,566 $ 250,542 $ 335,488
Cost of goods sold ................ 55,411 116,177 136,875 161,334 221,062
--------- --------- --------- --------- ---------
Gross profit ...................... 35,516 70,228 81,691 89,208 114,426
--------- --------- --------- --------- ---------
Operating expenses ................ 24,226 41,068 51,745 60,903 104,834
Plant consolidation & transition .. -- -- -- -- 5,113
Other inventory related charges ... -- -- -- -- 4,115
Severance & recruiting charges .... -- -- -- -- 3,062
Impairment of intangible assets ... -- -- 2,095 -- 535
Management and employee compensa-
tion charges ..................... -- -- 14,495 401 804
--------- --------- --------- --------- ---------
Total operating expenses .......... 24,226 41,068 68,335 61,304 118,463
--------- --------- --------- --------- ---------
Income (loss) from operations ..... 11,290 29,160 13,356 27,904 (4,037)
Other income (expense):
Interest, net .................... (1,079) (3,736) (5,791) (4,219) (9,550)
Other ............................ 147 (253) (557) (671) (430)
--------- --------- --------- --------- ---------
Total ........................ (932) (3,989) (6,348) (4,890) (9,980)
--------- --------- --------- --------- ---------
Income (loss) before income taxes . 10,358 25,171 7,008 23,014 (14,017)
Provision for income taxes (benefit) 4,266 10,207 2,708 9,010 (5,239)
--------- --------- --------- --------- ---------
Net income (loss) ................. $ 6,092 $ 14,964 $ 4,300 $ 14,004 $ (8,778)
========= ========= ========= ========= =========
Weighted average shares
outstanding, in thousands (1):
Basic ............................. 17,245 17,866 24,702 24,930
========= ========= ========= =========
Diluted ........................... 17,245 17,866 25,001 24,930
========= ========= ========= =========
Net income (loss) per share (1):
Basic ............................. $ 0.87 $ 0.24 $ 0.57 $ (0.35)
========= ========= ========= =========
Diluted ........................... $ 0.87 $ 0.24 $ 0.56 $ (0.35)
========= ========= ========= =========
<CAPTION>
AT MAY 31,
-------------------------------------------------------------
(In Thousands) 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents ....... $ 2,272 $ 1,592 $ 1,259 $ 684 $ 1,926
Working capital (2) ............. 25,044 42,605 62,016 85,688 79,001
Total assets .................... 70,048 133,147 168,756 209,740 256,029
Total debt ...................... 28,616 68,054 45,094 70,346 115,439
Total stockholders' equity ...... 28,100 39,332 92,424 103,136 91,780
</TABLE>
(1) During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share."
Earnings per share amounts for fiscal 1996 and 1997 have been restated to
conform to the requirements of SFAS No. 128.
(2) Working capital at May 31, 1999 excludes $98,654 due GECC in February 2000
under the Company's credit facility (See Note 1 to the Consolidated Financial
Statements). Including such amount, working capital (deficit) amounts to
$(19,653) at May 31, 1999.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS ANNUAL 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. THESE
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND
THE COMPANY'S CONTROL, 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 AFFECT FUTURE RESULTS INCLUDE, BUT ARE NOT
LIMITED TO: COMPLETION OF THE SKU REDUCTION PROGRAM AS ANTICIPATED BY THE
COMPANY, THE COMPANY'S ABILITY TO IMPLEMENT MORE SOPHISTICATED OPERATING SYSTEMS
AND INVENTORY MANAGEMENT PROGRAMS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, DEPENDENCE ON INDIVIDUAL PRODUCTS, THE REALIZABLE VALUE OF DISCONTINUED
SKUS, MARKET CONDITIONS INCLUDING PRICING, DEMAND FOR PRODUCTS AND THE LEVEL OF
TRADE INVENTORIES, THE SUCCESS OF PRODUCT DEVELOPMENT AND NEW PRODUCT
INTRODUCTIONS INTO THE MARKETPLACE, CHANGES IN LAWS AND REGULATIONS, THE
COMPANY'S ABILITY TO IDENTIFY, RECRUIT AND INTEGRATE KEY MANAGEMENT PERSONNEL,
INCLUDING THE COST AND TIMING THEREOF, LITIGATION AND GOVERNMENT REGULATORY
ACTION, AVAILABILITY OF FUTURE FINANCING, UNCERTAINTY OF MARKET ACCEPTANCE OF
NEW PRODUCTS, RESULTS OF MANAGEMENT'S EVALUATION OF ITS BUSINESS OPERATIONS AND
STRATEGIES, AND OTHER FACTORS DISCUSSED UNDER "FACTORS AFFECTING FUTURE
PERFORMANCE" IN ITEM 1 OF THIS ANNUAL REPORT.
OVERVIEW
The Company develops, manufactures, markets, distributes and sells branded
and private label vitamins, nutritional supplements and sports nutrition
products in the United States and throughout the world. Net income (loss) for
the years ended May 31, 1999, 1998 and 1997 amounted to $(8.8) million, $14.0
million and $4.3 million, respectively. The Company's fiscal 1999 results were
affected by several strategic initiatives that were initially and/or primarily
implemented during the year. These initiatives included, among others, the
closing of the Company's capsule and tablet manufacturing facility in
California, the refinement of the Company's growth and business strategies
designed to focus on its primary brands and customers, the decision to reduce
active domestic SKUs by over two-thirds, organizational changes and upgrading
management systems (including senior management changes), the elimination of
contract manufacturing where the company does not now have, or does not believe
in the future will have, other business relationships with such contract
manufacturing customers, the expansion of the company's international operations
primarily from the acquisition of Haleko, the introduction of an enhanced
marketing plan resulting in significant increases in selling, marketing and
advertising costs, and certain other initiatives.
26
<PAGE>
The implementation of these initiatives and the refinement of the
Company's growth and business strategies is an ongoing process. While the focus
of this process is to improve future profitability, no assurance can be given
that decisions made by the Company relating to these initiatives will not
adversely effect the Company's financial condition and results of operations.
The Company experienced growth in sales over the past three fiscal years.
Net sales were $335.5 million, $250.5 million and $218.6 million for fiscal
1999, 1998 and 1997, respectively. The Company's growth has been a result of
increased demand for the Company's products, including the introduction of new
products, the Company's increased penetration of the growing mass volume retail
distribution channel and the Company's acquisition strategy. In July 1998, the
Company acquired 100% of the outstanding shares of Haleko Hanseatisches
Lebensmittle Kontor GmbH, corporation organized under the laws of Germany
("Haleko"). Haleko is the largest sports nutrition company in Europe. The
Company's acquisition of Haleko resulted in incremental net sales of
approximately $73.4 million (ten months) in fiscal 1999. Haleko had sales of
approximately $69 million for the twelve months ending May 31, 1998.
Net sales increased 33.9% in fiscal 1999 compared to an increase of 14.6%
in fiscal 1998. The Company's higher growth rate in fiscal 1999, in comparison
to fiscal 1998, resulted primarily from the impact of the Haleko acquisition and
the continued growth in the mass market distribution channel. Overall sales
growth was offset by certain of the strategic initiatives described above,
including, among other decisions, the elimination of approximately two-thirds of
the Company's domestic SKUs during the course of the fiscal year, and the
significant reduction of certain contract manufacturing projects.
The following table shows selected items as reported and as a percentage
of net sales for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ................ $ 335,488 100.0% $ 250,542 100.0% $ 218,566 100.0%
Cost of goods
sold ................... 221,062 65.9 161,334 64.4 136,875 62.6
--------- ----- --------- ----- --------- -----
Gross profit ............. 114,426 34.1 89,208 35.6 81,691 37.4
--------- ----- --------- ----- --------- -----
Operating
expenses ............... 104,834 31.3 60,903 24.3 51,745 23.7
Plant consolidation &
transition ............. 5,113 1.5 -- -- -- --
Other inventory related
charges ................ 4,115 1.2 -- -- -- --
Severance & recruiting
charges ................ 3,062 .9 -- -- -- --
Management & employee
compensation
charges ................ 804 .2 401 .2 14,495 6.6
Impairment of
intangible
assets ................. 535 .2 -- -- 2,095 1.0
--------- ----- --------- ----- --------- -----
Total operating
expenses ............... 118,463 35.3 61,304 24.5 68,335 31.3
--------- ----- --------- ----- --------- -----
Income (loss) from
operations ............. (4,037) (1.2) 27,904 11.1 13,356 6.1
Other expense, net ....... 9,980 3.0 4,890 2.0 6,348 2.9
Provision for
income taxes (benefit) . (5,239) (1.6) 9,010 3.5 2,708 1.2
--------- ----- --------- ----- --------- -----
Net income (loss) ........ $ (8,778) (2.6)% $ 14,004 5.6% $ 4,300 2.0%
========= ===== ========= ===== ========= =====
</TABLE>
27
<PAGE>
RESULTS OF OPERATIONS
(FISCAL 1999 COMPARED TO FISCAL 1998)
NET SALES. Net sales for the year ended May 31, 1999 increased $85.0
million, or 33.9%, to $335.5 million from $250.5 million for the year ended May
31, 1998.
The following table shows comparative net sales results categorized by
distribution channel as reported and as a percentage of net sales for the
years indicated (dollars in thousands):
1999 1998
--------------- ---------------
Mass volume retailers ............... $152,046 45.4% $110,388 44.4%
Health food retailers & distributors. 56,178 16.7 61,742 24.6
Health club and gym distributors .... 24,960 7.4 25,853 10.3
International markets ............... 89,189 26.6 17,295 6.6
Contract manufacturing .............. 8,474 2.5 30,341 12.1
Other ............................... 4,641 1.4 4,923 2.0
-------- ----- -------- -----
Total ......................... $335,488 100.0% $250,542 100.0%
======== ===== ======== =====
Sales to mass volume retailers (including food, drug, mass, club, and
convenience stores) and international markets increased during 1999 compared to
1998. Sales to mass volume retailers increased approximately 37.7% to $152.0
million in 1999 from $110.4 million 1998. The increase in sales to mass volume
retailers resulted primarily from increased penetration of the market and the
sale of new products offset by the effects of the Company's fiscal 1999
strategic initiatives. Sales of Pain Free(TM) amounted to approximately $71
million for the year ended May 31, 1999 compared to $17.9 million for the year
ended May 31, 1998.
Sales to international markets increased $71.9 million to $89.2 million
for the year ended May 31, 1999 from $17.3 million for the year ended May 31,
1998. The increase in sales to international markets resulted primarily from the
Company's acquisition of Haleko offset by a relatively small decrease in other
international sales volume (resulting primarily from a change in year end for
international operations). Haleko's sales for fiscal 1999 (ten months) amounted
to approximately $73.4 million.
Overall sales to health food retailers and distributors decreased
approximately 9.0% to $56.2 million for fiscal 1999 compared to $61.7 million
for fiscal 1998. The decrease in sales resulted primarily from the Company's
increased focus on the mass market distribution channel together with certain
individual retailers in the health food distribution channel. Sales to GNC, the
Company's most significant health food retailer, remained relatively constant in
fiscal 1999 compared to fiscal 1998, whereas sales to health food distributors
decreased in fiscal 1999 compared to fiscal 1998.
Contract manufacturing (private label) sales volume decreased
approximately 72.1% to $8.5 million for the year ended May 31, 1999 from $30.3
million for the year ended May 31, 1998. This reduction is primarily the result
of the Company's decision to limit contract manufacturing business to only those
customers who have, or may in the future have, other business relationships with
the Company. Private label business for customers with whom other business
relationships exist are included in the net sales amounts for the distribution
channel applicable to the customer. Sales to health club and gym distributors
decreased approximately 3.5% to $25.0 million for fiscal 1999 compared to $25.9
million for fiscal 1998. The decrease resulted primarily from reduced volumes
with certain distributors.
The Company's three largest customers accounted for approximately 43% of
the Company's aggregate net sales for the year ended May 31, 1999 and 41% for
the year ended May 31, 1998.
28
<PAGE>
GROSS PROFIT. Gross profit increased approximately 28.3% to $114.4 million
in the year ended May 31, 1999 from $89.2 million in the year ended May 31,
1998. Gross profit, as a percentage of net sales, was 34.1% for the year ended
May 31, 1999 compared to 35.6% for the year ended May 31, 1998. The decrease in
the gross profit percentage resulted primarily from inventory charges recognized
due to the Company's SKU reduction program together with associated credits for
returned goods.
OPERATING EXPENSES. Operating expenses increased approximately 93.2% to
$118.5 million in the year ended May 31, 1999 from $61.3 million in the year
ended May 31, 1998. As discussed previously, the Company initiated several
strategic decisions during fiscal 1999, including, among others, the closing of
its California-based capsule and tablet manufacturing facility, the
implementation of a domestic SKU reduction program, organizational changes and
upgrading management systems, the introduction of a significantly enhanced
selling, marketing and advertising plan, and the expansion of the Company's
international operations. These initiatives, together with the acquisition of
Haleko, general sales growth and increased legal costs, resulted in a
significant increase in total operating expenses.
Selling and marketing expenses increased approximately 78.6% to $70.1
million in the year ended May 31, 1999 from $39.2 million in the year ended May
31, 1998. Selling and marketing expenses as a percentage of net sales were 20.9%
for the year ended May 31, 1999 compared to 15.7% for the year ended May 31,
1998. The increase in selling and marketing expense resulted primarily from the
Company's acquisition of Haleko and incremental advertising and promotional
costs in support of the Company's brand building strategies. Total selling,
marketing and advertising costs amounted to $49.8 million in fiscal 1999
compared to $24.2 million in fiscal 1998. Incremental selling and marketing
costs resulting from the Haleko acquisition amounted to $18.1 million in fiscal
1999.
General and administrative expenses, as a percentage of net sales, were
8.0% for the year ended May 31, 1999 compared to 6.2% for the year ended May 31,
1998. The increase resulted primarily from increased legal costs, "Year 2000"
implementation and compliance costs, as well as other costs associated with
information system capabilities and the incremental costs associated with the
acquisition of Haleko.
OTHER EXPENSE. Other expense, net, amounted to $10.0 million for the year
ended May 31, 1999 compared to $4.9 million for the year ended May 31, 1998. The
net increase of approximately $5.1 million consists primarily of increased
interest costs associated with additional indebtedness incurred in connection
with the acquisition of Haleko as well as a higher overall effective borrowing
rate for fiscal 1999 in comparison to fiscal 1998.
PROVISION FOR INCOME TAXES. The Company recognized an income tax benefit
for the fiscal year ended May 31, 1999 as a result of its pretax loss. The
Company's overall effective tax rate is higher in fiscal 1999, in comparison to
1998, primarily as a result of a higher effective tax rate associated with
Haleko's operating results. Income taxes (benefit)as a percentage of pre-tax
income, amounted to approximately 37.4% for the year ended May 31, 1999 compared
to 39.2% for the year enced May 31, 1998.
RESULTS OF OPERATIONS
(FISCAL 1998 COMPARED TO FISCAL 1997)
NET SALES. Net sales increased approximately 14.6% to $250.5 million in
fiscal 1998 from $218.6 million in fiscal 1997. The increase in net sales in
fiscal 1998 resulted primarily from increased sales to mass volume and health
food store retailers and distributors resulting from introduction of new
products, together with smaller sales volume increases in other distribution
channels.
29
<PAGE>
The following table shows comparative net sales results categorized by
distribution channel as reported and as a percentage of net sales for the
fiscal years indicated (dollars in thousands):
1998 1997
---------------- ----------------
Mass volume retailers ............ $110,388 44.4% $ 83,420 38.1%
Health food retailers &
distributors ................... 61,742 24.6 48,194 22.1
Health club and gym
distributors ..................... 25,853 10.3 23,721 10.9
International markets ............ 17,295 6.6 18,790 8.6
Contract manufacturing ........... 30,341 12.1 38,430 17.6
Other ............................ 4,923 2.0 6,011 2.7
-------- ----- -------- -----
Total ............................ $250,542 100.0% $218,566 100.0%
======== ===== ======== =====
Sales to mass volume retailers increased approximately 32.3% to $110.4
million in fiscal 1998 from $83.4 million in fiscal 1997. The increase in sales
to mass volume retailers in fiscal 1998 resulted primarily from expanding
distribution to existing accounts through the introduction of new branded
products such as Pain Free(TM) and PhenCal(R). Sales to health food retailers
and distributors increased approximately 28.1% to $61.7 million in fiscal 1998
from $48.2 million in fiscal 1997. The increase in sales to health food
retailers was primarily the result of the introduction of new products under the
Metaform(R) line.
Contract manufacturing sales volume decreased 21.0% to $30.3 million in
fiscal 1998 from $38.4 million in fiscal 1997. The decrease in sales resulted
primarily from reduced contract manufacturing projects for certain customers.
Sales to international markets decreased approximately 8.0% to $17.3 million in
fiscal 1998 from $18.8 million in fiscal 1997. The decrease in sales to
international markets resulted primarily from lower sales volume in Canada and
the United Kingdom. Sales to other customers decreased approximately 18.1% to
$4.9 million in fiscal 1998 from $6.0 million in fiscal 1997. The decrease in
sales to other customers was primarily attributable to reduced volume with the
military.
The Company's three largest customers accounted for approximately 41% of
net sales for the year ended May 31, 1998 and 28% for the year ended May 31,
1997.
GROSS PROFIT. Gross profit increased approximately 9.2% to $89.2 million
in fiscal 1998 from $81.7 million in fiscal 1997. The increase in gross profit
in fiscal 1998 resulted primarily from the increase in sales in fiscal 1998 from
fiscal 1997. Gross margin decreased to 35.6% for fiscal 1998 from 37.4% for
fiscal 1997, primarily as a result of changes in the sales mix and unexpected
delays and start-up costs associated with the opening of the Company's new
manufacturing and distribution facility, which also resulted in higher than
expected levels of outsourced manufacturing.
OPERATING EXPENSES. Operating expenses, including selling and marketing,
general and administrative and amortization expenses, increased approximately
17.7% to $60.9 million in the year ended May 31, 1998 from $51.7 million in the
year ended May 31, 1997, excluding certain unusual charges in fiscal 1997. In
connection with the Company's initial public offering in May 1997, the Company
recognized a compensation charge totaling approximately $14.5 million ($.4
million in 1998). In addition, the Company recognized an asset impairment charge
of $2.1 million in fiscal 1997 in connection with the adoption of SFAS No. 121.
Including these charges, operating expenses amounted to $68.3 million in fiscal
1997.
30
<PAGE>
Selling and marketing expenses, including sales, marketing, advertising
and freight costs, increased approximately 19.7% to $39.2 million in fiscal 1998
from $32.8 million in fiscal 1997. The increase in selling and marketing
expenses in fiscal 1998 resulted primarily from increased advertising costs and
personnel required to handle higher volumes of products associated with
increased sales. Selling and marketing expenses as a percentage of net sales
were 15.7% in fiscal 1998 compared to 15.0% in fiscal 1997.
General and administrative expenses increased approximately 6.3% to $15.5
million in fiscal 1998 from $14.6 million in fiscal 1997. The increase in
general and administrative expenses in fiscal 1998 resulted primarily from
additional personnel and overhead costs associated with increased sales volume,
and increased legal costs, offset in part by reduced provisions for employee
bonuses. General and administrative expenses as a percentage of net sales were
6.2% in fiscal 1998 compared to 6.7% in fiscal 1997.
The expense for amortization of intangible assets increased approximately
4.4% to $2.2 million for fiscal 1998 from $2.1 million for fiscal 1997. The
increase in amortization of intangible assets resulted primarily from the
acquisition of Science Foods during fiscal 1997. Amortization of intangible
assets expense as a percentage of net sales remained relatively constant.
OTHER EXPENSE. Other expense decreased approximately 23.0% to $4.9 million
in fiscal 1998 from $6.3 million in fiscal 1997. The decrease in other expense
resulted primarily from a decrease in interest expense of 19.4% to $4.8 million
in fiscal 1998 from $6.0 million in fiscal 1997. Interest expense decreased in
fiscal 1998 primarily as a result of a reduction in the Company's overall
effective interest rate. In addition, other expense, net, decreased as a result
of an increase in interest income in fiscal 1998 resulting from the increase in
interest bearing notes due from officers.
PROVISION FOR INCOME TAXES. Provision for income taxes increased
approximately 232.7% to $9.0 million in fiscal 1998 from $2.7 million in fiscal
1997. The dollar increase in provision for income taxes resulted primarily from
increased taxable income in fiscal 1998 compared to fiscal 1997. As noted above,
pre-tax earnings in fiscal 1997 were impacted by the one-time compensation
charge of $14.5 million and the adoption of SFAS No. 121 ($2.1 million).
Provision for income taxes as a percentage of pre-tax earnings was 39.2% in
fiscal 1998 compared to 38.6% in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Concurrent with the Company's IPO in May 1997, the Company entered into an
amended credit agreement (the "Credit Agreement") with GECC. The Credit
Agreement is a $115.0 million (as amended) senior secured, credit facility that
contains customary terms and conditions, including, subject to permitted
amounts, a limitation on the ability of the Company to pay dividends on its
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 and, if necessary, to effect acquisitions. Borrowings under
the Credit Agreement bear interest at floating rates and mature in February
2000. Accordingly, amounts outstanding under the Credit Agreement at May 31,
1999, are included in the current portion of long-term debt. At May 31, 1999,
the Company had $16.3 million of available credit under the Credit Agreement.
31
<PAGE>
The Company is presently evaluating its financing requirements and has
commenced discussions with its current lender and other banking institutions
regarding a new credit facility and/or other financing alternatives. Management
believes that a new credit facility will be finalized by the end of the
Company's fiscal quarter ending November 30, 1999. Management expects that the
credit facility will be refinanced on a long-term basis.
The Company's wholly-owned subsidiary, Haleko, consummated a new credit
facility in July 1999. The credit facility essentially eliminated several
smaller lines of credit, and coupled with one other existing line of credit,
provides Haleko with approximately $16.2 million of aggregate borrowing
availability. The credit facilities renew annually. At May 31, 1999, Haleko's
aggregate borrowings amounted to approximately $7.6 million.
Excluding amounts outstanding under the Credit Agreement with GECC ($98.7
million), the Company had working capital of approximately $79.0 million at May
31, 1999 compared to $85.7 million at May 31, 1998. This decrease resulted
primarily from the assumption of short term debt obligations in connection with
the acquisition of Haleko.
Inventories increased primarily as a result of the acquisition of Haleko
(approximately $8.9 million), partially offset by results of the Company's SKU
reduction program and other Company strategic initiatives. Other current assets
and other current liabilities increased primarily due to the acquisition of
Haleko.
During fiscal 1999, the Company's aggregate current and long-term debt
increased approximately $45.1 million to $115.4 million at May 31, 1999
primarily as a result of increased borrowings for the acquisition of Haleko and
the assumption of approximately $14.8 million in Haleko indebtedness.
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 or alternative financing (see
Note 1 to the Consolidated Financial Statements). The Company also from time to
time may evaluate strategic acquisitions as the nutritional supplements industry
continues to consolidate. The funding of future acquisitions, if any, 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 (annual
dividend of $0.15 per share) for fiscal 1999. In addition, the Company paid a
quarterly dividend of $0.0375 per share subsequent to year end. The dividend was
declared to be payable on June 28, 1999 to holders of all classes of common
stock of record at the close of business on June 21, 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.
IMPACT OF INFLATION
The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to continue to do so in the future.
32
<PAGE>
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which supersedes SFAS No. 80, "Accounting
for Futures Contracts," SFAS No. 105, "Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk," and SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments," and also amends
certain aspects of other SFAS's previously issued. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's
financial statements for the year ending May 31, 2001. The Company does not
expect the impact of SFAS No. 133 to be material in relation to its financial
statements.
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 assigned a senior level manager to
oversee the Year 2000 Project and 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 microporocessor 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. The Company's assessment of its year 2000 issues
is substantially complete and the Company made a 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
has conducted tests to support these claims.
Approximately $600,000 has been spent on the substantially completed Year
2000 Project as of May 31, 1999. 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 the failure to solve such
issues will not have a material adverse effect on the Company.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data for the Company are on the
following pages F-1 through F-24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Item 1 - Executive Officers" for certain information relating to the
Company's executive officers. See also the Company's Proxy Statement,
incorporated by reference in Part III of this Form 10-K, under the heading
"Directors and Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement, incorporated by references in Part III
of this Form 10-K, under the headings "Executive Compensation" and "Certain
Relationships and Related Party Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Company's Proxy Statement, incorporated by reference in Part III
of this Form 10-K, under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
See the Company's Proxy Statement, incorporated by reference in Part III
of this Form 10-K, under the heading "Certain Relationships and Related Party
Transactions."
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements included with this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
(3) Exhibits
2.1 Stock Purchase Agreement, dated July 9, 1998, by and among Weider
Nutrition Group, Inc. and Wolfgang Brandt and Eberhardt Schluter. (2)
2.2 Amendment Deed to Stock Purchase Agreement, dated July 24, 1998. (2)
2.3 Share Transfer Deed, dated July 24, 1998 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 Internaitonal, 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)
4.8 Seventh Amendment to Amended and Restated Credit Agreement date as of June
24, 1999 among Weider Nutrition International, Inc. and certain of its
affiliates and General Electric Capital Corporation and certain other
lenders.(6)
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 (1)
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)
36
<PAGE>
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 Bruce J. Wood. (6)
21 Subsidiaries of Weider Nutrition International, Inc.(6)
23.1 Independent Auditors' Consent (6)
27.1 FINANCIAL DATA SCHEDULE SUMMARY (6)
- ---- -------------------------------------
(1) Filed as an Exhibit to the Company's Registration Statement on Form 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) Previously filed in the Company's Current Report on Form 10-Q dated as of
April 6, 1999 and incorporated herein by reference.
(6) FILED HEREWITH.
- ---- -------------------------------------
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of fiscal
1999.
(c) Item 601 Exhibits
The exhibits required by Item 601 of Regulation S-K are set forth in
(a) (3) above.
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K are set
forth in (a) (2) above.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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.
Dated: August 30, 1999 By: /S/ BRUCE J. WOOD
Bruce J. Wood
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
/S/ ERIC WEIDER Chairman of the Board August 30, 1999
and Director
/S/ BRUCE J. WOOD Chief Executive Officer, August 30, 1999
President and Director
(Principal Executive Officer)
/S/ JOSEPH W. BATY Senior Vice President, August 30, 1999
Finance (Principal Financial
Accounting Officer)
/S/ RONALD L. COREY Director August 30, 1999
/S/ ROGER H. KIMMEL Director August 30, 1999
/S/ GEORGE F. LENGVARI Director August 30, 1999
/S/ DONALD G. DRAPKIN Director August 30, 1999
/S/ GLENN W. SCHAEFFER Director August 30, 1999
/S/ DAVID J. GUSTIN Director August 30, 1999
38
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets at May 31, 1999 and 1998........................ F-3
Consolidated Statements of Operations, Years Ended
May 31, 1999, 1998 and 1997................................................. F-4
Consolidated Statements of Stockholders' Equity,
Years Ended May 31, 1999, 1998 and 1997..................................... F-5
Consolidated Statements of Cash Flows, Years
Ended May 31, 1999, 1998 and 1997........................................... F-6
Notes to Consolidated Financial Statements.................................. F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Weider Nutrition International, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Weider Nutrition
International, Inc. and subsidiaries (collectively, the "Company") as of May 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended May 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Weider Nutrition International,
Inc. and subsidiaries at May 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
August 13, 1999
F-2
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,926 $ 684
Receivables (Note 3) .................................... 60,524 55,204
Inventories (Note 4) .................................... 63,658 60,523
Prepaid expenses and other .............................. 4,712 3,193
Deferred taxes (Note 8) ................................. 7,387 3,896
--------- ---------
Total current assets ................................ 138,207 123,500
--------- ---------
Property and equipment, net (Note 5) ...................... 48,872 41,962
--------- ---------
Other assets:
Intangible assets, net (Note 6) ......................... 51,980 24,392
Deposits and other assets ............................... 12,806 14,668
Notes receivable related to
stock performance units (Note 9) ...................... 4,164 3,987
Deferred taxes (Note 8) ................................. -- 1,231
--------- ---------
Total other assets .................................. 68,950 44,278
--------- ---------
Total assets .................................. $ 256,029 $ 209,740
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 25,492 $ 26,359
Accrued expenses ........................................ 18,406 6,432
Earnout amounts payable (Note 2) ........................ 3,246 --
Current portion of long-term debt (Note 7) .............. 110,716 1,554
Income taxes payable .................................... -- 3,467
--------- ---------
Total current liabilities ........................... 157,860 37,812
--------- ---------
Long-term debt (Note 7) ................................... 4,723 68,792
--------- ---------
Deferred taxes (Note 8) ................................... 1,666 --
--------- ---------
Commitments and contingencies (Notes 2, 9, 10 and 11)
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-9,334,036 (1999) and 9,048,349 (1998) ..... 93 91
Class B common stock, par value $.01 per share; shares
authorized-25,000,000; shares issued and
outstanding-15,687,432 (1999 and 1998) ................ 157 157
Additional paid-in capital .............................. 82,985 79,671
Other accumulated comprehensive loss .................... (2,331) (165)
Retained earnings ....................................... 10,876 23,382
Total stockholders' equity .......................... 91,780 103,136
--------- ---------
Total liabilities and stockholders' equity .... $ 256,029 $ 209,740
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .......................... $ 335,488 $ 250,542 $ 218,566
Cost of goods sold ................. 221,062 161,334 136,875
------------ ------------ ------------
Gross profit ....................... 114,426 89,208 81,691
------------ ------------ ------------
Operating expenses:
Selling and marketing ............ 70,072 39,230 32,776
General and administrative ....... 26,895 15,515 14,594
Research and development ......... 4,629 3,983 2,291
Amortization of intangible assets 3,238 2,175 2,084
Plant consolidation and transition 5,113 -- --
Other inventory related charges .. 4,115 -- --
Severance and recruiting charges . 3,062 -- --
Asset impairment costs ........... 535 -- 2,095
Management and employee
compensation charges ........... 804 401 14,495
------------ ------------ ------------
Total operating expenses 118,463 61,304 68,335
------------ ------------ ------------
Income (loss) from operations ...... (4,037) 27,904 13,356
------------ ------------ ------------
Other income (expense):
Interest income .................. 629 599 187
Interest expense ................. (10,179) (4,818) (5,978)
Other ............................ (430) (671) (557)
------------ ------------ ------------
Total other expense, net (9,980) (4,890) (6,348)
------------ ------------ ------------
Income (loss) before income taxes .. (14,017) 23,014 7,008
Provision for income taxes (benefit) (5,239) 9,010 2,708
------------ ------------ ------------
Net income (loss) .................. $ (8,778) $ 14,004 $ 4,300
============ ============ ============
Weighted average shares outstanding:
Basic ............................ 24,930,272 24,702,283 17,866,157
Diluted .......................... 24,930,272 25,000,616 17,866,157
Net income (loss) per share:
Basic ............................ $ (0.35) $ 0.57 $ 0.24
============ ============ ============
Diluted .......................... $ (0.35) $ 0.56 $ 0.24
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
CLASS A CLASS B ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK STOCK CAPITAL LOSS EARNINGS TOTAL
------- ------- ---------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1996 ....... $ 16 $ 157 $ 4,308 $ -- $ 34,851 $ 39,332
Comprehensive income:
Net income .................. -- -- -- -- 4,300 4,300
Foreign currency translation
adjustments ............... -- -- -- (177) -- (177)
---------
Total comprehensive
income 4,123
Distributions to WHF ........ -- -- -- -- (26,068) (26,068)
Initial public offering of
common stock .............. 64 -- 63,817 -- -- 63,881
Issuance of stock in
connection with
performance units and in
connection with equity
plan (Note 9) ............. 10 -- 11,146 -- -- 11,156
------- ------- ---------- ------------- -------- ---------
Balance at May 31, 1997 ....... 90 157 79,271 (177) 13,083 92,424
Comprehensive income:
Net income .................. -- -- -- -- 14,004 14,004
Foreign currency translation
adjustments ............... -- -- -- 12 -- 12
---------
Total comprehensive
income 14,016
Issuance of stock in
connection with
performance units (Note 9) 1 -- 400 -- -- 401
Dividends paid on common
stock ..................... -- -- -- -- (3,705) (3,705)
------- ------- ---------- ------------- -------- ---------
Balance at May 31, 1998 ....... 91 157 79,671 (165) 23,382 103,136
Comprehensive loss:
Net loss .................... -- -- -- -- (8,778) (8,778)
Available-for-sale securities
valuation adjustment ...... -- -- -- (1,691) -- (1,691)
Foreign currency translation
adjustments ............... -- -- -- (475) -- (475)
---------
Total comprehensive
loss (10,944)
Issuance of stock in
connection with
acquisition (Note 2) ...... 1 -- 2,599 -- -- 2,600
Issuance of stock in
connection with
performance units (Note 9) 1 -- 803 -- -- 804
Tax loss from performance
units ..................... -- -- (226) -- -- (226)
Stock options exercised ..... -- -- 138 -- -- 138
Dividends paid on common
stock ..................... -- -- -- -- (3,728) (3,728)
------- ------- ---------- ------------- -------- ---------
Balance at May 31, 1999 ....... $ 93 $ 157 $ 82,985 $ (2,331) $ 10,876 $ 91,780
======= ======= ========== ============= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................... $ (8,778) $ 14,004 $ 4,300
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Provision for bad debts ................. 1,094 273 151
Deferred taxes .......................... (2,916) (57) (1,862)
Depreciation, amortization, and
asset impairment ...................... 14,135 7,996 8,050
Management and employee stock
compensation charges .................. 804 401 11,156
Tax loss from performance units ......... (226) -- --
Changes in operating assets and
liabilities-net of assets acquired:
Receivables ...................... 5,362 (8,805) (11,341)
Inventories ...................... 6,531 (19,741) (2,509)
Prepaid expenses and other ....... (694) (564) 2,180
Deposits and other assets ........ 6,878 (4,804) (3,187)
Accounts payable ................. (3,971) 3,632 2,812
Other current liabilities ........ (3,386) 1,388 (71)
-------- -------- --------
Net cash provided by (used in)
operating activities .................. 14,833 (6,277) 9,679
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities ... (4,998) -- --
Purchase of property and equipment .......... (11,409) (11,870) (17,400)
Proceeds from disposition of property
and equipment ............................. 1,040 -- --
Increase in notes receivable ................ (177) (3,987) --
Purchase of intangible assets ............... (1,050) -- (1,699)
Purchase of companies, net of cash acquired . (24,326) -- (5,082)
-------- -------- --------
Net cash used in investing activities ... (40,920) (15,857) (24,181)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock .................... 138 -- 63,881
Dividends paid .............................. (3,728) (3,705) --
Proceeds from long-term debt ................ 33,757 27,438 40,647
Payments on long-term debt .................. (3,174) (2,186) (60,367)
Distributions to WHF ........................ -- -- (26,068)
Net change in payable to WHF ................ -- -- (3,747)
-------- -------- --------
Net cash provided by financing activities 26,993 21,547 14,346
-------- -------- --------
Effect of exchange rate changes on cash ....... 336 12 (177)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents ................................. 1,242 (575) (333)
Cash and cash equivalents, beginning of year .. 684 1,259 1,592
-------- -------- --------
Cash and cash equivalents, end of year ........ $ 1,926 $ 684 $ 1,259
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
1999 1998 1997
------- ------- -------
Cash paid during the year for:
Interest ............................ $8,238 $4,930 $5,721
Income taxes (net of refunds) ....... 276 4,792 5,185
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisitions of net assets from other companies (see
Note 2), the Company assumed liabilities as follows:
1999 1998 1997
-------- ----- -------
Fair value of assets acquired ........ $ 39,378 $ -- $ 4,471
Cost in excess of fair value of
net assets acquired ................ 20,440 -- 4,017
Cash paid, net of cash acquired ...... (24,311) -- (5,082)
Stock issued ......................... (2,600) -- --
Debt and liabilities issued .......... (4,900) -- (1,837)
-------- ----- -------
Liabilities assumed .................. $ 28,007 $ -- $ 1,569
======== ===== =======
Note: There were no acquisitions consummated during fiscal 1998.
Intangible assets (goodwill) increased by a net amount of $2,472 for fiscal
1999 due to acquisition related adjustments.
(Concluded)
See notes to consolidated financial statements.
F-7
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Weider Nutrition International, Inc. and its wholly-owned
subsidiaries (collectively, the "Company"). The Company is a majority-owned
subsidiary of Weider Health and Fitness ("WHF"). All significant intercompany
accounts and transactions have been eliminated.
INITIAL PUBLIC OFFERING--Effective May 1, 1997, the Company consummated an
initial public offering of its Class A common stock (the "IPO"). A total of
6,440,000 shares were sold to the public at $11 per share. The net proceeds to
the Company from the IPO amounted to approximately $63.9 million (after
underwriters' discounts of $5.0 million and offering costs of $2.0 million). The
net proceeds were used to pay a one-time distribution of $18.3 million to WHF
and to pay down long-term debt.
Prior to the IPO, the Board of Directors (the "Board") authorized a stock
split of all issued and outstanding common shares at the rate of 14,428.9 for 1,
which increased the number of issued and outstanding Class A common shares from
1,195.17 to 17,245,036. The Board authorized the Company to issue shares of
Class B common stock to WHF in exchange for its Class A holdings. A total of
15,687,432 shares of Class B common stock were issued to WHF. Each holder of
Class B common stock is entitled to ten votes per share on all matters presented
to a vote of stockholders, including the election of directors.
DESCRIPTION OF BUSINESS--The Company develops, manufactures, markets,
distributes and sells branded and private label vitamins, nutritional
supplements and sports nutrition products. The Company offers a broad range of
capsules and tablets, powdered drink mixes, bottled beverages and nutrition
bars. The Company markets its branded products through several distribution
channels, including mass volume retailers, health foods stores, health clubs and
gyms, and international markets.
CREDIT FACILITY-The Company's credit facility with General Electric
Capital Corporation ("GECC") matures in February 2000. Accordingly, the amounts
outstanding under the credit facility at May 31, 1999 ($98.7 million) are
included in the current portion of long-term debt (Note 7).
The Company is presently evaluating its financing requirements and has
commenced discussions with its current lender and other banking institutions
regarding a new credit facility and/or other financing alternatives. Management
believes that a new credit facility will be finalized by the end of the
Company's fiscal quarter ending November 30, 1999. Management expects that the
credit facility will be refinanced on a long-term basis.
F-8
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
USE OF ESTIMATES AND ASSUMPTIONS IN PREPARING FINANCIAL STATEMENTS--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Such
estimates include, among others, the allowance for doubtful accounts, the
allowance for sales returns, and the accrual for pending litigation costs.
Actual results could differ from the estimates.
CASH EQUIVALENTS--Cash equivalents include highly liquid investments with
an original maturity of three months or less.
INVENTORIES--Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market.
BARTER TRANSACTIONS-The Company enters into barter transactions and
accounts for such transactions at the lower of the net realizable value of the
inventory or the barter credits. During the fourth quarter of fiscal 1998, the
Company entered into a barter transaction whereby inventories in the amount of
$4.5 million, at cost, were exchanged for cash of $0.4 million and advertising
credits of $4.1 million. The Company expects to utilize the capitalized barter
credits over a three-year period. Capitalized barter credits amounted to $2,742
at May 31, 1999. The advertising credits do not have an expiration date.
INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES--During fiscal 1999, the
Company invested in certain "available-for-sale" equity securities with an
original cost of $4,998. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, these securities are recorded at fair value with the
accompanying unrealized holding gains (losses), net of income tax effects,
included as a separate component of stockholders' equity. At May 31, 1999,
unrealized losses of $2,818, net of income tax benefits of $1,127, were included
in other accumulated comprehensive loss in the accompanying financial
statements.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation. Depreciation and amortization expense was $7,708
(1999), $5,667 (1998) and $3,871 (1997), computed primarily using the
straight-line method over the estimated useful lives of 31 to 50 years for
buildings, 2 to 10 years for furniture and equipment and 3 to 16 years for
leasehold improvements.
INTANGIBLE ASSETS--Intangible assets are stated at cost and amortized
using the straight-line method over the estimated useful lives of the assets as
follows:
Cost in excess of fair value of net assets acquired 10-35 years
Patents and trademarks 10-20 years
Noncompete agreements 5 years
F-9
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company evaluates the economic factors for determining requisite
recovery periods for certain intangible assets on a case-by-case basis.
LONG-LIVED ASSETS--Impairment of long-lived assets is determined in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and of Long-Lived Assets to be Disposed Of." The Company evaluates the
carrying value of long-term assets based upon current and anticipated
undiscounted cash flows, and recognizes an impairment when such estimated cash
flows will be less than the carrying value of the asset. Measurement of the
amount of impairment, if any, is based upon the difference between carrying
value and fair value. The Company recognized asset impairments in the amount of
$535 and $2,095 in fiscal 1999 and 1997, respectively.
INCOME TAXES--Prior to the Company's IPO, the Company filed consolidated
returns with WHF for Federal and, where appropriate, state income tax purposes.
For financial statement purposes, the Company provided for income taxes as if it
was filing separate tax returns. Effective May 1, 1997, the Company files
separate Federal income tax returns. Accordingly, the Company records in its
balance sheet deferred income tax liabilities and assets for temporary
differences in the basis of assets and liabilities as reported for financial
statement purposes and income tax purposes.
NET SALES--The Company recognizes sales upon shipment of a product to a
customer. Allowances are made for uncollectible accounts and future credits. The
Company's three largest customers accounted for approximately 43%, 41% and 28%,
respectively, of net sales in fiscal 1999, 1998 and 1997. At May 31, 1999 and
1998, amounts due from these customers represented approximately 42% and 45%,
respectively, of total trade accounts receivable.
OTHER OPERATING EXPENSES-The Company's fiscal 1999 results were affected
by several strategic initiatives that were initially and/or primarily
implemented during the year. These initiatives included, among others, the
closing of the Company's capsule and tablet manufacturing facility in
California, the decision to reduce active domestic SKUs by over two-thirds,
organizational changes and upgrading management systems (including senior
management changes) and certain other initiatives. The Company recognized
certain charges associated with these initiatives that are included in the
accompanying statement of operations for fiscal 1999.
STOCK-BASED COMPENSATION--In October 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which became effective for the Company beginning June 1, 1997.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees. The Company decided to disclose the effect of SFAS
No. 123 on a pro forma basis and to continue to follow Accounting Principles
Board ("APB") Opinion No. 25 (as permitted by SFAS No. 123) as it relates to
stock based compensation. Accordingly, the appropriate required disclosure of
the effects of SFAS No. 123 are included in Note 9.
F-10
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
OTHER COMPREHENSIVE INCOME (LOSS)--During fiscal 1999, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income (loss) and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income (loss) by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income (loss) separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet.
NET INCOME (LOSS) PER SHARE--During fiscal 1998, the Company adopted SFAS
No. 128, "Earnings Per Share." SFAS No. 128 establishes new standards for
computing and presenting net income (loss) per share. Net income (loss) per
share is computed by both the basic and diluted methods. Basic income (loss) per
share is computed using the weighted average number of common shares
outstanding. Diluted income (loss) per share is computed using the weighted
average number of common shares and potentially diluted common shares
outstanding during the period. Potentially dilutive common shares consist of
common stock options and performance units (Note 9). Common stock options and
performance units were antidilutive during fiscal 1999 and, accordingly, were
not included in the computation of diluted net loss per share.
FINANCIAL INSTRUMENTS--The Company's financial instruments, when valued
using market interest rates, would not be materially different from the amounts
presented in the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION-The Company considers local currency as the
functional currency for its foreign operations. All assets and liabilities are
translated at period-end exchange rates and all income statement amounts are
translated at an average of month-end rates.
RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105,
"Disclosure of Information About Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk," and SFAS No.
119, "Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments," and also amends certain aspects of other SFAS's
previously issued. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. SFAS No. 133, as amended by SFAS
No. 137, is effective for the Company's financial statements for the year ending
May 31, 2001. The Company does not expect the impact of SFAS No. 133 to be
material in relation to its financial statements.
RECLASSIFICATIONS--Certain amounts in prior year financial statements have
been reclassified to conform with the current year presentation.
F-11
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS
In July 1998, the Company acquired 100% of the outstanding shares of
Haleko Hanseatisches Lebensmittel Kontor GmbH, a corporation organized under the
laws of Germany ("Haleko"). The initial purchase price was comprised of $25.6
million in cash, 200,000 shares of Class A common stock, and up to an $8.4
million contingent earnout agreement tied to future financial performance for
the subsequent three-year period. In addition, $14.8 million in debt was assumed
and $4.9 million in acquisition-related capital costs were recognized. The cash
portion of the purchase price, together with the other acquisition related
costs, were financed with funds available under the Company's credit facility.
The acquisition was accounted for as a purchase transaction. The initial
excess of the purchase price over the estimated fair value of the acquired net
assets (approximately $20.4 million) was recorded as goodwill which is being
amortized over 35 years. At May 31, 1999, the Company recognized approximately
$3,246 of the earnout agreement based on Haleko's financial performance for
fiscal 1999. This amount was recorded as additional goodwill and will be
amortized over approximately 34 years. The approximate $3,246 earnout payment is
included as a current liability in the accompanying consolidated balance sheets
at May 31, 1999.
The following unaudited pro forma results of operations of the Company
give the approximate effect to the acquisition of Haleko as though the
transaction has occurred on June 1, 1997.
YEAR ENDED MAY 31,
--------------------------
1999 1998
---------- --------
Net sales .................................... $ 347,529 $319,683
Income (loss) from operations ................ (3,464) 31,264
Net income (loss) ............................ (8,704) 14,329
Diluted income (loss) per share .............. (0.35) 0.57
In January 1997, the Company acquired the net assets of Science Foods,
Inc., a competing sports nutrition beverage manufacturer, for $3,900 in cash
plus the assumption of $700 in debt. The Company accounted for this acquisition
as a purchase and recognized goodwill of $3,165 which is being amortized over 35
years. Results of operations have been included since January 1, 1997.
In September 1996, the Company acquired certain assets and international
distribution rights from a related party in Canada for $4,000. The purchase of
these assets was accounted for at their historical cost of $25 and the results
of operations have been included since September 1, 1996. Included in
distributions to WHF is an amount of $3,975 representing the difference between
the purchase price and historical cost.
In September 1996, the Company acquired trademarks and nutritional
supplement operations providing distribution capabilities in primarily Spain and
Portugal for $3,427. Of the $3,427, $2,650 was paid to an affiliate of which
$1,350 represents an amount in excess of historical cost that is accounted for
as a distribution to WHF. Results of operations have been included since
September 1, 1996.
F-12
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. RECEIVABLES
Receivables consist of the following at May 31:
1999 1998
--------- ---------
Trade accounts........................ $ 59,389 $ 54,164
Income taxes.......................... 2,195 --
Other................................. 1,168 1,331
--------- ---------
62,752 55,495
Less allowance for doubtful accounts.. (2,228) (291)
--------- ---------
Total.......................... $ 60,524 $ 55,204
========= =========
4. INVENTORIES
Inventories consist of the following at May 31:
1999 1998
--------- ---------
Raw materials......................... $ 24,364 $ 23,226
Work in process....................... 3,364 3,613
Finished goods........................ 35,930 33,684
--------- ---------
Total..................... $ 63,658 $ 60,523
========= =========
Inventory totaling $4,000 ($5,900 in 1998), primarily consisting of two
raw materials, is included as a long-term asset in deposits and other assets in
the accompanying balance sheets. The Company expects to consume these raw
materials subsequent to fiscal 2000.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at May 31:
1999 1998
------- -------
Land.................................. $ 1,679 $ 1,679
Buildings............................. 12,343 7,245
Furniture and equipment............... 40,528 32,501
Leasehold improvements................ 11,005 12,607
Construction in progress.............. 1,087 3,126
------- --------
66,642 57,158
Less accumulated depreciation
and amortization.................... (17,770) (15,196)
------- -------
Total..................... $48,872 $41,962
======= =======
F-13
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
6. INTANGIBLE ASSETS
Intangible assets consist of the following at May 31:
1999 1998
------- -------
Cost in excess of fair value
of net assets acquired..................... $53,706 $28,685
Patents and trademarks....................... 10,452 4,933
Noncompete agreements........................ 209 214
------- -------
64,367 33,832
Less accumulated amortization................ (12,387) (9,440)
------- -------
Total............................ $51,980 $24,392
======= =======
7. LONG-TERM DEBT
Long-term debt consists of the following at May 31:
1999 1998
------- -------
Advances under a $115,000 (see below)
revolving line of credit bearing
interest at floating rates
(8.21% to 9.50% at May 31, 1999),
due February 2000.......................... $ 98,654 $65,250
Advances under multiple secured revolving
lines of credit totaling approximately
$13,100 (see below) bearing interest at
various rates ranging from 4.00% to 7.25%.. 7,604 --
Short term notes payable to original Haleko
stockholders bearing interest at 6.75%,
subsequently paid in full in July 1999..... 2,705 --
Notes payable arising from the acquisition
of Haleko bearing interest at various
rates ranging from 5.50% to 7.00%,
due 2001 and 2002.......................... 2,556 --
Mortgage loan, due in monthly installments,
bearing interest at 7-5/8%, due
February 2009.............................. 2,755 2,871
Notes payable arising from other previous
acquisitions............................... 707 1,122
Other........................................ 458 1,103
-------- -------
Total.................................. 115,439 70,346
Less current portion................... (110,716) (1,554)
-------- -------
Long-term portion...................... $ 4,723 $68,792
======== =======
F-14
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
As of May 31, 1999, future payments of long-term debt are presently due as
follows (see Note 1): $110,716 (2000), $1,313 (2001), $810 (2002), $188 (2003),
$204 (2004), and $2,208 thereafter.
Subsequent to May 31, 1999, Haleko consolidated its revolving lines of
credit into two credit facilities with aggregate borrowing availability of
approximately $16.2 million. The credit facilities mature in July 2000.
Concurrent with the Company's IPO, the Company entered into a credit
agreement (the "Credit Agreement") with GECC. The Credit Agreement is a senior
secured credit facility that contains 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 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 needs and to support capital expenditures and, if
necessary, to effect acquisitions. Subsequent to, but effective at May 31, 1999,
the Credit Agreement was amended whereby the size of the credit facility was
reduced to $115,000 (from $130,000). At May 31, 1999, the Company has
approximately $16.3 million of available credit under the Credit Agreement.
8. INCOME TAXES
The components of income tax expense (benefit) consist of the following
for the years ended May 31:
1999 1998 1997
------- ------- -------
Federal:
Current............................ $(3,400) $ 7,238 $ 3,402
Deferred........................... (1,220) 248 (1,863)
Foreign:
Current............................ (1,037) 38 267
Deferred........................... 1,422 -- --
State and local:
Current............................ (591) 874 531
Deferred........................... (413) 612 371
------- ------- -------
Total.................... $(5,239) $ 9,010 $ 2,708
======= ======= =======
F-15
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The provision for income taxes differs from a calculated income tax at the
Federal statutory rate as follows:
1999 1998 1997
------- ------- -------
Computed Federal income tax expense
(benefit) at the statutory
rate of 35%........................ $(4,906) $ 8,055 $ 2,453
Amortization of cost in excess of
fair value of net assets acquired.. 151 153 151
Meals and entertainment.............. 39 34 32
FSC benefit.......................... (98) (220) --
Charitable contributions............. (499) (10) --
Foreign income taxes, other.......... 370 4 33
State income tax expense (benefit)... (653) 966 169
Other................................ 357 28 (130)
------- ------- -------
Total.......................... $(5,239) $ 9,010 $ 2,708
======= ======= =======
Net deferred tax assets (liabilities) consist of the following at May 31:
1999 1998
---------------- ---------------
LONG- LONG-
CURRENT TERM CURRENT TERM
------ ------- ------ ------
Assets:
Accounts receivable allowances...... $2,021 $ -- $ 734 $ --
Inventory adjustments............... 2,528 -- 719 --
Deferred compensation............... -- 1,362 -- 512
Accrued vacation and bonuses........ 327 -- 236 --
Accrued other....................... 508 421 435 --
Amortization of intangibles......... -- 592 -- 544
Capitalized inventory costs......... 1,195 -- 1,123 --
State and other taxes............... -- 1,158 492 --
Basis difference in acquired
companies......................... -- 95 -- 98
Charitable and net operating
loss carryovers................... -- 1,782 -- --
Basis difference in securities...... 1,127 -- -- --
Depreciation........................ -- -- -- 185
Options and performance units....... -- -- 157 --
Noncompete agreement................ -- -- -- 141
------ ------- ------ ------
Total..................... 7,706 5,410 3,896 1,480
------ ------- ------ ------
Liabilities:
Basis differences in
fixed assets...................... -- 2,853 -- --
Basis differences in
acquired companies................ -- 1,615 -- --
Inventory valuation
adjustment........................ -- 1,306 -- --
Amortization of intangibles......... -- 110 -- 104
State taxes......................... 319 -- -- --
Other............................... -- 1,192 -- 145
------ ------- ------ ------
Total..................... 319 7,076 -- 249
------ ------- ------ ------
Net deferred tax assets
(liabilities)..................... $7,387 $(1,666) $3,896 $1,231
====== ======= ====== ======
F-16
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
9. MANAGEMENT INCENTIVE AND STOCK PLANS
MANAGEMENT INCENTIVE PLAN--Prior to the Company's IPO, certain employees
(the "Recipients") had management incentive agreements (the "Agreements")
pursuant to which the employees were granted performance units ("Performance
Units") as incentive compensation.
Simultaneously with the IPO, which triggered a conversion under the
Agreements, the Company paid in cash and shares of Class A Common stock the
vested portion of the Performance Units. In aggregate, the Company paid $2,960
in cash and issued 972,247 shares of Class A Common stock (valued at the IPO
price). The Company recognized compensation expense of $13.6 million (included
in management and employee compensation charges in the accompanying consolidated
statements of operations) in 1997 as a result of the conversion of Performance
Units into Class A common stock.
The unvested portion of the performance units (represented by 182,716
restricted shares of Class A common stock as of the IPO date) originally vested
(contingent upon continued employment and/or other factors) over a five-year
period at 20% per year through May 2002. During fiscal 1999, certain adjustments
to the vesting provisions were approved for certain Recipients. During fiscal
1999 and 1998, 73,087 shares and 36,543 shares, respectively, of Class A common
stock vested and became issued and outstanding. The Company recognized
compensation charges of $804 and $401 in fiscal 1999 and 1998, respectively, in
connection with the additional vested Class A common shares.
In order to facilitate the payment of individual income taxes, the Company
makes available to each Recipient a loan in principal amount up to 30% of the
conversion value of the vested Performance Units held by each Recipient. Such
loans to the Recipients bear interest at 8.0% per annum, are repayable five
years from the borrowing date and are secured by the Recipients' stock. At May
31, 1999 and 1998, aggregate loans outstanding amounted to $4,164 and $3,987,
respectively (see Note 11).
EQUITY PLAN--The 1997 Equity Participation Plan (the "Equity Plan")
provides for the granting of stock options, stock appreciation rights,
restricted or deferred stock and other awards ("Awards") to officers, directors,
and key employees responsible for the direction and management of the Company
and to nonemployee consultants. The Equity Plan was adopted concurrent with the
Company's IPO and 1,604,000 shares of Class A common stock (or the equivalent in
other equity securities) were initially reserved for issuance. An additional
850,000 shares of Class A common stock were reserved for issuance during fiscal
1999.
Stock options granted per the Equity Plan primarily become exercisable
after three to five years from the date of grant in equal, ratable amounts per
each successive anniversary date. Stock options expire no later than eight years
after the date of grant.
F-17
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Information relating to stock options issued per the Equity Plan is as
follows:
WEIGHTED
NUMBER AVERAGE PER
OF SHARE OPTION TOTAL
SHARES PRICE PRICE
--------- -------------- -------
Options outstanding, June 1, 1996...... -- $ -- $ --
Granted............................. 1,208,000 11.00 13,288
Exercised........................... -- -- --
Cancelled........................... -- -- --
--------- -------------- -------
Options outstanding, May 31, 1997...... 1,208,000 11.00 13,288
Granted............................. 167,000 12.46 2,082
Exercised........................... -- -- --
Cancelled........................... (92,000) 11.00 (1,012)
--------- -------------- -------
Options outstanding, May 31, 1998...... 1,283,000 11.19 14,358
Granted............................. 1,366,500 6.19 8,464
Exercised........................... (12,600) (11.00) (138)
Cancelled........................... (518,067) (10.78) (5,584)
---------- -------------- -------
Options outstanding, May 31, 1999...... 2,118,833 $ 8.07 $17,100
========= ============== =======
Exercisable options:
May 31, 1999........................ 206,333 $ 10.65 $ 2,198
========= ============== =======
The weighted average fair market value of options granted during fiscal
1999, 1998 and 1997 amounted to $2.57, $4.92 and $3.28, respectively.
The Company applied APB Opinion No. 25 in accounting for its stock options
and, accordingly, no compensation expense has been recognized for stock options
in the accompanying financial statements.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options including the unvested performance
units under the fair value method of SFAS No. 123. The fair value for these
options was estimated at the date of grant using a Binomial Option pricing model
with the following weighted average assumptions for 1999, 1998 and 1997,
respectively.
1999 1998 1997
---------- ---------- ---------
Risk-free interest rate .......... 4.64% 5.20% 6.49%
Dividend yield ................... 2.48% 1.19% 1.36%
Volatility factor ................ 69.21% 50.43% 29.76%
Weighted average expected life ... 2.68 years 3.5 years 3.9 years
F-18
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
For the purposes of pro forma disclosure, the estimated fair value of the
stock options is amortized to expense over the options vesting period. The
Company's pro forma income (loss) and income (loss) per share were as follows:
1999 1998 1997
------- ------- -------
Net income (loss), as reported.... $(8,778) $14,004 $4,300
Net income (loss), pro forma...... (9,194) 13,513 4,260
Diluted income (loss) per share,
as reported..................... (.35) .56 .24
Basic income (loss) per share,
pro forma....................... (.37) .55 .24
Diluted income (loss) per share,
pro forma....................... (.37) .54 .24
It is likely that the pro forma expense will increase in future years as
new option grants become subject to the pricing model.
The following table summarizes information about stock options outstanding
at May 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------- ---------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------- -------- ----------- --------
$4.81 to $6.38 1,271,333 7.6 $ 6.00 19,333 $ 4.94
$11.00 to $13.00 847,500 6.0 11.18 187,000 11.24
In fiscal 1997, the Company also, upon consummation of the IPO, made stock
payment awards to certain employees based upon years of service. An aggregate
total of 41,955 shares of Class A common stock were issued to such employees.
Furthermore, the Company paid, in cash, estimated Federal and State income taxes
on behalf of the same employees. The Company recognized compensation expense in
the amount of $.9 million (included in management and employee compensation
charges in the accompanying consolidated statements of operations) for fiscal
1997.
10. COMITMENTS AND CONTINGENCIES
LEASES--The Company leases warehouse and office facilities, manufacturing
and production facilities, transportation equipment and other equipment under
several operating lease agreements expiring through 2013. As of May 31, 1999,
future minimum payments of $34,687 under the noncancelable operating leases are
due as follows: $3,754 (2000), $3,106 (2001), 2,739 (2002), 2,830 (2003), $2,369
(2004) and $19,889 thereafter. Rental expense charges to operations amounted to
$4,762 (1999), $4,064 (1998) and $2,197 (1997).
F-19
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LITIGATION--In March 1999, the plaintiff's attorney involved in a
previously settled California matter regarding certain of the Company's bar
products filed a lawsuit on behalf of Michael Morelli and an alleged class in
the Supreme Court of the State of New York (New York County) alleging similar
unfair competition and false claims under New York law. In May 1999, the
plaintiffs' attorney also filed a lawsuit on behalf of Lisa Fasig and an alleged
class in the Circuit Court of Lee County, Florida alleging similar claims under
Florida law. The Company disputes the allegations and will vigorously oppose the
lawsuits.
In April 1997, the Company filed a lawsuit in the United States District
Court for the district of Utah (Central Division) for a declaratory judgement
that Pain Free(TM), 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. In June 1997, Nutramax filed a counterclaim against the
Company alleging that the Company was infringing on one or more of Nutramax's
patents. The litigation was transferred to the United States District Court for
the District of Maryland, where Nutramax had previously commenced litigation
alleging that twenty other entities had also infringed those patents. Nutramax
also filed a lawsuit in Maryland State Court in August 1998 against the Company
and one of its employees alleging breaches of certain claimed confidentiality
obligations. In August 1999, the Company, Nutramax and the other entities
entered into a settlement agreement resolving the litigations. Pursuant to the
terms of the settlement agreement, the defendants made a one-time cash payment
to Nutramax and the defendants are authorized to sell all of the allegedly
infringing products.
As previously disclosed, the Company was named as a defendant in a lawsuit
in the United States District Court for the Southern District of Florida
alleging that the Company's Pain Free(TM) product infringed upon an alleged
"Pain-Free HP" trademark used by the plaintiff. In April 1999, the parties
entered into a settlement agreement resolving the matter. Pursuant to the terms
of the settlement agreement, the plaintiff and another party received a cash
payment in exchange for an assignment to the Company of all of their rights
relating to Pain Free(TM) and related trademarks.
The Company is involved in other claims, legal actions and governmental
proceedings that arise from the Company business operations. Although ultimate
liability cannot be determined at the present time, the Company believes that
any liability resulting from these matters, if any, after taking into
consideration the Company's insurance coverage, will not have a material adverse
effect on the Company's financial position or cash flows.
ROYALTIES--The Company obtained the exclusive right to use the Weider name
and trademarks outside of specified royalty-free territories (most notably North
America) throughout the world, with the exceptions of Australia, New Zealand,
Japan and South America, pursuant to a sublicense agreement dated December 1,
1996 with Mariz Gestao E Investimentos Limitada ("Mariz"). Mariz is a company
incorporated under the laws of Portugal and
F-20
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
owned by a trust of which the family members of a director of the Company are
included among the beneficiaries. Mariz obtained its exclusive international
rights to use the Weider name and trademarks pursuant to a license agreement,
effective June 1, 1994, between Mariz and certain affiliates, including WHF (the
"Licensors"). Pursuant to the license agreement with Mariz, the Company is
required to make annual royalty payments to Mariz commencing on December 1, 1998
on sales of the Company's brands in existence on December 1, 1996 in countries
covered by the agreement. The royalty payments are to be equal to (i) 4% of
sales up to $33.0 million; (ii) 3.5% of sales greater than $33.0 million and
less than $66.0 million; (iii) 3.0% of sales from $66.0 million to $100.0
million; and (iv) 2.5% of sales over $100.0 million. In addition, the sublicense
agreement with Mariz includes an irrevocable buy-out option exercisable by the
Company after May 31, 2002 for a purchase price equal to the greater of $7.0
million or 6.5 times the aggregate royalties paid by the Company in the fiscal
year immediately preceding the date of the exercise of the option. The Company
incurred royalty expense of $196 relating to the Mariz licensing agreement in
fiscal 1999.
RETIREMENT PLAN--The Company sponsors a contributory 401(k) savings plan
covering all employees who have met minimum age and service requirements.
Contributions to this plan were approximately $334, $271 and $241 for fiscal
1999, 1998 and 1997, respectively, and were included in general and
administrative expenses.
11. RELATED PARTY TRANSACTIONS
Significant related party transactions, not otherwise disclosed, are
summarized below.
Payments to reimburse WHF for Company expenses (including primarily
advertising, insurance, endorsements, retirement benefits, interest and
royalties) consist of the following for the years ended May 31:
1999 1998 1997
-------- -------- --------
Operating expenses............. $ 3,053 $ 2,193 $ 1,910
Interest, net.................. -- -- 3,327
Other.......................... 400 489 384
-------- -------- --------
Total..................... $ 3,453 $ 2,682 $ 5,621
======== ======== ========
In connection with the terms of a previous employee's severance agreement,
and at such person's option, the Company may be required to repurchase
approximately 330,400 shares of common stock at market value. The Company also
agreed to adjust such person's obligations to the Company (relating to
Performance Units; see Note 9) in the event that the Company's common stock does
not achieve a minimum per share price level. In the event that the Company's
common stock does not achieve such level by fiscal 2002, amounts due the Company
($1,584 at May 31, 1999) will be reduced by 50%.
F-21
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Included in other receivables is an amount due from an affiliated entity
in the amount of $988 at May 31, 1997, which was subsequently paid in fiscal
1998.
Prior to entering into the Credit Agreement (see Note 7), the Company was
the principal borrower under a credit agreement with GECC that was administered
and guaranteed by WHF. The Company paid a service charge to WHF in excess of the
interest paid to GECC in the amount of $485 for fiscal 1997.
12. OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which changes the way the
Company reports information about its operating segments.
The Company has two primary reportable segments. These segments include
the Company's U.S. based or domestic operations, and the Company's international
operations (primarily Europe). The Company has three primary divisions within
its domestic operations: Mass Market Division; Health Food Store Division; and
the Health Club and Gym Division. The Company manufactures and markets
nutritional products, including a full line of vitamins, joint-related and other
nutraceuticals, and sports nutrition supplements through its Mass Market
Division; a full line of vitamins, nutraceuticals and sports nutrition products
primarily through independent distributors and a significant retailer in its
Health Food Store Division; and a full line of sports nutrition products in its
Health Club and Gym Division. The Company also manufactures and markets
nutritional and other products, including a full line of sports nutrition
supplements and sportswear, together with certain other nutraceuticals within
its international operations.
The accounting policies of these segments are the same as those described
in Note 1 to the consolidated financial statements. The Company evaluates the
performance of its operating segments based on actual and expected operating
results of the respective segments and/or divisions. Certain noncash and other
expenses, and domestic assets, are not allocated to the divisions within the
domestic operating segment. It is not practical for the Company to provide
comparable information for fiscal 1997.
Segment information for fiscal 1999 and 1998, respectively, are summarized
as follows:
INCOME
(LOSS)
NET FROM INTEREST
1999: SALES OPERATIONS EXPENSE
-------- ---------- --------
Domestic Operations:
Mass market................... $152,046 $ 12,074 $ 3,512
Health food stores............ 56,178 (3,490) 1,691
Health clubs and gyms......... 24,960 711 862
Other......................... 13,115 (4,333) 331
Unallocated................... -- (12,825) --
-------- ---------- --------
246,299 (7,863) 6,396
International Operations:....... 89,189 3,826 3,783
-------- ---------- --------
$335,488 $ (4,037) $ 10,179
======== ========== ========
F-22
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
INCOME
NET FROM INTEREST
1998: SALES OPERATIONS EXPENSE
-------- ---------- --------
Domestic Operations:
Mass market................... $110,388 $ 16,995 $ 1,839
Health food stores............ 61,742 6,077 1,400
Health clubs and gyms......... 25,853 1,242 600
Other......................... 35,264 2,973 330
-------- ---------- --------
233,247 27,287 4,169
International Operations:....... 17,295 617 649
-------- ---------- --------
$250,542 $ 27,904 $ 4,818
======== ========== ========
Reconciliation of assets for the reportable segments is as follows at May
31, 1999:
Total domestic assets....... $ 226,984
Total international assets.. 74,574
Eliminations................ (45,529)
---------
Total.................. $ 256,029
=========
Capital expenditures for domestic and international operations amounted to
$10.1 million and $1.3 million, respectively, for fiscal 1999, and $11.8 million
and $.1 million, respectively, for fiscal 1998. The majority of international
related long-lived assets are located in Germany.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly data (unaudited) for 1999, 1998 and 1997 is as follows:
QUARTER ENDED
----------------------------------
AUG. 31 NOV. 30 FEB. 28 MAY 31
------- ------- ------- -------
1999:
Net sales.......................... $67,946 $83,274 $89,030 $95,238
Gross profit....................... 23,528 28,503 33,350 29,045
Income (loss) from operations...... 4,538 (6,496) 3,506 (5,585)
Income taxes (benefit)............. 1,115 (3,740) 307 (2,921)
Net income (loss).................. 1,707 (5,440) 407 (5,452)
Basic and diluted income
(loss) per share................. .07 (.22) .02 (.22)
F-23
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
QUARTER ENDED
----------------------------------
AUG. 31 NOV. 30 FEB. 28 MAY 31
------- ------- ------- -------
1998:
Net sales.......................... $53,515 $60,811 $62,368 $73,848
Gross profit....................... 17,873 20,629 23,003 27,703
Income from operations............. 3,996 5,406 7,752 10,750
Income taxes....................... 1,127 1,574 2,538 3,771
Net income......................... 1,692 2,532 3,971 5,809
Basic income per share............. .07 .10 .16 .24
Diluted income per share........... .07 .10 .16 .23
QUARTER ENDED
-----------------------------------
AUG. 31 NOV. 30 FEB. 28 MAY 31
------- ------- ------- --------
1997:
Net sales.......................... $46,927 $48,992 $55,487 $67,160
Gross profit....................... 17,188 17,318 22,892 24,293
Income (loss) from operations...... 3,619 5,786 9,150 (5,199)
Income taxes (benefit)............. 882 1,552 2,949 (2,675)
Net income (loss).................. 1,291 2,360 4,424 (3,775)
Basic and diluted income...........
(loss) per share................. .08 .14 .25 (.19)
F-24
EXHIBIT 4.8
SEVENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(this "AMENDMENT") dated as of June 24, 1999 and effective as of May 31, 1999
(the "EFFECTIVE DATE") 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"), 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 previously 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 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. Subject to the conditions precedent set forth in Section 4
hereof, Agent and Lenders hereby waive the Event of Default arising under
Section 8.1(c) of the Credit Agreement solely resulting from Holdings' failure
to comply with paragraph (c) of Annex G of the Credit Agreement at the end of
the Fiscal Quarter ending May 31, 1999.
2. AMENDMENT. Subject to the conditions precedent set forth in Section 4
hereof, the Credit Agreement is hereby amended as follows:
(a) The text of Section 1.5(a) of the Credit Agreement is replaced
with the following text:
"(a) Borrowers shall pay interest to Agent, for the ratable benefit
of Lenders, in arrears on (i) the first day of each month with
respect to Index Rate Loans and (ii) on the last day of each
applicable LIBOR Period with respect to LIBOR Loans, at a per annum
rate equal to (A) with respect to Index Rate Loans, the Index Rate
plus a margin of (1) 1.75%, from June
<PAGE>
24, 1999 through September 23, 1999, (2) 2.25%, from September
24, 1999 through November 23, 1999, (3) 3.25%, from November 24,
1999 through December 23, 1999 and (4) for each period of thirty
consecutive days thereafter, the margin in effect immediately prior
to such period PLUS an additional .25% (such that, for example, the
margin determined pursuant to this clause (4) will be 3.50% as of
December 24, 1999 and 3.75% as of January 24, 2000) and (B) with
respect to LIBOR Loans, the LIBOR Rate plus a margin of (1) 3.25%,
from June 24, 1999 through September 23, 1999, (2) 3.75%, from
September 24, 1999 through November 23, 1999, (3) 4.75%, from
November 24, 1999 through December 23, 1999 and (4) for each period
of thirty consecutive days thereafter, the margin in effect
immediately prior to such period PLUS an additional .25% (such that,
for example, the margin determined pursuant to this clause (4) will
be 5.00% as of December 24, 1999 and 5.25% as of January 24, 2000)."
(b) The text of Section 1.6 of the Credit Agreement is replaced with
the following text:
"Section 1.6 FEES. As additional compensation for Lenders'
costs and risks in making the Revolving Credit Loan available to
Borrowers, Borrowers agree to pay to Agent, for the ratable benefit
of Lenders, in arrears, on the first Business Day of each month
prior to the Revolving Commitment Termination Date or such earlier
date as the Lenders' obligations to make Revolving Credit Advances
terminate or the Revolving Credit Loan becomes due and payable, and
on the Revolving Commitment Termination Date or such earlier date as
the Lenders' obligations to make Revolving Credit Advances terminate
or the Revolving Credit Loan becomes due and payable, a fee for
Borrowers' non-use of available funds (the "NON-USE FEE") in an
amount equal to (i) a rate of .50% per annum (calculated on the
basis of a 360 day year and actual days elapsed) (the "NON-USE FEE
MARGIN") multiplied by (ii) the difference between the respective
daily averages of (A) the Maximum Revolving Credit Loan (as it may
be adjusted from time to time hereunder) and (B) the amount of the
Revolving Credit Loan outstanding during the period for which the
Non-Use Fee is due."
(c) The text of Article 6 of the Credit Agreement is replaced with
the following text:
"6. NEGATIVE COVENANTS
Obligors, jointly and severally, covenant and agree that,
without the prior written consent of Agent and the Requisite Lenders
from and after the Closing Date until the Termination Date:
-2-
<PAGE>
6.1 MERGERS, SUBSIDIARIES, ETC. No Obligor shall, or
shall cause or permit any Subsidiary thereof to, directly or
indirectly, by operation of law or otherwise, merge with,
consolidate with, acquire all or any substantial part of the assets
or capital stock of, or otherwise combine with, any Person or form
any Subsidiary; PROVIDED that (1) in a series of related
transactions consummated substantially concurrently (i) Haleko may
acquire all of the Stock of Sy-Fra not owned by Haleko immediately
prior to such acquisition, (ii) Sy-Fra may acquire all of the Stock
of Haleko Italia s.r.l., (iii) Haleko Italia s.r.l. may be merged
with and into Sy-Fra and (iv) Sy-Fra may change its name to Haleko
Italia s.r.l. (the transactions described in this clause (1),
collectively, the "HALEKO ACQUISITION") and (2) Weider Nutrition
Group (Canada) Ltd. may acquire all of the Stock of Custom
Nutritional Inc. ("CNI") (the transaction described in this clause
(2), the "CNI ACQUISITION;" the Haleko Acquisition and the CNI
Acquisition, each, a "PERMITTED Acquisition"), subject to the
following conditions precedent:
(a) Agent shall receive at least twenty (20) Business Days'
prior written notice of such Permitted Acquisition, which notice
shall include a reasonably detailed description of such Permitted
Acquisition;
(b) such Permitted Acquisition shall only be of a Person
engaged in, or involve assets dedicated to, the same or a
substantially similar business to the businesses engaged in by one
or more of Borrowers as of the Closing Date;
(c) such Permitted Acquisition shall not be with respect to
Persons or assets located in jurisdictions against which the United
States has imposed economic sanctions;
(d) such Permitted Acquisition will not subject Agent or any
Lender to regulatory or third party approvals in connection with the
exercise of its rights and remedies under this Agreement or any
other Loan Documents other than approvals applicable to the exercise
of such rights and remedies with respect to Obligors prior to such
Permitted Acquisition;
(e) each such Permitted Acquisition of a Person shall be
consensual and shall have been approved by such Person's board of
directors and, as applicable, shareholders;
(f) no additional Indebtedness, contingent obligations or
other liabilities shall be incurred, assumed or otherwise be
reflected on a consolidated balance sheet of Holdings and its
Subsidiaries after giving effect to such Permitted Acquisition,
except (i) obligations to trade creditors incurred in the ordinary
course of business, (ii) existing Indebtedness of the Persons
acquired pursuant to the Haleko Acquisition not exceeding $850,000
in the aggregate and (iii) existing Indebtedness of
-3-
<PAGE>
CNI not exceeding $150,000 in the aggregate; PROVIDED that neither
Holdings, International nor any Wholly-Owned Domestic Obligor shall
at any time be directly or indirectly liable for or otherwise
obligated with respect to any such Indebtedness;
(g) at the time of such Permitted Acquisition and after giving
effect thereto, no Default or Event of Default shall have occurred
and be continuing;
(h) Concurrently with delivery of the notice referred to in
CLAUSE (A) above, Holdings shall have delivered to Agent, in form
and substance satisfactory to Agent a pro forma consolidated balance
sheet of Holdings and its Subsidiaries, based on recent financial
data, which shall be complete and shall accurately and fairly
represent the assets, liabilities, financial position and results of
operations of Holdings and its Subsidiaries in accordance with GAAP
consistently applied, but taking into account such Permitted
Acquisition, together with a certificate of Holdings' Chief
Financial Officer stating that, based on such pro forma balance
sheet, Borrowing Availability shall be at least $15,000,000 (on a
pro forma basis after giving effect to such Permitted Acquisition,
with trade payables being paid currently and expenses and
liabilities being paid in the ordinary course of business, and
without acceleration of sales) after giving effect to such Permitted
Acquisition;
(i) the Haleko Acquisition shall be funded solely with
proceeds of contributions by Obligors to the capital of Haleko
permitted by clause (d) of SECTION 6.2 and proceeds of Indebtedness
of Haleko permitted by clause (vii) of SECTION 6.3; and the CNI
Acquisition shall be funded solely with proceeds of Indebtedness of
Weider Nutrition Group (Canada) Ltd. permitted by clause (viii) of
SECTION 6.3;
(j) reasonably prior to the date of such Permitted
Acquisition, Agent shall have received, in form and substance
satisfactory to Agent, all opinions, certificates, lien search
results and other documents, including acquisition agreements,
reasonably requested by Agent, including proof of regulatory
compliance.
6.2 INVESTMENTS; LOANS AND ADVANCES. Except (I) as
otherwise permitted by SECTION 6.1, 6.3, or 6.4, and (II) for
advances to suppliers on an arm's length basis in connection with
purchases in the ordinary course of business, no Obligor shall, or
shall cause or permit any Subsidiary thereof to, make any investment
in, or make or accrue loans or advances of money to any Person,
through the direct or indirect lending of money (including, without
limitation, the guarantee of any letters of credit issued for the
benefit of such Person), holding of securities or otherwise, other
than (a) Accounts, (b) investments in Domestic Wholly-Owned
Obligors, (c) investments by Nutrition in (i) marketable direct
obligations
-4-
<PAGE>
issued or unconditionally guaranteed by the United States of America
or any agency thereof maturing within one year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one
year from the date of creation thereof and currently having the
highest rating obtainable from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., (iii) certificates of deposit,
maturing no more than one year from the date of creation thereof,
issued by commercial banks incorporated under the laws of the United
States of America, each having combined capital, surplus and
undivided profits of not less than $300,000,000 and having a senior
secured rating of "A" or better by a nationally recognized rating
agency, provided that the aggregate amount invested in such
certificates of deposit shall not at any time exceed $100,000 for
any one such certificate of deposit and $200,000 for any one such
bank, (iv) time deposits, maturing no more than 30 days from the
date of creation thereof with commercial banks or savings banks or
savings and loan associations each having membership either in the
Federal Deposit Insurance Corporation or in the Federal Savings and
Loan Insurance Corporation and in amounts not exceeding the maximum
amounts of insurance thereunder, (v) money market funds and (vi) in
accordance with paragraph (d) of ANNEX C, (d) contributions by
Obligors to the capital of Haleko that shall not at any time exceed
$3,000,000 in aggregate at any time outstanding, (e) Specified
Margin Shares acquired by Holdings during the period from June 26,
1998 to October 1, 1998 and (f) capital contributions to Domestic
Wholly-Owned Obligors, to the extent deemed necessary and
appropriate by Holdings in its reasonable discretion. Nothing herein
shall be deemed to permit the disposition of any Stock constituting
Collateral except in accordance with the express terms of this
Agreement and the other Loan Documents.
6.3 INDEBTEDNESS. No Obligor shall, or shall cause or
permit any Subsidiary thereof to, create, incur, assume or permit to
exist any Indebtedness, except (i) obligations of Borrowers in
connection with Letter of Credit Obligations, (ii) the Revolving
Credit Loan and the other Obligations, (iii) deferred taxes, (iv)
unfunded pension fund and other employee benefit plan obligations
and liabilities to the extent they are permitted to remain unfunded
under applicable law, (v) Indebtedness (including intercompany loans
and obligations under Capital Leases) existing and set forth on
SCHEDULE 6.3 as of June 24, 1999 (all of which shall have been
incurred in accordance with the terms of this Agreement as in effect
as of the date of such incurrence, and none of which shall be
amended, refinanced, replaced, restated, supplemented or otherwise
modified), (vi) lease payment obligations under existing leases
permitted under SECTION 6.14, (vii) Indebtedness of Haleko which
shall not exceed the amount of the Indebtedness of Haleko
outstanding on November 30, 1998 (as indicated on the most recent
balance sheet delivered pursuant to Annex G which includes such
date) by DM20,000,000 in the aggregate from time to time outstanding
(inclusive of the Indebtedness of Haleko
-5-
<PAGE>
permitted in accordance with clause (x) below), (viii) Indebtedness
of Weider Nutrition Group (Canada) Ltd. incurred in connection with
the CNI Acquisition which shall not exceed the $114,000 in the
aggregate from time to time outstanding, (ix) Indebtedness of CNI
which shall not exceed $250,000 in the aggregate from time to time
outstanding (inclusive of the Indebtedness of CNI permitted in
accordance with clause (x) below) and (x) Indebtedness permitted in
accordance with clause (f) of SECTION 6.1.
6.4 EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS. (a) No
Obligor shall, or shall cause or permit any Subsidiary thereof to,
enter into or be a party to any transaction with any Affiliate of
any such Person, other than (i) as permitted by SECTIONS 6.2,
6.4(B), or 6.13, (ii) in the ordinary course of and pursuant to the
reasonable requirements of such Person's business and upon fair and
reasonable terms that are fully disclosed to Agent in advance and
are no less favorable to such Person than would be obtained in a
comparable arm's length transaction with a third party not an
Affiliate of such Person, (iii) loans to employees or other
transactions between or among Obligors providing goods and services
described on SCHEDULE 6.4 as of the Closing Date in the ordinary
course of business consistent with past practices, (iv) payments
made pursuant to the tax sharing agreement described on SCHEDULE
3.13 as of the Closing Date, to the extent permitted by, and made in
accordance with, clause (i) of SECTION 6.13, and (v) cash payments
to Holdings to enable Holdings (contemporaneously with, and in the
same amount of, such payments) to (1) fund its obligations under
"Executive Retirement Plans" described on SCHEDULE 6.4 as of the
Closing Date in an aggregate amount not to exceed $300,000 in any
Fiscal Year (except, $1,100,000 in Fiscal Year 2000, $845,000 of
which shall be paid by Parent to Holdings' former chief executive
officer pursuant to Holding's existing severance arrangements with
such Person) and (2) pay the general corporate, operating and
administrative expenses of Holdings allocated to such Obligor or
Subsidiary PROVIDED THAT payments made pursuant to this subclause
(2) to Holdings by any Obligor or Subsidiary thereof shall not
exceed such Obligor's or Subsidiary's fair allocable share of the
expenses incurred by Holdings for the benefit of Obligors and their
Subsidiaries. Payments made in accordance with clauses (iv) and (v)
above may be accounted for by the applicable Obligor or Subsidiary
as a cash dividend to Holdings or as an expense for the
reimbursement of Holdings' expenses in the income statement of such
Obligor or Subsidiary.
(b) No Obligor shall, or shall cause or permit any Subsidiary
thereof to, enter into any lending, borrowing or other commercial
transaction with any of its employees, directors, Subsidiaries,
Affiliates, any other Obligor or related parties without the prior
written consent of Agent, including, without limitation, payment of
any management consulting, advisory or similar fee based on or
related to any such
-6-
<PAGE>
Person's operating performance or income or any percentage thereof,
other than (i) as permitted by SECTIONS 6.2, 6.4(A), or 6.13, (ii)
employment agreements and incentive compensation programs with
full-time employees on commercially reasonable terms substantially
similar to the agreements in effect on the Closing Date and
described on SCHEDULE 6.4 as of the Closing Date, (iii) loans to
their respective employees consisting of travel advances in the
ordinary course of business consistent with past practice up to a
maximum of $150,000 in the aggregate at any one time outstanding,
(v) loans of up to $500,000 during each Fiscal Year to their
respective employees for the payment of taxes incurred in connection
with the conversion after the Closing Date of "Phantom Stock" of
Nutrition issued prior to the Closing Date into Stock of Holdings,
and (vi) outstanding intercompany loans among the Obligors as set
forth on SCHEDULE 6.3 in accordance with SECTION 6.3.
6.5 CAPITAL STRUCTURE AND BUSINESS. No Obligor shall, or
shall cause or permit any Subsidiary thereof to (i) make any changes
in any of its business objectives, purposes or operations in each
case which is reasonably likely to adversely affect the repayment of
the Revolving Credit Loan or any of the other Obligations or could
have or result in a Material Adverse Effect, (ii) except as
described on SCHEDULE 3.10 as of the Closing Date, issue any shares
of Stock, warrants or other securities convertible into Stock or
revise the terms of its outstanding Stock, or (iii) amend its
certificate or articles of incorporation or bylaws in a manner which
is reasonably likely to have a Material Adverse Effect. No Obligor
shall, or shall cause or permit any Subsidiary thereof to, engage in
any business substantially different than the lines of businesses
currently engaged in by such Person or any lines of business
reasonably related thereto. Notwithstanding any other provision of
this Agreement or any other Loan Document, Holdings shall not incur
any Indebtedness or engage in any business activities other than (a)
the performance of its obligations under the Loan Documents to which
it is a party and (b) those activities incidental to (i) its
ownership of the capital stock of the other Obligors, (ii) the
Restricted Payments permitted to be made by it in accordance with
SECTION 6.13 and (iii) the maintenance of its corporate existence in
compliance with applicable law and this Agreement.
6.6 GUARANTEED INDEBTEDNESS. No Obligor shall, or shall
cause or permit any Subsidiary thereof to, incur any Guaranteed
Indebtedness except (i) by endorsement of instruments or items of
payment for deposit to the general account of any Domestic
Wholly-Owned Obligor (to the extent the transaction to which the
foregoing relates is otherwise permitted by this Agreement), (ii)
for Guaranteed Indebtedness incurred for the benefit of any Domestic
Wholly-Owned Obligor if the primary obligation is permitted by this
Agreement and (iii) Guaranteed Indebtedness existing and described
on SCHEDULE 6.3 as of June 24,1999 (all of which shall have been
incurred in accordance with the
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terms of this Agreement as in effect as of the date of such
incurrence, and none of which shall be amended, refinanced,
replaced, restated, supplemented or otherwise modified).
6.7 LIENS. No Obligor shall, or shall cause or permit
any Subsidiary thereof to, create, incur, assume or permit to exist
any Lien on or with respect to any properties or assets (including
any document or instrument with respect to Inventory or Accounts) of
any such Person, whether now owned or hereafter acquired, or any
income or profits therefrom, except (i) Liens existing and set forth
on SCHEDULE 6.7 as of June 24, 1999 (all of which shall have been
incurred in accordance with the terms of this Agreement as in effect
as of the date of such incurrence, and none of which shall be
amended, replaced, restated, supplemented or otherwise modified),
(ii) Permitted Encumbrances and Liens on property or assets of
Haleko securing Indebtedness of Haleko permitted under clause (vii)
of SECTION 6.3, and (iii) presently existing or hereafter created
Liens in favor of Agent, on behalf of Lenders.
6.8 SALE OF ASSETS. No Obligor shall, or shall cause or
permit any Subsidiary thereof to, sell, transfer, convey, assign or
otherwise dispose of any of its properties or other assets,
including the capital stock of any such Person or any of their
Accounts, other than Excluded Asset Sales.
6.9 ERISA. No Obligor shall, or shall cause or permit
any Subsidiary or ERISA Affiliate thereof (without Agent's prior
written consent) to (i) acquire any new ERISA Affiliate that
maintains or has an obligation to contribute to a Pension Plan that
has either an "accumulated funding deficiency", as defined in
Section 302 of ERISA, or any "unfunded vested benefits", as defined
in Section 4006(a)(3)(e)(iii) of ERISA, in the case of any plan
other than a Multiemployer Plan, and in Section 4211 of ERISA in the
case of a Multiemployer Plan, (ii) permit or suffer any condition
set forth on SCHEDULE 3.14 as of the Closing Date to cease to be met
and satisfied at any time, (iii) terminate any Pension Plan that is
subject to Title IV of ERISA where such termination could reasonably
be anticipated to result in a material liability to such Person,
(iv) permit any accumulated funding deficiency, as defined in
Section 302(a)(2) of ERISA, to be incurred with respect to any
Pension Plan, (v) fail to make any contributions or fail to pay any
amounts due and owing as required by the terms of any Plan before
such contributions or amounts become delinquent, (vi) make a
complete or partial withdrawal (within the meaning of Section 4201
of ERISA) from any Multiemployer Plan, or (vii) fail to promptly
provide Agent with copies of any Plan documents or governmental
reports or filings requested by Agent.
6.10 HAZARDOUS MATERIALS. Except as set forth on
SCHEDULE 3.20 as of the Closing Date, no Obligor shall, or shall
cause or
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permit any Subsidiary thereof or any other Person within its
control, to cause or permit a Release or the presence, use,
generation, manufacture, installation, Release, discharge, storage
or disposal of any Hazardous Materials on, under, in, above or about
any of its real estate or the transportation of any Hazardous
Materials to or from any real estate where such Release or such
presence, use, generation, manufacture, installation, Release,
discharge, storage or disposal would violate or form the basis for
liability under any Environmental Laws.
6.11 SALE-LEASEBACKS. No Obligor shall cause or permit
any Subsidiary thereof to, engage in any sale-leaseback or similar
transaction involving its assets, including the resale of assets in
any transaction or series of related transactions pursuant to which
the subject assets are sold or transferred in connection with the
leasing or the resale against installment payments, or as part of an
arrangement involving the leasing or the resale against installment
payments, of such assets to the seller or transferor thereof, other
than such transactions which are existing and described on SCHEDULE
6.11 as of June 24, 1999 (all of which shall have been consummated
in accordance with the terms of this Agreement as in effect as of
the date of such consummation, and none of which shall be amended,
refinanced, replaced, restated, supplemented or otherwise modified).
6.12 CANCELLATION OF INDEBTEDNESS. No Obligor shall, or
shall cause or permit any Subsidiary thereof to, cancel any claim or
debt owing to it, except on an arm's-length basis and in the
ordinary course of its business consistent with past practices.
6.13 RESTRICTED PAYMENTS. No Obligor shall, or shall
cause or permit any Subsidiary thereof to, make or pay any
Restricted Payment, other than (i) Restricted Payments to Holdings
to permit Holdings (contemporaneously with, and in the same amount
of, such payments) to (A) make Restricted Payments to Parent
pursuant to, and not in excess of the amounts required under, the
tax sharing agreements described on SCHEDULE 3.13 as of the Closing
Date in respect of taxes payable for periods (or portions thereof)
ending on or prior to the closing on the Closing Date and (B) pay
Federal, state and local income tax obligations actually due and
payable in cash by Holdings for periods (or portions thereof)
commencing after the closing on the Closing Date, to the extent such
obligations are the result of the net income or loss of Obligors and
their Subsidiaries being attributed to Holdings for tax purposes,
(ii) Restricted Payments to Holdings to permit Holdings
(contemporaneously with, and in the same amount of, such payments)
to pay fees and expenses necessary to maintain Holdings' corporate
existence and good standing, (iii) Restricted Payments to Holdings
to permit Holdings (contemporaneously with, and in the same amount
of, such payments) to pay quarterly cash dividends in respect of its
common stock, PROVIDED that
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(A) only one such set of Restricted Payments may be made during any
Fiscal Quarter, (B) all such Restricted Payments made during any
Fiscal Quarter shall be made during the fifteenth (15th) through the
twentieth (20th) (except, the thirty- fifth (35th) day, in the case
of such a Restricted Payment to be made during the first Fiscal
Quarter of Fiscal Year 2000) consecutive day immediately following
the end of the immediately preceding Fiscal Quarter, (C) at least
five (5) days prior to such Restricted Payment (except, one (1) day,
in the case of such a Restricted Payment made during the third
Fiscal Quarter of Fiscal Year 1999), Agent shall have received
preliminary versions of the Financial Statements to be delivered to
Agent pursuant to ANNEX E for the immediately preceding Fiscal
Quarter, together with an attached certificate of the Chief
Financial Officer of Holdings (on behalf of itself and each
Borrower) to the effect that (1) the final Financial Statements to
be delivered to Agent for such immediately preceding Fiscal Quarter
will not differ in any material respect from such preliminary
Financial Statements and (2) no Default or Event of Default had
occurred or been continuing as of the end of the period covered by
such Financial Statements (other than as of the end of the second
Fiscal Quarter of Fiscal Year 1999), has occurred or is continuing
as of the date of such certificate or would result from the making
of such Restricted Payment, (D) the aggregate amount of all such
Restricted Payments made during any Fiscal Quarter shall not exceed
$0.0375 per each share of Holdings' common stock and (E)
concurrently with each delivery of the Financial Statements
described in clause (C) above, Holdings shall have delivered to
Agent, in form and substance satisfactory to Agent and based on
recent financial data, a pro forma consolidated balance sheet of
Holdings and its Subsidiaries indicating that Borrowing Availability
shall be at least $5,500,000 (after giving effect to such Restricted
Payment and all Revolving Credit Advances to be made in connection
therewith, and with trade payables being paid currently, expenses
and liabilities being paid in the ordinary course of business and
without acceleration of sales); (iv) Restricted Payments not in
excess of $700,000 in the aggregate used to fund the purchase by
Nutrition of its Stock pursuant to any "Phantom Stock" agreement
separately identified in SCHEDULE 3.10 as of the Closing Date from
the other agreements described therein; (v) transactions permitted
under SECTION 6.4 and (vi) Restricted Payments to one or more
Borrowers; PROVIDED THAT, in the case of Restricted Payments
described in the foregoing clauses (iii) through (vi), no Default or
Event of Default shall have occurred and be continuing or would
result after giving effect to such Restricted Payment.
6.14 LEASES. No Obligor shall, or shall cause or permit
any Subsidiary thereof to, enter into any operating lease or similar
agreement or arrangement with respect to real property or Equipment,
other than such leases, agreements or arrangements which are
existing and described on SCHEDULE 6.14 as of June 24, 1999 (all of
which shall have been consummated in accordance with the terms of
this Agreement as in
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effect as of the date of such consummation); PROVIDED that Obligors
may enter into, or cause or permit any Subsidiary thereof to enter
into, extensions or renewals of such leases and new leases so long
as aggregate annual lease payment obligations under all leases shall
at no time exceed by more than $300,000 aggregate annual lease
payment obligations for all leases initially described on SCHEDULE
6.14).
6.15 FISCAL YEAR. No Obligor shall, or shall cause or
permit any Subsidiary thereof to, change its Fiscal Year.
6.16 CHANGE OF CORPORATE NAME. No Obligor shall, or
shall cause or permit any Subsidiary thereof to, change its
corporate name except upon sixty (60) days advance written notice to
Agent and after taking any reasonable action requested by Agent in
connection therewith, including, without limitation, to continue the
perfection of any Liens in favor of Agent, on behalf of Lenders, in
any Collateral.
6.17 SALE OF STOCK. No Obligor shall, or shall cause or
permit any Subsidiary thereof to, issue or sell (whether in a public
or private offering or otherwise) any of its Stock except pursuant
to agreements or arrangements existing as of the Closing Date and
described on SCHEDULE 3.10 as of the Closing Date.
6.18 CASH MANAGEMENT. No Obligor shall, or shall cause
or permit any Subsidiary thereof to, accumulate or maintain cash in
accounts (other than the Disbursement Account) as of any date of
determination more than $200,000 in the aggregate in excess of
checks outstanding against such accounts as of that date and amounts
necessary to meet minimum balance requirements.
6.19 NO IMPAIRMENT OF CROSS-STREAMING, UPSTREAMING,
DOWNSTREAMING OR LIENS. No Obligor shall, or shall cause or permit
any Subsidiary thereof to, directly or indirectly, enter into or
become bound by any agreement, instrument, indenture or other
obligation (other than this Agreement) which could directly or
indirectly restrict, prohibit or require the consent of any Person
with respect to (a) the payment of dividends or distributions or the
making of intercompany loans or investments by, between or among any
of such Persons or (b) the creation of a Lien in favor of Agent, on
behalf of itself and Lenders, as additional collateral for the
Obligations, on the properties or other assets of such Obligor or
Subsidiary.
6.20 FINANCIAL COVENANTS. Obligors shall not breach or
fail to comply with any of the Financial Covenants set forth on
ANNEX G.
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6.21 NEW YORK STOCK EXCHANGE LISTING. Holdings shall not
at any time fail to be, or fail to be qualified to be, listed on the
New York Stock Exchange.
6.22 SPECIFIED MARGIN SHARES. Notwithstanding anything to the
contrary, no Obligor (other than Holdings) or any Subsidiary thereof
may own, legally or beneficially, any Specified Margin Shares and,
upon the sale or other disposition of any Specified Margin Shares by
Holdings, no Obligor (including Holdings) or any Subsidiary thereof
may at any time thereafter own, legally or beneficially, any of
those Specified Margin Shares which have been so sold or
transferred. Nothing contained herein shall be deemed to permit the
acquisition or disposition of any Stock."
(d) The proviso contained in clause (c) of Section 8.1 of the Credit
Agreement is deleted.
(e) Each reference to "$1,000,000" contained in clause (f) of
Section 8.1 of the Credit Agreement is replaced with a reference to
"$250,000".
(f) Each reference to "$500,000" contained in clause (i) of Section
8.1 of the Credit Agreement is replaced with a reference to "$250,000".
(g) Each reference to "forty-five (45)" contained in clause (i) of
Section 8.1 of the Credit Agreement is replaced with a reference to
"thirty (30)".
(h) Each reference to "forty-five (45)" contained in clause (j) of
Section 8.1 of the Credit Agreement is replaced with a reference to
"thirty (30)".
(i) Each reference to "$500,000" contained in clause (l) of Section
8.1 of the Credit Agreement is replaced with a reference to "$250,000".
(j) The reference to "60" contained in clause (m) of Section 8.1 of
the Credit Agreement is replaced with a reference to "30".
(k) The defined terms "Acceptable Haleko Credit Funding", "Funded
Debt", "Index Margin", "L/C Margin", "LIBOR Margin" and "Margin" are
deleted from Annex A of the Credit Agreement.
(l) The following defined term is inserted into Annex A of the
Credit Agreement in alphabetical order among the defined terms contained
therein:
""DOMESTIC WHOLLY-OWNED OBLIGOR" shall mean any Obligor (other
than International) formed under the laws of a jurisdiction located
within the continental United States, all of the outstanding Stock
of which is owned and controlled directly or indirectly by Holdings,
beneficially and as of record, with full voting and dispositive
power, and none of the outstanding Stock of which is owned or
controlled directly or indirectly by
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a Person formed under the laws of a jurisdiction located outside of
the continental United States."
(m) The defined term "Excluded Asset Sales" contained in Annex A of
the Credit Agreement is replaced with the following text:
""EXCLUDED ASSET SALES" shall mean the sale, transfer,
conveyance or other disposition of any assets or properties (i) to
any Domestic Wholly-Owned Obligor other than Holdings, (ii)
consisting of sales of Inventory in the ordinary course of business,
(iii) consisting of licensing of items of intellectual property in
the ordinary course of business, (iv) consisting of the sale and
leaseback of assets or properties, if permitted by the terms of the
Agreement, (v) consisting of sales of obsolete or redundant
Equipment or Fixtures not to exceed $500,000 in the aggregate in any
Fiscal Year, and (vi) consisting of the assignment for collection of
up to $250,000 of uncollectible Accounts each Fiscal Year."
(n) The last sentence of paragraph (a) of Annex B of the Credit
Agreement is replaced with the following sentence:
"It is further understood that Letter of Credit Obligations may be
incurred only by a Borrower on its own behalf and that all Letter of
Credit Obligations shall be guaranteed by Holdings pursuant to the
Guaranty."
(o) The text of subparagraph (d)(1) of Annex B of the Credit
Agreement is replaced with the following text:
"(1) Agent for the benefit of the Lenders, as compensation to the
Lenders for such Letter of Credit Obligation, (i) all costs and
expenses incurred by Agent or any Lender on account of such Letter
of Credit Obligation, (ii) commencing with the month in which such
Letter of Credit Obligation is incurred by the Lenders and monthly
thereafter for each month during which such Letter of Credit
Obligation shall remain outstanding, a fee in an amount equal to (A)
the maximum amount available from time to time to be drawn under the
applicable Letter of Credit multiplied by (B) a per annum rate of
(1) 3.50%, from June 24, 1999 through September 23, 1999, (2) 4.00%,
from September 24, 1999 through November 23, 1999, (3) 5.00%, from
November 24, 1999 through December 23, 1999 and (4) for each period
of thirty consecutive days thereafter, the margin in effect
immediately prior to such period PLUS an additional .25% (such that,
for example, the margin determined pursuant to this clause (4) will
be 5.25% as of December 24, 1999 and 5.50% as of January 24, 2000)."
(p) The text of paragraph (d) of Annex C of the Credit Agreement is
replaced with the following text:
"(d) So long as no Event of Default has occurred and is continuing
(i) Holdings may amend SCHEDULE 1.7 to add or replace a Lock Box or
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Obligor Account or replace the Concentration Account; PROVIDED,
HOWEVER, THAT (A) Agent shall have consented in writing to the
opening of such account with the relevant bank and (B) prior to the
time of the opening of such account or Lock Box, such bank and the
applicable Obligor and/or Subsidiary thereof shall have executed and
delivered to Agent a triparty blocked account agreement, in form and
substance satisfactory to Agent and (ii) Nutrition may invest
amounts maintained overnight in the Disbursement Account in
accordance with this Agreement in overnight deposits offered by the
financial institution at which the Disbursement Account is
maintained."
(q) The following text is inserted into paragraph (c) of Annex E of
the Credit Agreement immediately after the reference to "Fiscal Year"
contained therein:
"(except, ninety (90) days after the end of Fiscal Year 1999)"
(R) Annexes G and J to the Credit Agreement are respectively
replaced with Annexes G and J respectively attached as ANNEXES A and B
hereto.
(s) Schedules 3.10, 6.3 and 6.7 to the Credit Agreement are
respectively replaced with Schedules 3.10, 6.3 and 6.7 attached to ANNEX C
hereto.
(t) Schedules 6.11 and 6.14 attached to ANNEX C hereto are inserted
into the Credit Agreement in appropriate order among the Schedules
thereto.
3. REPRESENTATIONS AND WARRANTIES. As of the date hereof, 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 date hereof 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,
except to the extent enforceability is limited by
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bankruptcy, insolvency or similar laws affecting the rights of creditors
generally or by application of general principles of equity.
4. CONDITIONS PRECEDENT. This Amendment shall become effective as of 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) REVOLVING CREDIT NOTES. Revolving Credit Notes reflecting each
Revolving Credit Loan Commitment set forth on ANNEX A attached hereto,
duly executed by each Borrower.
(c) SCHEDULES. Schedules 3.10 (after giving effect to the
Restructuring), 6.3, 6.7, 6.11 and 6.14 to the Credit Agreement attached
to ANNEX C hereto.
(d) 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.
(e) 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.
(f) FEES, COSTS AND EXPENSES. Agent shall have received (at Agent's
option, by payment or as a charge against the Revolving Loan) (i) for the
ratable benefit of each Lender signatory to this Amendment, an amendment
fee of $287,500, which fee shall be fully earned as of the date hereof and
shall be non-refundable when paid, and (ii) all other fees, costs and
expenses, including reasonable attorneys' fees, due pursuant to the Loan
Documents, including as incurred by Agent in connection herewith.
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, amendment 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.
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.
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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 or otherwise payable 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.
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
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<PAGE>
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 Seventh 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: ______________________________
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GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By: ______________________________
Title: Duly Authorized Signatory
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FIRST UNION NATIONAL BANK, successor by
merger to Corestates Bank, N.A.
By: ______________________________
Title: ______________________________
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LASALLE BANK, NATIONAL ASSOCIATION,
successor to LaSalle National Bank
By: ______________________________
Title: ______________________________
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THE BANK OF NOVA SCOTIA
By: ______________________________
Title: ______________________________
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BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
By: ______________________________
Title: ______________________________
By: ______________________________
Title: ______________________________
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DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: ______________________________
Title: ______________________________
By: ______________________________
Title: ______________________________
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ZIONS FIRST NATIONAL BANK
By: ______________________________
Title: ______________________________
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Annex A
ANNEX G (SECTION 6.20)
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
FINANCIAL COVENANTS
Holdings shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied:
(a) MAXIMUM CAPITAL EXPENDITURES. Holdings, on a consolidated basis,
shall not make Capital Expenditures during any fiscal period described
below that exceed the amount set forth opposite such fiscal period:
FISCAL PERIOD AMOUNT
------------- ------
Fiscal Year 1999 $ 11,900,000
Three month period ended August 31, 1999 $ 2,000,000
Six month period ended November 30, 1999 $ 4,000,000
Nine month period ended February 29, 2000 $ 5,500,000
(b) MINIMUM NET WORTH. Holdings, on a consolidated basis, shall
maintain at all times Net Worth equal to or greater than $90,000,000.
(c) MINIMUM INTEREST COVERAGE RATIO. Holdings, on a consolidated
basis, shall have at the end of each Fiscal Quarter described below a
ratio of (i) the sum of (A) EBITDA LESS (B) Capital Expenditures LESS (C)
taxes paid in cash to (ii) Gross Interest Charges, in the case of (i) the
Fiscal Quarter ending August 31, 1999, for the three month period then
ended, (ii) the Fiscal Quarter ending November 30, 1999, for the six month
period then ended and (iii) the Fiscal Quarter ending February 29, 2000,
for the nine month period then ended, equal to or greater than the ratio
set forth opposite such Fiscal Quarter:
FISCAL QUARTER RATIO
-------------- -----
Fiscal Quarter ending August 31, 1999 1.15 to 1.00
Fiscal Quarter ending November 30, 1999 1.45 to 1.00
Fiscal Quarter ending February 29, 2000 1.70 to 1.00
(d) MINIMUM EBITDA. Holdings, on a consolidated basis, shall have at
the end of each Fiscal Quarter described below EBITDA, in the case of (i)
the Fiscal Quarter ending May 31, 1999, for the 12 month period then
ended, (ii) the Fiscal Quarter ending August 31, 1999, for the three month
period then ended, (iii) the Fiscal Quarter ending November 30, 1999, for
the six month period then ended and (iv) the Fiscal Quarter
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ending February 29, 2000, for the nine month period then ended, equal to
or greater than the amount set forth opposite such Fiscal Quarter:
FISCAL QUARTER AMOUNT
Fiscal Quarter ending May 31, 1999 $12,400,000
Fiscal Quarter ending August 31, 1999 $ 5,600,000
Fiscal Quarter ending November 30, 1999 $12,900,000
Fiscal Quarter ending February 29, 2000 $22,000,000
Solely for purposes of determining compliance with this Annex G, EBITDA as
of (A) the Fiscal Quarter ending May 31, 1999 shall be increased by an
amount equal to the amount of actual write-offs taken by Holdings as a
result of what is commonly referred to by Holdings as its "SKU reduction
program" (the "Program") during the 12 month period then ended in excess
of the amount of projected write-offs to be taken by Holdings as a result
of the Program reflected in the most recent Projections received by Agent
for such period, which excess amount is identified in a writing acceptable
and delivered to Agent along with the Financial Statements for such Fiscal
Quarter, (B) the Fiscal Quarter ending August 31, 1999 shall be increased
by an amount equal to the lesser of $700,000 and the amount of actual
write-offs taken by Holdings as a result of the Program during the three
month period then ended in excess of the amount of projected write-offs to
be taken by Holdings as a result of the Program reflected in the most
recent Projections received by Agent for such period, which excess amount
is identified in a writing acceptable and delivered to Agent along with
the Financial Statements for such Fiscal Quarter, (C) the period of two
consecutive Fiscal Quarters ending November 30, 1999 shall be increased by
an amount equal to the lesser of $1,400,000 and the amount of actual
write-offs taken by Holdings as a result of the Program during the six
month period then ended in excess of the amount of projected write-offs to
be taken by Holdings as a result of the Program reflected in the most
recent Projections received by Agent for such period, which excess amount
is identified in a writing acceptable and delivered to Agent along with
the Financial Statements for such Fiscal Quarter and (D) the period of
three consecutive Fiscal Quarters ending February 29, 2000 shall be
increased by an amount equal to the lesser of $2,100,000 and the amount of
actual write-offs taken by Holdings as a result of the Program during the
nine month period then ended in excess of the amount of projected
write-offs to be taken by Holdings as a result of the Program reflected in
the most recent Projections received by Agent for such period, which
excess amount is identified in a writing acceptable and delivered to Agent
along with the Financial Statements for such Fiscal Quarter; PROVIDED
that, in any event, (a) all write-offs projected to be taken by Holdings
as a result of the Program shall be reflected separately from all other
losses and write-offs in all Projections, Financial Statements and other
relevant information delivered to Agent and/or Lenders and (b) EBITDA
shall not be increased pursuant to this paragraph by more than $2,500,000
in the aggregate. In addition to the foregoing and as an additional
covenant of this Annex G, the amount of actual write-offs taken by
Holdings as a result of the Program during Fiscal Year 1999 and the first
three Fiscal Quarters of Fiscal Year 2000 shall not exceed $5,500,000 in
the aggregate.
-27-
<PAGE>
Annex B
ANNEX J
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
COMMITMENTS
Revolving Credit
LENDER LOAN COMMITMENT PERCENTAGE
- ------ --------------- -----------
General Electric Capital Corporation ......... $ 38,525,000.00 33.50%
First Union National Bank .................... $ 19,837,500.00 17.25%
LaSalle Bank, N.A ............................ $ 19,837,500.00 17.25%
The Bank of Nova Scotia ...................... $ 9,200,000.00 8.00%
Bank Austria Creditanstalt ................... $ 9,200,000.00 8.00%
Corporate Finance, Inc.
Dresdner Bank AG, New York and ............... $ 9,200,000.00 8.00%
Grand Cayman Branches
Zions First National Bank .................... $ 9,200,000.00 8.00%
--------------- -----------
Total: ....................................... $115,000,000.00 100.00%
=============== ===========
-28-
<PAGE>
Annex C
Schedules 3.10, 6.3, 6.7, 6.11 and 6.14
to the Third Amended and Restated Credit Agreement
[to be attached by Obligors]
-29-
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
BRUCE J. WOOD
PARTIES
This Employment Agreement (this "Agreement") effective as of June
___, 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 Bruce J. Wood residing at
501 Stonegate Lane, Winston-Salem, NC 27104 ("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
<PAGE>
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
2
<PAGE>
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 the Effective Date 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
<PAGE>
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. 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
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 period ending on the last day of the Company's fiscal
year ending in 2000, Executive's actual Annual Bonus shall not be less than 100%
of his Base Salary actually paid in such fiscal year. 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:
(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) 100,000 Options shall become exercisable in
equal installments upon the second and third 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.
4
<PAGE>
(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.
5
<PAGE>
3.4. RELOCATION.
(a) Executive shall promptly sell his principal
residence in North Carolina (the "Residence") in a commercially reasonable
manner. Upon Executive's furnishing to Company adequate documentation of
the amount of his tax basis in the Residence and the proceeds realized
upon its sale the Company shall reimburse (the "Loss Reimbursement")
Executive for the first $100,000 of any excess of the tax basis over the
proceeds and 50% of any remaining excess. Upon furnishing of adequate
documentation, the Company shall also reimburse Executive for any income
taxes he is required to pay by reason of the Loss Reimbursement.
(b) Upon furnishing of adequate documentation, the
Company shall reimburse Executive for up to $25,000 in reasonable
relocation expenses in connection with relocating his household to the
Salt Lake City area.
3.6. OTHER BENEFITS. Executive shall be entitled, during the
Employment Period, to participate, in any life insurance, disability insurance,
health insurance or hospital plans or other fringe benefits or benefit plans
presently in effect and hereafter maintained by the Company for executives
generally. Executive shall also be entitled to an automobile allowance in the
amount of $800 per month.
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.
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:
6
<PAGE>
(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
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).
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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 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,
10
<PAGE>
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.
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 -----------------------------------
- ------------------------------------- --------------------------------------
11
EXHIBIT 21
SUBSIDIARIES OF WEIDER NUTRITION INTERNATIONAL, INC.
<TABLE>
<CAPTION>
ENTITY NAME STATE OF INCORPORATION PARENT CORPORATION
----------- ---------------------- ------------------
<S> <C> <C>
Weider Nutrition Group, Inc. Utah Weider Nutrition International, Inc.
WNG Holdings (International) Ltd. Nevada Weider Nutrition Group, Inc.
Weider Nutrition Group (Canada) Ltd. Canada (Nova Scotia) WNG Holdings (International) Ltd.
Weider Nutrition (WNI) Ltd. United Kingdom (England) WNG Holdings (International) Ltd.
Weider Nutrition Group Limited United Kingdom (England) Weider Nutrition (WNI) Ltd.
Weider Nutrition BV Netherlands Weider Nutrition (WNI) Ltd.
Weider Nutrition Limited United Kingdom (England) Weider Nutrition BV
Weider Fitness SARL France Weider Nutrition BV
Weider Nutrition SL Spain Weider Nutrition BV
Weider Nutrition Italia SrL Italy Weider Nutrition BV
Weider Nutrition GmbH Germany Weider Nutrition BV
Aktivkost GmbH Germany Weider Nutrition GmbH
Food-Tech Handelsgesellschaft mbH Germany Weider Nutrition GmbH
HPH Hamburger Pharma Handelsgesellschaft mbH Germany Weider Nutrition GmbH
Haleko Management GmbH Germany Weider Nutrition GmbH
Haleko Hanseatisches Lebensmittelkontor OHG Germany Weider Nutrition GmbH (99%) &
Haleko Management GmbH (1%)
Power Gym Ltd. United Kingdom (England) Haleko Hanseatisches Lebensmittelkontor OHG
Haleko Italia SrL Italy Haleko Hanseatisches Lebensmittelkontor OHG (50%)
Sy-Fra Sportalimenti di Frank Sambo & Co. SAS Italy Haleko Hanseatisches Lebensmittelkontor OHG (50%)
Sports Direct Ltd. United Kingdom (England) Power Gym Ltd. (50%)
</TABLE>
<PAGE>
WEIDER NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO ADDITIONS
BEGINNING COSTS/ VIA BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACQUISITION DEDUCTIONS END OF YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
1997 ....................... $ 137 $ 151 $ -- $ (76) $ 212
----------- ----------- ----------- ----------- -----------
1998 ....................... $ 212 $ 273 $ -- $ (194) $ 291
----------- ----------- ----------- ----------- -----------
1999 ....................... $ 291 $ 1,094 $ 977 $ (134) $ 2,228
----------- ----------- ----------- ----------- -----------
SALES RETURNS AND
ALLOWANCES:
1997 ....................... $ 1,218 $ 10,126 $ -- $ (10,356) $ 988
----------- ----------- ----------- ----------- -----------
1998 ....................... $ 988 $ 15,396 $ -- $ (14,734) $ 1,650
----------- ----------- ----------- ----------- -----------
1999 ....................... $ 1,650 $ 23,048 $ 196 $ (21,068) $ 3,826
----------- ----------- ----------- ----------- -----------
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-27973 of Weider Nutrition International, Inc. on Form S-8 of our
report dated August 13, 1999, appearing in this Annual Report on Form 10-K of
Weider Nutrition International, Inc. for the year ended May 31, 1999.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of Weider
Nutrition International, Inc., listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
August 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WEIDER NUTRITION INTERNATIONAL, INC. AS OF,
AND FOR THE YEAR ENDING MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL
REPORT ON FORM 10-K OF WEIDER NUTRITION INTERNATIONAL, INC.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,926
<SECURITIES> 0
<RECEIVABLES> 61,752
<ALLOWANCES> 2,228
<INVENTORY> 63,658
<CURRENT-ASSETS> 138,207
<PP&E> 66,642
<DEPRECIATION> 17,770
<TOTAL-ASSETS> 256,029
<CURRENT-LIABILITIES> 157,860
<BONDS> 4,723
0
0
<COMMON> 250
<OTHER-SE> 91,530
<TOTAL-LIABILITY-AND-EQUITY> 256,029
<SALES> 335,488
<TOTAL-REVENUES> 335,488
<CGS> 221,062
<TOTAL-COSTS> 221,062
<OTHER-EXPENSES> 118,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,179
<INCOME-PRETAX> (14,017)
<INCOME-TAX> (5,239)
<INCOME-CONTINUING> (8,778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,778)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
</TABLE>
